Obama Completely Reinvents the Economic History of the Last Decade

Following on Kevin Drum’s request to critique the debates on substance, not style, I, like Yves Smith, was really troubled by this statement by Obama about public deficits (it’s amazing how different my personal take was having read it; boldface mine):

This was a very strange part of the debate last night.

I would just say this to the American people. If you believe that we can cut taxes by $5 trillion and add $2 trillion in additional spending that the military is not asking for, $7 trillion — just to give you a sense, over 10 years, that’s more than our entire defense budget — and you think that by closing loopholes and deductions for the well-to-do, somehow you will not end up picking up the tab, then Governor Romney’s plan may work for you.

But I think math, common sense, and our history shows us that’s not a recipe for job growth. Look, we’ve tried this. We’ve tried both approaches. The approach that Governor Romney’s talking about is the same sales pitch that was made in 2001 and 2003, and we ended up with the slowest job growth in 50 years, we ended up moving from surplus to deficits, and it all culminated in the worst financial crisis since the Great Depression.

The Bush tax cuts were very bad fiscal policy, and shifted wealth upwards. But budget deficits create public debt, and the 2007-2009 financial crisis was fundamentally a problem of excessive private debt. Conflating the two is an intentional strategy to impose austerity on a population….

Deficit hysteria is meant to hide what really happened, a private unregulated credit machine that loaded Americans with debt they couldn’t pay back.

To the extent public debt in form of lower taxes for the wealthy helped inflate the CDO market (all that money had to go somewhere), you could argue it played a small role in the housing debt bubble. The solution to that problem, of course, would be to propose much higher taxes on the wealthy, as well as eliminating the carried interest loophole and increasing short term capital gains taxes significantly. Just like Obama has done.

Oh wait, he hasn’t done that at all.

What’s terrifying is that I think Obama actually believes what he said. He doesn’t think a predatory housing market built on a foundation of fraud, leading to excessive private sector (household) debt was the problem.

While we’ll be screwed worse if Romney wins (close your eyes and think of a younger Justice Scalia), this stinks. The choice between a Rockefeller Republican and someone beholden to (and who may be part of) the theocratic and batshitloonitarian wings of the Republican Party isn’t exactly encouraging.

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