Tom Ferguson: Obama’s Economic Policies Failed Posted on November 1, 2010 by Yves Smith Tom Ferguson, who is refreshingly blunt, gives his dim view of the Obama Administration economic policies. But be warned, he doesn’t like the Republican proposals either. From the Real News Network: More at The Real News Post navigation ← Guest Post: Washington Post Idiocy: Calls for War With Iran to Save America’s Economy Mirabile Dictu! Debt Collection Robo Signers Make Bank Foreclosure Robo Signers Look Good → Subscribe to Post Comments 26 comments paper mac November 1, 2010 at 1:42 am Excellent interview, I found Ferguson’s sign-on and sign-offs hilariously curt as well. Francois T November 1, 2010 at 2:03 am I love this guy; pulls no punches, don’t mince his words and does not tolerate nonsense. When are we going to see this excellent gentleman interviewed on 60 Minutes or Rachel Maddow? Oh wait! killben November 1, 2010 at 2:39 am Spot on! It does not matter whether it is a democratic or republican proposal. The proposal will have one thing in common .. how to save the elites .. rest all can just shove it up! Glen November 1, 2010 at 2:45 am Good analysis. Ugly but true. We’re all going to pay with another road trip from hell through governing incompetence brought to you by a resurgent Republican party. Obama may talk tough about the Republicans driving the car into the ditch, but he gave the keys right back to the TBTF Wall St banksters after buying them a new car with the taxpayers money. And now he’s going to give the second set of keys to the Republicans. This is not change you can believe in. ella November 1, 2010 at 8:16 am Can’t wait for the Charge and Spend crowd to return to power. The national debt under their regime almost doubled. Bush added almost 5 Trillion. Oh and the jobs he created… 3+ million. The worst is modern history. Another failure of supply side economics. But they are so good at creating wealth for their base and wars. They have no plan to pay for their folly. No job is safe from their push to out source or bring in new visa workers to dumb down the wages of working Americans. rkka November 1, 2010 at 8:18 am And yet, he is still delusional. He thinks he will be able to work with rethuglicans if there are more of them. Down the line, Barack got the legislation he wanted, the precise way he wanted it, just not the legislation Democrats elected him to do. And what he wanted, and got, has failed. The past two years have been a test of the Democratic Party. They were give the Presidency in a landslide. They were given 60 votes in the Senate. They were given a huge majority in the House. Compare how much of the “Democratic” agenda they accomplished with what rethuglicans got with 50 Senate votes plus “Deadeye Dick” Cheney. Barack had the best opportunity in my adult life (50 years) to reverse 40 years erosion of economic and civil rights, and he didn’t even try. Barack paid more attention to Olympia Snowe than he did to the Democratic base, and she stiffed him down the line. He fully deserves what will happen over the next two years if the rethuglicans take over one of the Houses of Congress, which is endless investigation leading to impeachment proceedings. Not because he’s guilty, but because he’s stupid. I do feel sorry for all the innocent staffers whose finances and lives will be ruined by legal bills though. They had better “lawyer-up”. Justicia November 1, 2010 at 10:21 am The Democratic Party is a fiction. There were the 54 Dirty Dogs in the House who voted with the Republicans and there were only 58 nominal Senate Democrats (Sanders is independent and Lieberman is a stealth Republican) — many of whom wouldn’t support progressive legislation. Gone are the days of party discipline enforced through money and the electoral machine. Money now flows (abundantly) into the coffers of the politicians, whatever their label, who do the bidding of the Koch brothers and other oligarchs. And, as Obama showed, with enough money candidates can build their own electoral machine. Doug Terpstra November 1, 2010 at 1:49 pm You certainly exposed the farcical hypocrisy of the filibuster excuse. Obviously, partisan gridlock is by design and the Roman Senate now produces only bread and circuses for the masses, and virtual coliseum games are played as “revenge of the drones” in Pakistan, Afghanistan, Iraq, Yemen, and soon, Iran. My only quibble is with your statement about Obama being delusional and would edit your conclusion thusly: “He [knows!] he will be able to work with rethuglicans if there are more of them.” This is Yves’ “briar patch” strategy: “change” in Congress is already factored in to the the plot to “reform” Social Security and Medicare, for which Br’er Obama’s HC bill with its mandates was only a Trojan horse prelude. Recall that under Gingrich’s thorny thicket in 1994, Clinton was able to actively “reform” welfare, pass NAFTA, deregulate finance, repeal Glass Steagall, and still win popular reelection under the bogus distraction of a sex scandal. His was a stunning consolidation of voodoo reaganomics, nothing less than a stealth coup d’état achieved by a wolf in sheep’s clothing. This set us up directly for the trauma of the shock doctrine we are experiencing today. Justicia is right, the Democratic Party is a fiction, and as Chris Hedges said, the liberal class is dead. It’s going to get very “interesting”. Skippy November 1, 2010 at 7:11 pm Bipartisanship is on the winds…ha functioning government here we come, replete with intertwined orgasmic late night sub[committee doing it in every room in da (white) house part’ay. Skippy…ummm how many virgins will they sacrifice. East Coast Cynic November 1, 2010 at 10:19 am Imo, these weren’t really the economic policies of Obama as much as those of Rubin and Summers. He was just the salesman. Justicia November 1, 2010 at 10:23 am Totally true. “No matter how cynical I get, I can’t keep up.” — Lily Tomlin Albert November 2, 2010 at 1:05 pm Are you really saying Obama isn’t responsible for the policies of the staff he appointed to develop his policies? … F. Beard November 1, 2010 at 12:12 pm Here’s what you do Mr. Prez, buy the election by doing the right thing. Since you are intent on being Bush II, do what he did and send a check to every US adult ONLY this time let it be big enough to do some real good, eliminate debt. If interested, get the NSA to hunt up my previous comments, I am tired of spelling out what should be done. Siggy November 1, 2010 at 12:23 pm Yves, A nice engaging 10 minutes that. That you. Keating Willcox November 1, 2010 at 12:32 pm This is the future – anyone connected to the stimulus and TBTF will be scorned and mocked. Our hero will not be Roosevelt or Paul K. these guys are morons and thugs. Our heroes will be Chretian and Paul Martin, our model will be Canada in the 90’s, and our country will be saved by conservative Republicans that can see this recent success as well as the US success in 1920, and restore the US from this national misery of thug socialism and crony capitalism. Who’d have thought a country with a national dish composed of French fries covered in cheese curd and gravy — they call it poutine — could ever become so popular. That’s even before you consider its long winters or Celine Dion. And yet, there it is. Suddenly everyone wants to know about Canada. Specifically about Canadian government finances during the 1990s. U.K. Chancellor of the Exchequer George Osborne is only the latest in a line of treasury ministers wondering how he might be able to reproduce the Canadian economic miracle at home. And what a miracle it was. Taking over as finance minister in 1993, Paul Martin inherited a looming disaster. The government was running a deficit worth 6.6% of GDP. By the following year, gross government debt had hit 101% of GDP, while net debt was over 70%, even as GDP registered a strong rebound–it grew 4.8% in 1994–from the recession of the early 1990s. His 1995 budget planted a flag in the sand. “Come hell or high water,” Martin said, he would get the budget under control. To that end, he spelled out a program of massive spending cuts. He reduced welfare and other entitlements drastically. He squeezed every possible program and government transfer, even foreign aid. Between 1994 and 1996, he slashed government program spending to C$104.8 billion from C$118.7 billion, some 15% once inflation is factored in. By the end of 1997, the government’s deficit had become a surplus, a 6.8 percentage point turnaround in three years. To be sure, the initial effort was painful. GDP grew a minuscule 1.6% in 1996 and even teetered on the edge of recession. There was, though, a deeper shock. The full-service welfare state had come to define Canada to Canadians and everyone else. It was the Scandinavian model on the United States’ doorstep. Canadians were enormously proud of it. And it was gone. Sure, medicine mostly remained socialized. Government services were still considerably better than in many other developed countries. But unemployment and other welfare programs had shrunk to the emergency measures they were meant to be, rather than the way of life they had become. Martin’s legacy was to shrink the state and the state’s role in the Canadian economy to the smallest it had been since the second world war. It was a revolution the likes of which the British are now contemplating. Is Canada’s success transferable, though? This isn’t so clear. Britain, like the rest of Europe and, some argue, the U.S., needs to restructure and pare back its entitlements. Many Canadians have spent the past 15 years complaining about the destruction of government services, pointing to the thriving welfare states across the Atlantic. But as has become painfully obvious, Europe’s welfare system is as unsustainable as Canada’s was, only they managed to avoid doing anything about it for a long time. That’s about to change. Governments will have to shrink considerably on the European side of the Atlantic as well. Unfortunately for the Europeans, though, the global environment is considerably different from the one Canada faced in the mid-1990s. The global economy was expanding strongly. By devaluing its already weak currency, Canada bought itself a significant slice of that growth. In mid-1995, one U.S. dollar bought around C$1.35. Three years later one U.S. dollar bought nearly C$1.60. The two are at near parity now, by the way. Canada went from a current account deficit running at 3.9% of GDP in 1993 to a small surplus by 1996 and then significant and sizeable surpluses from 2000 onward. GDP grew by between 4% and 5.5% from 1997 to 2000 before the U.S.’s 2001 recession brought that back down to under 2%. The U.S. consumer was the world’s engine of growth and nowhere was that engine more appreciated than north of the border. This helped to boost revenue growth massively without the necessity for a huge squeeze on taxes–nominal revenue growth surged 14% over two years by 1996 and was up 35% (including inflation) by the end of the decade. But with all economies now looking to exports for growth — and the U.S. consumer flagging after the economy suffered its deepest downturn since the Great Depression — the process Canada went through with such alacrity is likely to be much slower and considerably more painful for countries needing to do it now. That’s not even to touch on demographics–immigration has tended to keep Canada’s population young and growing, as opposed to ageing Europe–or Europeans’ lack of a safety valve in having a vibrant U.S. economy on their doorstep. Not only did Canada’s southern neighbor buy Canadian products during the late 1990s, but Canadians could often escape high levels of joblessness at home by working over the border. Finally, Canada was cutting its spending during an era of booming leverage. Private sector and corporate debt growth helped to mitigate government austerity. Governments now, however, are having to shrink their spending as everyone else also seeks to pare back debt. In other words, Canada might have shown European countries where they need to go, but the route they’ll be taking to get there is going to be much, much more painful. What can the UK learn from Canada’s budget cuts? By Will Smale Business reporter, BBC News Chretien’s spending cuts did not spare health and education Canada may be better known for its brightly-attired policemen and love of ice hockey, but its example of successful budget-cutting is suddenly all the rage with the UK government. As Prime Minister David Cameron warns of the need for extensive spending cuts to bring down the UK’s substantial public deficit, the Conservative-Liberal Democrat coalition is aiming to follow the achievement of the Canadian government between 1993 and 1996. During those four years, the then Canadian administration of prime minister Jean Chretien managed to turn a deficit of 9.1% or 39bn Canadian dollars ($37bn; £25bn) into a small budget surplus. While the UK government faces a tougher challenge – a deficit of 11.5% or £156bn – what lessons can it learn from Canada? MAKE SURE THE GENERAL PUBLIC IS ON BOARD Canadian economists say the first success of Mr Chretien’s government was to secure widespread public support for what would be deep and painful spending cuts. It is preferable to move expeditiously, it creates hope at the end of the tunnel” Jocelyne Bourgon Former cabinet secretary for the Canadian civil service Scott Reid, a former adviser to the Canadian government, told the BBC’s Today programme that the administration was greatly helped by the widespread coverage given to a story in the Wall Street Journal that described Canada as a “Third World banana republic”. Given most Canadians’ dislike of all things American (think sibling rivalry), this insult by a US newspaper was enough to make them realise they had to get their national finances in order, whatever the misery along the way. The Canadian government then pledged that cuts would be fairly distributed across the country’s provinces and territories, and in all sectors of society. Barring a similar scenario in which a damning French newspaper editorial makes the UK headlines, Mr Cameron is going to have to continue with a more straightforward public relations campaign to explain why it is vital that the UK cuts its deficit. If this is successful will depend on whether the British public’s response to deep spending cuts is stoically Canadian, or riotously Greek. NOTHING IS OUT OF BOUNDS The Canadian government determined from the start that no departmental budget would be protected from spending cuts. Canada appears as good at spending cuts as it is at ice hockey Mr Chretien used the phrase “nothing off the table”. By contrast, Mr Cameron has already pledged to ring-fence the education, health and international aid budgets. With extensive cuts to healthcare and education spending at the very centre of Canada’s deficit reduction work, many Canadian economists argue that it could not have been successful if they had been excluded. The impact was, however, severe. The length of hospital waiting lists shot up, thousands of nurses lost their jobs and some hospitals even had to close. The hospitals that remained open suffered from overcrowding and infection rates rose as a result. In schools, average class sizes shot up from 25 children to 35, as fewer new teachers were taken on. And separate special needs classes were abolished. In the UK, many people may moan about the treatment they get from the National Health Service, but at the same time, it is not an exaggeration to say it is a much-loved and strongly defended institution. It would take a very brave or even foolhardy UK government to cut health spending – and the same goes for the education budget. MOVE QUICKLY If you are doing something deeply unpleasant, then do it quickly – that was the argument of the Canadian government. “It is preferable to move expeditiously, it creates hope at the end of the tunnel,” said Jocelyne Bourgon, the then cabinet secretary for the Canadian civil service. And move quickly Ottawa certainly did, as it cut 40,000 public sector jobs – between 11% and 12% of the total civil service workforce – in one stroke. Overall, it trimmed government spending by 20%, with the Canadian budget of one year alone – 1995 – described even by ministers as the “bloodbath budget”. It is not yet clear how quickly the UK government will act. FORM A CUTS COMMITTEE To co-ordinate the cuts centrally, the Canadian government set up a special committee, chaired by the prime minister and finance minister, before which departmental ministers had to appear to defend their budget plans. Mr Cameron and Chancellor George Osborne are proposing to do the same here, with a so-called “Star Chamber”. The idea is that ministers are challenged to come up with more spending cuts. BUDGET CUTS, NOT TAX RISES The focus of the Canadian government was firmly on spending cuts rather than tax rises, arguing that taxes had to be kept low to enable the private sector to grow and aid the economy. As a result, the tax burden in Canada rose by only 0.3% between 1992 and 1997. The Conservatives view themselves as intrinsically a low-tax party. However, with today’s UK deficit being substantially higher than that in Canada back in 1992, the jury is still out on whether the coalition government can resist the temptation – or even the need – to raise some taxes. If taxes do rise, VAT is considered the leading candidate, with speculation that it will increase from the current 17.5% to 20%. The UK government has yet to rule out a rise in VAT. IGNORE THE ECONOMIC BACKDROP When Canada started on its spending cuts in 1992, the country was still mired in an economic downturn. And despite the Canadian economy not firmly picking up until 1996, Ottawa still continued with its extensive deficit reduction work. The problem for the UK government is that our financial services sector is much larger than that in Canada, and therefore the UK is significantly more affected by any woes in the global financial markets. Canada, by contrast, is a substantial exporter of oil, timber and other raw materials, plus agricultural products. This enabled it to weather the worldwide financial crisis of recent years. Further helped by much tougher banking regulation, not one major Canadian bank needed to be rescued by the Canadian government – markedly unlike the situation in the UK. As a result, the UK government has to pay closer attention to the global financial system, which could make its spending cuts move at a significantly slower pace. F. Beard November 1, 2010 at 12:54 pm While you promote “austerity” as a solution; Mervin King, a central banker himself, is beginning to understand the root of the problem, fractional reserve banking: http://www.bbc.co.uk/blogs/newsnight/paulmason/2010/10/post_1.html Fascism, the government backed counterfeiting cartel, led to the need for socialism. Notice that socialism in the US was not significant in the 1920s and 1930s when the banking cartel ruined the economy. So now socialism, an admittedly flawed response to fascism, is seen as the root cause of our economic problems? Blame the victims will you? A poor man who oppresses the lowlyIs like a driving rain which leaves no food. Proverbs 28:3 Doug Terpstra November 1, 2010 at 2:16 pm Indeed, if we could only emulate Canada in just one area — military spending — we could instantly cut our deficit in half. We could then cut taxes on the middle class, raise taxes on the rich to par, quadruple our education budget, implement universal healthcare to restore small-business competetiveness, and finally drive a stake into imperial, neoliberal vampirism once an for all. Oh Canada! DownSouth November 1, 2010 at 3:08 pm Well we sure know where Keating stands in the Republican Party heirarchy. He got the memo that sets out what the Republicans say, not what they do. Expect spending to snowball at an ever increasing pace, and especially for the banks and military industry, with more tax cuts for the super rich. This isn’t to say the Democrats are any better. When that “to do” memo goes out, it goes to both parties, at least those in the know. F. Beard November 1, 2010 at 3:20 pm Yep, it’s them pesky poor who are the problem not the FR bankers who could not even function without privileges from the government. The biggest problem with Republicans is that they are hypocrites; at least the Democrats are honest thieves. Keating Willcox November 1, 2010 at 12:33 pm h/t http://www.bbc.co.uk/news/10254055 h/t http://blogs.wsj.com/source/2010/06/07/so-just-what-did-canada-do/ Keating Willcox November 1, 2010 at 3:34 pm Well, in the midst of a sea of calls to run the printing presses into overdrive, me and my good buddy Niall, the smart Ferguson, believe that balancing a budget, while painful, is a good thing. As we destroy our money’s value, we impoverish all our retired and fixed income, so they are better off with a balanced budget. If conservative republicans like Jim DeMint and Haley Barbour become the true leaders of the Repubs, and if the voters are on board, then a balanced budget is attainable. And, I agree, big cuts in the military are low hanging fruit in this process. With no more big cold war, that is a choice we could all make. But, you must admit, the last two years have seen more pork, yes it’s true, the stimulus, the bail outs, fannie and freddie are all pork, and pork is no good for anyone. DownSouth November 1, 2010 at 6:46 pm Well at least Niall Ferguson’s true colors are now coming to light. When he did his special for PBS, his role as one of the planet’s number one advocates of neo-imperialism and neo-liberalism was somewhat obscure. The give away was where he was talking about Chile, heaping praise on Pinochet’s military dictatorship. But if one wasn’t versed in that affair, it would have flown over their head. So thanks Keating for shining a light on Ferguson. F. Beard November 1, 2010 at 4:01 pm Well, in the midst of a sea of calls to run the printing presses into overdrive, me and my good buddy Niall, the smart Ferguson, believe that balancing a budget, while painful, is a good thing. Keating Willcox Actually, it isn’t: Myth #6: Deficits and government borrowing takes away savings. Reality: Deficits add to income and savings. The truth is that deficits add to the total monetary savings held outside of government. To the penny. That’s right, if the government deficit was 1 trillion dollars last year, then total net savings of everyone outside of government went up by 1 trillion. Not a penny more or a penny less. from http://www.newdeal20.org/2010/04/27/the-deficit-nine-myths-we-cant-afford-10162/ As we destroy our money’s value, we impoverish all our retired and fixed income, so they are better off with a balanced budget. Keating Willcox Not if it is balanced on their backs. The Republicans are correct that the current monetary system is bogus but their solutions are even more bogus. ep3 November 1, 2010 at 4:29 pm Again, Obama used his popularity to get elected. period. Once elected, he has only served his masters, the elites. If Obama had continued to use that excitement that he generated while campaigning, if he used that to enact real change, that threatened the power of the elites. So they had to break that immediately after the election. Number 1 David Plouffe was sidelined from activity because he mobilized all those activists. Then Obama proceeded to install persons from the Clinton regime (just a different version of the same elites) to begin managing things. What i am saying is ordinary Americans generally agree on what they want their country to look and function like. And that ideal threatens the establishment elites and their power structure. So Americans are kept disenchanted, frustrated, wild groups like Teabaggers and whoever pop up that distort the public debate and prevent it from getting things done. All the while the elites continue to get what they want. Obama could have walked into the White House January 22, and said ‘things are gonna change because this is what the American people want’. He could have begun enacting real reforms and begun fixing things, not just patching things. But this would have threatened the elites power structure. So on January 22 he walked in and asked ‘what do i have to do to make sure the common folks don’t rebel against us?’. Doug Terpstra November 1, 2010 at 5:02 pm Growing nostalgic for Republican charge-and-spend rule already? I must confess, I didn’t make it through your entire treatise on Canadian austeria, but I don’t think you mentioned the military elephant in the room at all. I suspect that’s because military spending and war are sacred cows of both parties, but as you know only ever and always increased under Republican rule—as certain as death, if not taxes. But to suggest that DeMint or Barbour would ever touch it is laughable. They would sooner perform self-amputation without anesthetic. I do see potential silver linings in a Republican takeover. Ferguson notes one —the auditing of the Fed, though I think it’s highly unlikely given Wall Street’s ownership of both parties, especially Republicans, save Ron Paul. Another is the destruction of the superfluous Democratic Party, exposing the duopoly more clearly and forcing liberals to move on. A third is stripping all remanant ieological fleece from crony casino captilasm, and then releasing the brakes to allow it to accelerate to terminal velocity and inevitable destruction. Doug Terpstra November 1, 2010 at 5:04 pm Intended as a reply to Keating at 3:34 PM Comments are closed. Tip Jar Please Donate or Subscribe!