Mythbusters

The discussions we just had on the Constitution will be useful as we gauge what is happening now, against what should be happening within the framework of the Constitution but as we enter the 2010 campaign season, I also want to expose some myths surrounding modern “political speak” in that context to begin our next segment.

Myth one – FDR’s policies and programs ended the Great Depression.

False - Since President Obama’s proponents are touting him as the new FDR, this myth is the first that needs to be debunked. Nothing can be further from the truth. FDR’s programs were nothing more than keep busy government works projects that kept most at or below the poverty level; actually very similar to today’s Stimulus bill. World War Two sent millions of American men to war taking them off home relief and placing them on the front lines to defend the nation and during the war years, the country’s economy shifted to war production. Since general provisions were limited by the war, a combination of rationing and the tax structure were used to prevent runaway inflation. At the conclusion of the war, nearly every manufacturing center around the world had been destroyed in the fighting except for those located safely within the borders of the United States. From 1945 through the late 1050’s, if you wanted to buy anything, you had to buy it here and that is what ended the Great Depression.

Myth two – Reagan’s tax cuts and policies of “trickle down economics” failed and ultimately quadrupled the National Debt.

Partially true - First of all, to gain the tax cuts Reagan wanted to stimulate the economy, Reagan had to agree to the TEFRA act (Tax Equity and Reform Act) of 1986. Before the Reagan tax cuts, the tax on the wealthiest Americans were roughly 50% (already down from the top marginal tax rates of 80% to 95% during the world war two years). TEFRA eliminated many of the deductions that high earning American’s used to reduce their taxable income. You may want to note that even after the marginal tax rates for the top earners began to climb during the first Bush administration, none of the deductions eliminated under TEFRA had been restored. The only mistake Reagan made was in phasing in his tax cuts over a period of a few years. This stalled the economy for a further two years as business held back, waiting for the goodies that were coming.

Now to the bare facts: OMB figures indicate that the explosion of the economy directly related the Reagan tax cuts resulted in a tripling of revenues to the United States Treasury. Unfortunately, the Congress immediately wrote legislation that spent $1.34 for every new dollar they received. Admittedly, part of that was to fund the military expansion that Reagan insisted was necessary for the security of the nation; but a great deal were pork barrel projects injected into the legislation. Don’t forget, Reagan asked for the line item veto to be able to weed that reckless spending out of the legislation but Congress refused to offer him that power. If he were to move forward on the agenda he felt was vital to the nation, Reagan was given no alternative but to sign these pork laden bills into law. President Clinton was eventually given the power of the line item veto and never used it to weed out frivolous spending. In all fairness, neither did the second Bush administration.

Myth three - Deregulation created the mortgage crisis of 2007.

Partially true - Deregulation certainly allowed for the lapse in accountability that made this possible but to find the roots of the crisis, we need to travel back in time to the Clinton administration. During the Clinton administration there was a push to expand the “American Dream” of home ownership to a segment of the population where it had never existed before. That “push” was in the form of the Federal government fining banks that would not issue what were traditionally considered high risk loans to allow low income people access to home mortgages.

That practice drove the median prices of homes skyward since the law of supply and demand was now challenged by an artificially created marketplace. Those that already owned homes took advantage of the lenient lending terms and free flow of cash to refinance their mortgages based on the inflated value of the property, in essence turning their homes into an ATM machine with a garage and two and a half baths. Many took adjustable rate or interest only loans because they were cheaper thinking they would get into a conventional loan later. They took the difference in cash with some, purchasing additional properties with the idea that property values would continue to go nowhere but up.

Well, you knew it would happen sooner or later but an awful lot of those high risk loans started going sour. Banks that saw trouble on the horizon packaged these loans and sold them to investors. They sold them as securities thinking that the good paper would offset the bad paper, because property values always go up. Well that might have worked if property values weren’t artificially inflated and if property owners hadn’t already cashed in on that.

The net result was due to the high rate of loan failures (the high risk ones the government had forced on lenders) property values plummeted. When it came time for the ATM people to refinance, their home were worth substantially less that the principal they already owed. Unfortunately, the cash they withdrew from the “ATM” was already spent. You already know the story from there.

Myth four - The Stimulus plan (The American Recovery and Reinvestment Act of 2009) is responsible for the creation of millions of jobs.

False - Again, no; only a portion of the $800 billion allocated in the stimulus bill has actually been distributed. As opposed to The Economic Stimulus Act of 2008 which consisted of tax rebate checks put into the hands of tax payers, the American Recovery and Reinvestment Act of 2009 doled out money to the States and Cities. As a note, The Economic Stimulus Act of 2008 consisted of roughly $152 billion given back to the tax payers while The American Recovery and Reinvestment Act of 2009 scripted over $800 billion to fund projects administrated through the States and Cities. They still haven’t figured out that we spend money far better than they do.

In my home town of Phoenix, the stimulus money they received was used to purchase additional traffic enforcement cameras; cameras that will likely be voted out of existence in the next few years as referendum ballots opposing them gain ground. Well that put a lot of people to work, now didn’t it? Much of the stimulus money in other areas was used to fund other previously committed spending like roads or transportation projects.

The facts: much of the stimulus money was used to fund projects that were already awarded to contractors (no new jobs) or was used for “make work” jobs, some of which lasted a total of 36 hours, less than a full work week, before these people were once again, unemployed. The “new jobs” were far less than temporary and the balance of what they claimed credit for, were jobs that had already existed.

As a note, The Economic Stimulus Act of 2008 only failed because people used the money they received to satisfy existing personal debt. In essence, the government had already taken too much and waited too long only to give too little back.

So where am I going with this and is there a common thread? Those of you that have read my work before already know there must be something that ties all of this together. That “thread” is the Federal government’s inability to affect positive change through the manipulation of the free market system. Every time they have tried they have failed and failed miserably. Partly, because they are following an ideology that mainstream America does not share and partly, because they have still been divided amongst themselves for years.

The nation’s capitol has become nothing more that a battlefield of the extreme right and the radical left with the bulk of the nation, meaning you and me, caught in the crossfire. Accusation is met with counter-accusation and whatever party is in control tries to force their agenda through while accusing the other of having no vision and no alternatives.

Since there is apparently a lack of common sense solutions in Congress, let’s see if we can’t frame the real issues and identify some reasonable solutions for them. I know, I know….we are just regular people. Truthfully, I can’t think of any better reason to try since the “professional” legislators have made such an unholy mess of things already. Besides, this is still our country….isn’t it?Paul