On Fox Sunday with Chris Wallace, Democratic leaders once again declared that the Recovery Act is responsible the economic growth suggested by last quarter’s 5.7%  GDP figure.  Democratic Representative Van Hollen exclaimed “you have to believe in the tooth fairy to believe that this was not because of the stimulus”.  Beside being the worst analogy ever used on a news talk show, it is also a reflection of the logical fallacies that are common place in economic discussions. 

Thomas Sowell calls this the fallacy of “causation and correlation”.  This assumes that just because one event follows another event, that it was caused by the first event.  An example of this is  how Obama and the Democrats blame the recession on the bush tax cuts.  Although the tax cuts did precede the economic down turn, they have never specifically explained how the tax cuts caused a banking crisis or the unemployment problem.

According to the US Bureau of Labor Statics, unemployment in  fell from 6% in the first quarter of 2008% to just under 5% in the following quarter.  By quarter 3 it rose to 6.1% and stayed level until the beginning of quarter 4.  At this point many of Bush’s critics were holding him responsible for 1.3% rise in unemployment.

In a debate with Sean Hannity, While advocating Obama by denouncing Bush, Al Sharpton charged “we have 6.1 % unemployment Sean, 6.1%.  Gas is four dollars a gallon.”   In fact the rise in unemployment followed closely with that period’s drastic increase in oil prices.  But those price increases were not caused by tax cuts. in fact, if the Congress, with its Democratic majority had passed measures to increase domestic supply, it would have driven the prices down. 

If the tax cuts were responsible for the unemployment rate, then the jobless rate would have moved up steadily from the point that the revenue acts were initiated in 2001 and 2003.  Instead, it was consistently below 6% until the end of quarter 3, where it began rapidly increasing  to well over 9% by quarter 2 of 2009. 

Two major events occurred during Q4 of 2008.  the financial sector meltdown, and the election of Barack Hussein Obama.  If one uses the same causation correlation rationale that Bush’s detractors used during against him Q3 of 2008, then we would have to conclude that both events contributed to the spike in unemployment that followed.  We can establish that the banking failures caused some of the employment directly, as many firms simply lost their capital and many individual lost the personal wealth needed to pay workers.  But what about the  other  cause.

Barack Obama originally stated that  he was going to allow the Bush tax cuts to expire, and raise the capital gains tax to 28%. [Eventually, Bill O’Reilly bargained him down to 20%  during their interview]  Several months before the financial crisis, Dick Morris said “If Obama wins, there will be a major stock market crash.”  Regardless of derivates and speculation, Morris was right! 

Throughout his campaign, Obama consistently referred to “the policies of the previous administration that only benefitted the rich.”  Besides being wrong, again, it was a clear statement that Obama intended to engage in class warfare. He told Joe the Plummer that “he wanted to spread the wealth around”.  That is the very redistribution of wealth ideology that has frightened investors and business owners into a defensive posture. 

The Greyfalcon challenges the administration to prove that they were not more responsible for the collapse then Bush’s tax cuts.  There is evidence that the Community Reinvestment Act did artificially drive up prices. Barney Frank  and Maxine Waters led a crusade that helped Fannie Mae and Freddie Mac continue to perpetuate the dangerous speculation, as investors did not concern the impact that forecosures would have on their MBS’s.  They knew the government would bail out these dreadful institutions.

We also know that the Federal Reserves artificially low interest rates fueled the housing and stock bubble.  Again, we cannot recall Obama calling for tighter money after his 2004 election to the senate.  and Alan Greenspan said that political and social strife in the USA is caused by income inequality. 

That is the same position Barack Obama has. And Greenspan is married to Andrea Mitchel, an ardent Obama supporter. Works out nice doesn’t it.

Did Barack Obama oppose the Waters defense of Fannie and Freddie. We do not remember this.  And as a senator he voted for the very spending that caused the deficits that he “inherited”.  More importantly, he voted for the TARP fund under Bush, so he can’t say that he is victim of “the previous administration”.

The 2009 Recovery Act added 81 billion dollars to the 48 billion that was originally allocated in the annual budget.  Did we receive 129 billion dollars worth of value from the Department of Education?  If district managers make investments like this in the private sector, they get fired.

And hopefully in 2010 and 2012, we will do a little firing of our own! 



Categories: Uncategorized
  1. Bill Burt
    February 2, 2010 at 4:21 am

    Twenty years ago in May, I was invited to attend a Sound Money Conference at one of
    the Airport hotels. One of the speakers I met, lived in Colorado and published an economic, geopolitical analysis, in a monthly newsletter. I subscribed to his newsletter for quite a few years. He send me one of his special reports sometimes, and about 2 years before the real estate bubble burst, he laid out in one of his analysis, exactly what was coming down the pike. Actually, after the collapse, there was a tv program that portrayed all the shenanigans that occurred with the Community Reinvestment Act; how banks were forced to make loans to people that they knew couldn’t afford to buy a home. Pure insanity!

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