Five Lies About the American Economy

Tim Cananaugh at Reason Magazine takes a look at the current state of the American economy, and how the Obama Administration is attempting to present it. In doing so, Cavanaugh exposes five big lies that the Administration tells the media and the American people about the economy to support its failing Keynesian policies.

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.”


2. “No one wants banks making the kinds of risky loans that got us into this situation in the first place.”

President Obama made this claim following a December meeting with big bank officials, then contradicted himself by urging bankers to take “third and fourth” looks at rejected business loan applications. But the administration has been even more enthusiastic about encouraging another type of credit: the precise risky loans that got us into this situation in the first place.


3. The economic crisis is a “subprime crisis.”

“We believe the effect of the troubles in the subprime sector on the broader housing market will be limited,” Federal Reserve Chairman Ben Bernanke said in May 2007, “and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”


4. Ben Bernanke is a heroic leader.

“The man next to me, Ben Bernanke, has led the Fed through one of the worst financial crises that this nation and the world has ever faced,” Obama said when nominating Bernanke for a second term as Fed chairman. “As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another. But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve.”


5. The worst is behind us.

“Here is what I know,” Larry Summers, Obama’s top economic adviser, told ABC in December. “We were talking about Depression; we were talking about the financial system collapsing. Today, everybody agrees that the recession is over, and the question is what the pace of the expansion is going to be.”

Read the whole thing here to see how Cavanaugh refutes all of these points.

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