Obama’s Socioeconomic Delusions

As I stated in my last post, I expected President Obama to say something like: “we have a long way to go, but the economy is just great!” He did exactly that, and added some finger pointing for good measure. What I didn’t expect was for him to be completely delusional on the state of the economy and (especially) income inequality. Maybe he’s not delusional, but misinformed, or just spinning, or something.

Delusions are defined as the strong belief in something despite strong evidence to the contrary. Sometimes delusions really are real! But in this case, there’s too much evidence to the contrary:

1)   The President says that banks are making loans with all that Fed money they’re getting from QE. Really? From the Fed’s own numbers, banks are moving money like a person moves urine with a kidney stone.

M2V

This is what a Liquidity Trap looks like in a picture. The correlation is r = -0.89. That means the more money the banks get from the Fed from QE, the more they keep.

2)   The president says that the growing income inequality – the largest spread since the Zoot Suit Riot in the 1920s, is caused by globalization and technology. Really? Most of the income inequality has happened since 2009 (chart source: Piketti & Saez 2012)

original1

3)   He’s created jobs more jobs than anyone. True – but the QUALITY of jobs matter. Household earnings aren’t even close to anything sane. (Source: Economic Policy Institute 2013)

original

4)   Obama says the economy is growing. Really? Has he even looked at a GDP chart lately – the central measure of the health of an economy?

GDP has been “sticky” at around 0.75% (or less) for a long time. Yes, technically it’s “growth,” but 1% GDP since “recovery” isn’t much considering the historical recovery from recessions is +5 to +7% GDP growth.

GDP

5)   Obama give credit to the Fed for the “recovery”, citing:

  1. Low Interest Rates, keeping mortgages low
  2. Supported Spending (consumption)
  3. Lifted Stock prices

Not only is consumption (also known as Aggregate Demand) not even near pre-recession levels, neither are Mortgages, and neither is Home Equity Credit. It’s great that interest rates are low (except for the Zero Lower Bound Problem) but they don’t mean much when so few have income to qualify for mortgages or HELOCs (Data Source: Federal Reserve Bank of St. Louis)

HELOC

consumption

And by the way: credit does NOT create wealth – credit creates debt. If people were using their home equity like an ATM machine at the height of the recession, and NOT spending it on consumption, then where did the money go? Not into wealth creation, that’s for sure!

Whether he’s spinning, trying to create confidence, or just delusional, overall, I suspect that Obama is drinking the Larry Summers Kool Aid.

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This entry was posted in Demand, Economics, Politics, Socioeconomics. Bookmark the permalink.

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