Come on, admit it: It’s fun to say, “I told you so.”
Unfortunately, there are times when you wish that you were not able to do so. For me, as a free-market economist, that’s been the case with the economy for more than four-and-a-half years now.
Of course, a Nobel Prize in economics wasn’t necessary to understand that the government bailouts passed by Congress (including a “yes” vote from then-Senator Barack Obama) and signed by President George W. Bush in late 2008, and the massive government spending measure, billed as “stimulus,” passed by Congress and signed by President Barack Obama in early 2009 were going to deepen and extend our economic mess at the time.
All that was needed was a sound, basic understanding of economics. I penned several columns from September 2008 into 2009, for example, making clear that an agenda of massive increases in government spending and regulation, taxpayer-funded bailouts, and loose money would be bad for the economy.
A February 2009 column summed up: “Think about strolling into a casino with about $800 billion of other people’s money. That’s basically what politicians have done with this stimulus package. Throw in another trillion or so dollars being bet on bailouts for certain firms in the finance and automobile industries. This is gambling at its most irresponsible. The dice are being rolled on our economy, and the odds are not in our favor.”
But late 2008 and 2009 were not moments of economic clarity or sobriety. Panicking politicians shouted that the sky was falling, backed up by financiers and executives seeking big bailouts. And Keynesian economists dusted off their bankrupt theories that huge, hyperactive government can solve our troubles.
The result? After one of the deepest recessions since the Great Depression, we’ve experienced one of the worst economic recoveries on record.
During periods of recovery/growth, based on post-World War II data, real GDP should be growing in the 4.0-4.5 percent range. Factor in periods of recession, and we still grew at 3.3 percent on average.
But during this inept recovery that officially began in mid-2009, real growth has averaged a mere 2.4 percent, including 2.2 percent in the first quarter of 2012. Factor in the recession, and the economy in the first quarter of 2012 was basically the same size as it was in 2007’s fourth quarter. That’s pathetic and depressing.
But even with an obvious I-told-you-so moment, many choose to ignore reality. The Obama Treasury Department, including in an April 13 entry on its “Treasury Notes” blog, has been saying that the bailouts and stimulus worked fine, saving us from a worse fate. That’s preposterous given the evidence, but many will accept such wild assertions, not letting economic reality upset their political biases.
For good measure, the Treasury Department has asserted that taxpayers will make money on the bailouts. As Tim Massad, assistant treasury secretary, put it, “the latest available estimates indicate that the financial stability programs are likely to result in an overall positive financial return for taxpayers in terms of direct fiscal cost.”
This assertion is directly refuted in the latest quarterly report (April 25) to Congress from the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). As noted in the report: “It is a widely held misconception that TARP will make a profit. The most recent cost estimate for TARP is a loss of $60 billion. Taxpayers are still owed $118.5 billion (including $14 billion written off or otherwise lost).”
But that’s just TARP. The separate bailouts of Freddie Mac and Fannie Mae also must be considered. According to Pro Publica, “The total amount invested in Fannie and Freddie so far is $187 billion. They have returned none of the money invested so far — and might never do so.”
There are additional costs and risks in the mix as well. For example, as noted in the SIGTARP report: “A significant legacy of TARP is increased moral hazard and potentially disastrous consequences associated with institutions deemed ‘too big to fail.’ … A recent working paper from Federal Reserve economists confirms that TARP encouraged high-risk behavior by insulating the risk takers from the consequences of failure — which is known as moral hazard.” Again, the moral hazard question was noted by many of us during the bailout debate.
For good measure, SIGTARP pointed out that TARP was designed “to increase lending to U.S. consumers and businesses,” yet “the largest banks that received TARP funds did not increase their lending.” Whoops!
And then there is the unsavory activity that comes whenever government spends large amounts of other people’s money. SIGTARP reported: “One enduring legacy of TARP is criminal activity associated with the program… SIGTARP has over 150 investigations underway related to TARP. With hundreds of billions of dollars going out the door quickly, it should be no surprise that there would be unscrupulous individuals who would seek to steal it, exploit it, or otherwise use TARP for their own personal gain.” Gee, ya think?
Free market economics teaches that big government and bailing out failed businesses cause real harm. Those lessons allow many economists, including myself, to say, unfortunately, “I told you so.” Will politicians ever learn?
Raymond J. Keating is the chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.