Dr. Obama: First, Do No Harm

Let nature do its work.

By Victor Davis Hanson
Thursday, March 19, 2009

When it comes to our complex economy, Pres. Barack Obama would do well to heed the physician’s ancient commandment to first “do no harm.”

Instead, Obama’s administration has been prescribing all sorts of multibillion-dollar borrowing remedies without any consistent diagnosis of what is exactly wrong with the weak economy or even how bad things actually are.

Since becoming president, Obama has offered numerous bleak economic prognoses. He has told Americans: “The situation we face could not be more serious. We have inherited an economic crisis as deep and as dire as any since the Great Depression.” He has also warned, “Recovery will likely be measured in years, not weeks or months,” and “If nothing is done, this recession could linger for years.”

But suddenly last week, physician Obama flipped and issued an entirely new prognosis: “I don’t think things are ever as good as they say, or ever as bad as they say.” He added. “(Things) are not as bad as we think they are now.”

What happened to living through hard times akin to the Great Depression?

Maybe it was the unexpected news that Citibank and Bank of America are starting to show a profit — thanks to the past bailouts of 2008 and new profitable loans. Maybe it was General Motors’s recent decision not to (for now) ask for more federal cash. Maybe it was the reports that consumer spending is not down as much as feared.

Or did Obama’s change in rhetoric reflect a sort of premeditated strategy: Talk down the economy to scare everyone into supporting more government spending and borrowing; then, once the stimulus bill has passed, talk up the economy to reassure us that it will work?

Or, as seems more likely, does the new government simply not know what is going on — much less what to do about it?

It can’t seem to fill slots at the Treasury Department, and strangely talks about fiscal responsibility and the evils of pork-barrel spending while expanding upon the Bush budget deficit and approving more than 8,000 earmarks.

Obama — and Congress — should take a deep breath before further expanding the budget with ever more stimulus spending, borrowing, and aggregate debt that will plague our children, who will have to pay back the trillions long after this present recession ends.

It’s time to let natural market forces work us through the current downturn. The reason why the stock market inched up a bit, and companies reported something other than the usual losses, is that we may already be in a stimulatory climate. When George Bush left office, his last budget projected a $500 billion shortfall — quite a lot of borrowing to spend on ourselves.

Billions of dollars are also stimulating the economy through reduced energy costs. Once the price of oil fell from a high of $147 a barrel last July to between $40 and $50 a barrel at present, American families began saving hundreds of dollars in reduced gasoline and home-energy costs. Savings in energy also reverberate throughout the economy and make everything from food to building materials cheaper. That, too, has been a sizable stimulus.

This month, the indebted U.S. government paid its creditors less than half a percentage point in interest on six-month Treasury notes, which is below the rate of inflation. In other words, we are financing much of our new spending spree with near-free use of someone else’s money.

Billions of cheap dollars on loans entering the U.S. eventually translate into lower mortgages and car loans; at present, banks are paying little money in interest to cash depositors while collecting 4 to 6 percent in mortgage interest from borrowers. With a spread like that, no wonder banks are starting to show a profit again.

Finally, millions of cash-strapped families freed themselves from debt by walking away from mortgage and credit-card loans, and are restarting with less financial burdens. And even most of those who lost home equity and saw the crash of their retirement portfolios are still working. Most from this latter group are still earning income, not cashing in their fallen 401(k)s, and not selling their homes at a loss.

It is clear from the last two months that no one in this herky-jerky administration quite knows what is going on in the economy, which has its own self-correcting mechanisms that were already in play without vast new federal spending and borrowing.

So before we give more toxic-debt medicine to the recovering patient, let us take a timeout from the massive borrowing, let nature do its work — and at least do no more harm to generations not yet born.