Out of Control Policy Blog

Obama: World Economic Collapse Averted

I'm not sure how many people saw this tidbit from the Associated Press reported from the G-8 economic summit in Italy, but I think it says a lot about the nature of President Obama's style leadership: truth is politics, and politics is truth. President Obama implied that the world has avoided an economic collapse because of sustained stimulus spending, yet in the U.S. hardly any of the stimulus spending has actually worked its way through the economy.

L'AQUILA, Italy – Lasting worldwide recovery "is still a ways off," President Barack Obama declared Friday, but he also said at the conclusion of a global summit that a disastrous economic collapse apparently has been averted.

Obama said world leaders had taken significant measures to address economic, environmental and global security issues.

"Reckless actions by a few have fueled a recession that spans the globe," Obama said of the meltdown that began in the United States with a tumble in housing prices and drastic slowing of business lending. The downturn now threatens superpowers and emerging nations alike.

Obama urged national leaders to unite behind a global recovery plan that includes stricter financial regulation and sustained stimulus spending.

Of course, pinning blame on a a few is a common tactic of mass politics. It's easier to demonize a small minority and motivate the masses toward a populist cause than project a nuanced understanding of a complex problem. It's easier to pin the blame on those that crafted the mortgage-backed securities that obscured risky mortgages than spread the it to all those with a hand in the housing bubble, including Congressmen and former presidents who encouraged the lax lending standards to begin with.

But more audacious is the President's claim that sustained stimulus spending (and tighter financial regulation) are the keys to averting economic collapse. In the U.S., just $56 billion of the $787 billion stimulus has been spent, and most of it won't circulate through the economy until 2010 and 2011. See my comments on Ed Lazear's analysis as well as Reason Foundation's work on the stimulus here.

Samuel Staley is Research Fellow


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