US: Urban Myths – IBD Editorials

US: Urban Myths – IBD Editorials

Speaking to the Urban League on Thursday, the president had a great chance to tout his accomplishments. Sadly, when it came to the economy, he had to stretch the truth quite a bit just to say anything.

President Obama’s main topic in speaking to the big city representatives in Washington, D.C., was education. But what struck us was his blithe recitation of what he believes he has achieved on the economy.

It bears deconstructing, because in the upcoming election, a whole lot of claims are going to be made that are simply untrue. Yet, they’ll be repeated by the mainstream media as if gospel. To wit:

“Because of what we did, America, as a whole, is a different place today, our economy is growing instead of shrinking.”

Yes, the economy is growing, not shrinking. But not “because of what we did.” It began growing for one big reason: In December of 2008, one month before Obama took office, the Federal Reserve took the unprecedented step of cutting interest rates to zero. This, more than anything, was why the economy rebounded.

But today, even after $3.7 trillion in federal support for the financial system, the economy is struggling. A new survey of 42 economists by the Associated Press suggests the “U.S. economic recovery will remain slow deep into next year, held back by shoppers reluctant to spend and employers hesitant to hire.”

Growth is expected at less than 3% next year, with unemployment of 9.5% lasting through 2010. And the U.S. won’t return to a normal jobless rate of about 5% until 2015, the economists say.

“Our private sector has been adding jobs for six straight months, instead of losing them.”

Technically correct. But the number of private-sector jobs on average each month has been 96,000. That’s well below the 125,000 that economists say is needed each month just to keep up with growth in the work force. We’re not even treading water.

“Yesterday a report was put out by two prominent economists — one of them John McCain’s old economist — that said if we hadn’t taken the actions that we took, we would have had an additional 8 million people lose their jobs.”

This is, as the saying goes, nonsense on stilts. That 8 million number is a total fabrication, based on bogus Keynesian multipliers that say $1 in government spending is worth much more than that in private-sector job growth and GDP.

That idea has been utterly destroyed by other economists. “The economics profession abandoned those models 30 years ago, so the tool they are using is like a fossil, frozen in time,” wrote Arnold Kling, adjunct scholar at the Cato Institute.

The “two prominent economists” Obama referred to are former Fed Vice Chairman Alan Blinder and Moody’s Corp. Chief Economist Mark Zandi. The Washington Post describes Zandi as a “Democratic dream, a former (McCain) adviser … who advocates spending over tax cuts as the best way to deliver a quick jolt.” And, we might add, who once pushed the idea that for each $1 spent on food stamps, $1.73 in economic activity would be created.

We found these gaffes and distortions in just the first nine paragraphs of a much longer speech on education. On the economy at least, maybe it’s the president who should go back to school.