The ongoing recession has raised a troubling question for otherwise resurgent Keynesian economists: How can the American economy keep getting worse under the intensive care of an interventionist economic team almost universally praised for its brilliance? The answer may be that the Obama administration is dealing with a fictional economy, one that bears little resemblance to the economy the rest of us inhabit. And when the difference between fact and fiction becomes too apparent, they just make stuff up. Herewith, five big lies the administration loves to tell and the mainstream media (with some notable exceptions) love to repeat:
*”1. Bold government action staved off a Depression, saving or creating 1.5 million jobs.”
“Just remember,” Treasury Secretary Tim Geithner said on November 1, 2009, “a year ago today, last year, you had markets around the world come to a stop. Economic activity just stopped, came to a standstill, like flipping a switch.”
Geithner implies that the American business climate improved substantially in the first year of the Obama administration. In fact, nearly every indicator, from employment to freight transport to rents to retail sales to real estate, has headed steadily south. In some cases, such as unemployment, the numbers have been far worse than the Obama economic team’s worst-case projections. In others, such as real estate, the weakness of the market is masked by expensive government support, including but not limited to the unkillable First-Time Homebuyer Credit, an assault on loan underwriting standards (see Lie No. 2) by the Federal Housing Authority and the government-run mortgage giants Fannie Mae and Freddie Mac, and the completely opaque $75 billion Home Affordable Modification Program (HAMP).
The $787 billion in stimulus spending authorized by the American Recovery and Reinvestment Act of 2009 is now best known for its inflated and unsupportable job creation numbers. At press time, Council of Economic Advisers Chairwoman Christina D. Romer (who, confusingly, made her academic reputation proving that fiscal stimulus did not help the U.S. economy during the Great Depression and World War II) was giving the stimulus credit for 1.5 million American jobs in 2009. All efforts at checking her claims, however, have turned up very different numbers. The Associated Press, the Boston Globe, the L.A. Weekly, and local papers around the country have failed to find actual jobs to match up with those being reported at Recovery.gov. The administration’s only concession to this reality has been rhetorical: After claiming that hundreds of thousands of jobs had been “created” early in 2009, the Council of Economic Advisers turned to the phrase “saved or created” by mid-year. In December the Obama administration again changed its measure to jobs “funded” by the stimulus.
Of all the government interventions since the start of the real estate decline, only one