Obama and the Great Depression

The most important, major project President Obama should address is not health care reform; it’s the U.S. economy.

Barack Obama’s most important domestic achievement so far has been health care reform; new regulations on finance have already been judged “too weak” by the non-banking sector. As important as health insurance was for millions of uninsured Americans, it’s apparent that Obama went after this major project at the wrong time.

The real problem is certainly the structural condition of the American economy. The Fed just announced that despite large injections of government money and low interest rates, the economy isn’t expected to improve appreciably nor is the unemployment rate expected to fall any time soon. Conventional wisdom would call for further massive injections of stimulus capital and further purchase of near worthless debt by the Federal Reserve, which is something that amounts to financing by printing more money. This solution has been suggested by Nobel Prize-winning economist Paul Krugman, whose warnings about a really serious depression along the lines of the Great Depression of the 1930s appear more and more likely by the day.

On the other hand, there are (mainly European) experts who already characterize the U.S. as having a “Mickey Mouse” economy with a debt level similar to Russia’s just before that country went bankrupt in 1998.

No matter how one cares to characterize the status of a superpower whose liquidity is dependent upon China’s willingness to assiduously buy up its debt, there’s no denying that the United States has been undergoing a process of de-industrialization for years. Even relatively simple manufacturing has migrated toward Asia, and nothing has taken its place despite America’s technological prowess. Incomes are stagnating, the middle class is in decline and unemployment is firmly entrenched.

That’s the problem Obama needs to address. The United States is losing its industrial base, and the attempt to recoup the lost income in the financial sector led to the economic crash of 2007 and 2008. The solution most likely lies in a new investment push: On the one hand, in the crumbling American infrastructure and, on the other, in environmental technology.

Liberal columnists like Krugman and Thomas Friedman, both of The New York Times, accuse Obama of failing to embrace this paradigm shift. The Republicans, naturally, mount opposition in Congress wherever possible. But even here, Obama must take the blame for hanging on to a policy of bi-partisanship much too long instead of realizing and loudly objecting that the Republicans have been acting totally irresponsibly.

But Europe has little reason to feel any better than America. Here, only the social state has functioned as an automatic stabilizing force; it takes a lot longer here for an unemployed person to “fall into the abyss” than it does in America. The migration of jobs toward the East is happening here as well. But the truth is, the average European employee is now, and always has been, better off than his American counterpart. Wealth is more equally distributed here than it is in the United States, and while reaction time to the crisis may take longer, the fall is less precipitous. Europe and the U.S. may have similar structural problems, but they appear more rapidly and dramatically in America. And one man, President Obama, will be held responsible for that.