Best Policy Of All: The Ballot Box
The Fed: In what might be called a "half-a-loaf speech," Fed Chairman Ben Bernanke shows he at least gets why our economy's in such lousy shape. But in the same talk, he misdiagnoses who's to blame and what to do about it.
So why are we having such a bad time right now? Well, the slowest recovery ever is a result of a much deeper than average correction in the housing market. Because of the financial system's enormous exposure to the massive buildup in housing debt, a severe financial crisis swept the globe after home prices fell in 2007 and 2008.
The reverberations of this are still being felt.
"From recent comprehensive revisions of government economic data, we have learned that the recession was even deeper and the recovery weaker than we had previously thought," Bernanke told the Economic Club of Minnesota on Thursday, noting that "aggregate output in the United States still has not returned to the level it attained before the crisis."
Got that? Our economy is actually smaller today than it was three years ago. Bernanke notes that paltry U.S. economic growth of less than 1% in the first half of this year isn't enough to pull unemployment below 9%.
The reason again: housing, which since World War II has been one of the key drivers of the U.S. economy as it emerged from recessions. "But this time . . . the rate of new-home construction has remained at less than one-third of its pre-crisis peak," noted Bernanke.
This has had ripple effects across the economy, killing or crippling small businesses in every state and taking millions of jobs.
Give the Fed chief credit: He sees clearly what's gone wrong, zeroing in on the mortgage and housing markets as the main cause of our economic distress.
As they say in 12-Step Programs, admitting the problem is the first step toward a cure. As his speech shows, Bernanke seems to believe government can cure our disease — a little more quantitative easing here, a bit more regulation there and — presto! — we have a recovery.
But as we've argued on this page many times, that's not so. Whether it's the spurious Community Reinvestment Act, the job-killing Dodd-Frank financial bill or the failure to close down Fannie Mae and Freddie Mac, government itself is the root of the problem.
Democrats, of course, refuse to acknowledge this. Using their privileged perch in the liberal mainstream media, they've long argued that Bush's "tax cuts for the rich" or "greedy banks" were the cause of the housing boom and subsequent crash. This is utterly false.
The federal government, under direct Democratic control and beginning under President Clinton, pushed a mandated policy of lowering mortgage standards to put more low-income people into homes they couldn't afford.
The resulting housing bubble was 10 times larger than any other in history. Almost half of the mortgages that made up that bubble — 27 million in all — were subprime or other risky loans.
"The reason for this," noted American Enterprise Institute fellow Peter Wallison, one of the few to predict the disaster, "was the U.S. government's housing policy, which — in the early 1990s — began to require that government agencies and others regulated or controlled by government" ease their underwriting standards for low-income people.
"Greedy banks" and "tax cuts for the rich" had nothing to do with it.
Shockingly, these policy errors have never been corrected. Democrats who have controlled the Senate since 2007 and the White House since 2009 refuse to recognize the facts. Republicans now control only half of one of the federal government's three main branches. So a major policy shift is unlikely.
But then, the way out of this mess will not be found in new legislation. The only real solution is the ballot. Through our biennial elections, we correct our mistakes. It's what makes America special and still by far the richest nation on Earth.
By November 2012, voters must be made to understand that it was their government that failed them and those responsible must be held accountable.