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06.06.10

Obama's Depression-Era Politics

Like Roosevelt, Obama inherited an economic mess. But the president is making a bad situation worse. Charles Gasparino on echoes from the past.

In between his meek response to the oil spill fiasco and his lame attempt to talk his way out of the Joe Sestak pseudo-bribery scandal, President Obama on Friday probably thought he had something cool to talk about: the economy.

People are still hurting, the president conceded, but look on the bright side: Unemployment has fallen two whole percentage points to 9.7 percent, and the economy is getting stronger, with three consecutive quarters of positive GDP growth.

His stimulus package was supposed to produce shovel-ready jobs that would repair our infrastructure much like the various public-works programs instituted by Hoover and Roosevelt. But instead of spending the money on building roads and bridges, states have hoarded much of the stimulus cash to keep their own workforces fat and happy.

To borrow a phrase: “Prosperity is right around the corner.”

The now-infamous line from Herbert Hoover should be ringing in the ears of the president—and voters as well. Hoover may not have caused the stock market crash of 1929, but many of his policies turned the economic downturn that followed into what we now know as the Great Depression: restrictive trade policies and tax increases (in part to pay for government-sponsored work projects) to name just a few. It took Franklin Roosevelt nearly a decade to pull the nation’s economy back from the dead, largely because he followed many of the same failed policies introduced by Hoover, and added several bad policies of his own. Taxes went up, while the government began socializing even bigger parts of the economy.

If you look back at those years, you will see mini recoveries in GDP, and rallies in the stock market. You will also see something else: persistent and staggeringly high unemployment. The one thing that made the Great Depression so devastating was that people were out of work for long periods of time, even as the stock market (that supposed barometer of future economic growth) went up, and the government tried to right things through the implementation of massive works programs.

But the unprecedented meddling of government came at a price: Businesses faced an uncertain future, so they simply refused to hire more workers, and job losses continued to mount. It took an unfortunate hiring binge—World War II—to put people back to work and bring the Great Depression to an end.

I’m not saying we are headed for a replay of the 1930s—read up on the history of economic booms and busts, and you’ll see they’re different in their own way—but there are disturbing similarities: Buried in those wonderful economic numbers, which the president touted on Friday, was the fact that almost all of the job growth was a function of the government’s hire of temporary census workers, rather than businesses beginning to hire again. After a period of improvement, private-sector job creation has almost ceased. Even worse, “the real” unemployment rate (which doesn’t count people looking for jobs) is rising above 17 percent, depending on the survey, which means that more people are simply dropping out of the workforce. Finally, a 9.7 percent unemployment rate is nothing to brag about, particularly when you have the Fed pumping massive amounts of money into the economy with near-zero percent interest-rate policy.

Of course, the president didn’t create the economic mess we’re in. Much like Roosevelt before him, he inherited it, giving George W. Bush the dubious honor of rivaling Hoover as one of the worst presidents on record. Yet, like Roosevelt, Obama is making a bad situation a hell of a lot worse—and that’s a far bigger scandal than offering Sestak a job to go away.

And that’s what the stock market told us on Friday. Surely, there were several reasons why the Dow, which has risen now for more than a year, dropped more than 300 points, including the spreading European banking crisis that has investors scared. But if investors tried to look to the U.S. as a safe haven, here is what they saw: The president’s stimulus package wasn’t working. We were promised an 8.5 percent unemployment rate if we spent $800 billion but instead got an unemployment rate closer to 10 percent. Furthermore, we had a meandering debate about health care that came to mean massive new entitlements, higher taxes on energy and small businesses as well as new programs designed to create "green jobs" at the expense of ones that actually put people to work.

His stimulus package was supposed to produce shovel-ready jobs that would repair our infrastructure much like the various public-works programs instituted by Hoover and Roosevelt. But instead of spending the money on building roads and bridges, states have hoarded much of the stimulus cash to keep their own workforces fat and happy. While the construction industry suffers 20 percent unemployment, state and local governments are keeping employment at the DMV just humming along.

It should come as no surprise that unemployment is alarmingly high just about everywhere—except in government and on Wall Street, the recipient of government bailouts, which is yet another reason why investors are getting antsy and stocks are starting to slide.

Probably the most frightening thing about our president is that if he knows anything about economics, he doesn’t show it. He promised hope and change, but brought 1930s economic remedies that are producing similar results. Taxes on the rich are a good thing, he assures us, no matter how anemic our recovery; more borrowing will make us better, he says, even if we are morphing into Greece, with its massive deficits, and massive government workforce.

And Obama doesn’t appear to be listening to those in his Cabinet with economic knowledge. Chief economic adviser Larry Summers and Treasury Secretary Tim Geithner have been cut out of the debate on Wall Street reform. According to people in Washington, Summers is barely heard from or consulted these days when it comes to financial reform—or anything else for that matter. “He’s MIA,” a lobbyist told me the other day. Maybe that’s the reason he’s also been telling his buddies on Wall Street that this year might be his last with the administration.

In the last election, several Republicans I know jumped party lines to vote for Obama because they believed that Mr. Hope and Change was somehow different, smart and driven enough to put aside ideology to do what’s right for the country. What they (and many independents) are finding out, however, is that President Obama isn’t hope and change but a throwback to a different era—a time when unemployment remained high yet the president talked an optimistic game and “prosperity was just around the corner.”

Charlie Gasparino is a senior correspondent for Fox Business Network. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis, The Sellout, was published by HarperBusiness.