AROUND midday on January 20, 2009, Barack Obama was sworn in as president of the US. At that moment, the euro fetched $1.30. Today, this key exchange rate continues to stand at roughly $1.30.
What’s wrong with that, you may ask?
The answer is: “Nothing.” And you would be right to say that stable exchange rates and a dollar that has found parity on global markets is a good thing.
So what’s wrong? The problem is that starting approximately 30 days after Obama’s inauguration in 2009, politicians and pundits on the Republican right started to state emphatically and with remarkable consistency that the Obama administration, along with the US Federal Reserve, were employing policies that would substantially devalue the US dollar – in fact, make it “worthless”.
Since then, right-leaning and right-wing US media have breathlessly reported and highlighted every downtrend in the value of the dollar to prove their point. But then, when those downturns proved to be little more than normal cyclicality, they made little or no mention of the uptrends.
In other words, the right was wrong in its long-term outlook for the dollar, but unwilling to admit that it was wrong. More importantly, it was wrong in the policy it prescribed to correct the dollar crash it saw as inevitable.
Not only is wilful ignorance evident in alarmist cries about exchange rates and other financial indicators, it also underpins the entire right-wing economic narrative of the Obama presidency.
This narrative begins by grossly understating the severity of the economic events of 2008. According to the right, the crash was merely another cyclical downturn – one of the periodic pullbacks that have occurred with regularity throughout America’s economic history. This interpretation serves as the right’s foundation in its critiques of the Obama administration
But such a view ignores the reality of those scarring economic events. It ignores the fact that, for the first time since 1929, the entire structure of global finance had become frozen.
Money markets had seized up. Eight of the 10 largest US banks were technically insolvent. Property, the primary form of US savings, had become unsellable. Bond markets, stock markets and derivatives markets crashed. And companies started shedding jobs at the impossible rate of nearly a million a month!
Anyone even remotely connected to finance or the economy in 2008 recognised that, this time, the cyclical downturn was different. Yes, it was cyclical. But it was structural too, worse than any economic event since the onset of the horrific Great Depression.
The right conveniently ignores this reality, because by understating the downturn, it has been able to overstate the slowness of the recovery. Sure, the recovery was slow for a normal cyclical downturn. But this was not a normal cyclical downturn.
The right’s wilfully ignorant view of the severity of the downturn empowered it to undermine the policies of Obama. It gave commentators on the right the provenance to make all sorts of predictions and forecasts. They weren’t bothered that all of their economic scaremongering turned out to be wildly off base – and served to undermine confidence in the recovery.
According to the right, aggressive fiscal austerity would have hastened the recovery and prevented the Obama team from “ruining” the economy with its reckless policies.
But the policies of the Obama administration have hardly ruined the economy. Today, five years after the crash, the US economy is back on a much sounder footing and is growing stronger by the day.
Growth is solid and improving. Inflation is in check. Asset values have mostly been restored to pre-crash levels or above. And the Federal Reserve is about to finish its asset-purchasing programme in November.
Even the employment picture is improving, in spite of serious structural impediments that the right conveniently ignores.
The reality here is that stubbornly high unemployment rates are fuelled by globalisation, which has fostered the migration of entire US industries overseas, and by technological innovation. This has produced a rapid rise in worker productivity and created workplace dislocations not seen since the onset of the Industrial Revolution.
By wilfully ignoring these important factors and focusing on the minutiae of each successive unemployment report – invariably highlighting the bad and ignoring the good – the right does a great disservice to the US economic recovery.
For example, a positive employment report would be greeted with the inevitable “but they are not good jobs”. Of course they were not good enough jobs – good manufacturing jobs had already left US shores and worker output was being cannibalised by technology and robotics.
Alternatively, any downtick in the unemployment rate would be met with “but this is because people are leaving the workforce”. True, people have been leaving the workforce at abnormally high rates.
But what makes this number abnormally high is that Americans are turning 65 at the rate of 10 000 a day – a factor beyond the control of any politician.
Finally, nearly every employment report since mid-2009 has been weakened by decreases in public sector employment. These decreases have taken place on the state level, especially in red (Republican) states, where unemployment in general is higher than in blue (Democratic) states.
As a result, wilful ignorance supports an important skew to Americans’ view of their own economic recovery. This would not matter much, except that it gets translated into policy preferences. And policy preferences based on wilful ignorance are – okay, I can’t resist – wilfully ignorant.
An unrelenting string of alarming economic forecasts was the right wing’s hammer in prosecuting its agenda. But none of these dire forecasts – not one of them – has come to pass.
On the value of the dollar, they were wrong. They were also wrong about commodity price levels, inflation, interest rates and gross domestic product growth. I could go on, but you get the idea.
The Obama administration has pursued sound policies with respect to the economy. These policies have been based not on strident ideology, as the right would have it, but on empirical observation of recovery from past economic cataclysms.
The Obama economic brains trust understands the Great Depression better than its right wing counterparts. They understand how the do-nothing approach of the J Edgar Hoover administration so undermined the economic system that true recovery became a remote aspiration.
They also recognise how conservative demands for fiscal austerity every time the economy started to gain traction undermined president Theodore Roosevelt’s stimulative economic policies and stalled recovery in its tracks time and again.
By the same token, US economic policies under Obama have taken their cue from the more recent Japanese experience. There, “healthy” doses of fiscal austerity were periodically applied to rebalance the economy. Paired with an ageing population and a steep increase in foreign competition, these policies turned a cyclical downturn into a “lost decade” – now in its 20th year!
Fortunately, the US economy is robust enough to pick itself up, dust itself off and move aggressively forward in spite of the political bickering that has become the lifeblood of Washington.
But a single fact remains: had the right not engaged in wilful ignorance to promote a highly ideological and entirely unproven economic agenda, a far more robust US economic recovery may have manifested itself years ago.
Richard Phillips is the senior index analyst at S-Network Global Indexes in New York City. This article is reprinted with permission from TheGlobalist.com. Follow TheGlobalist on Twitter: @theGlobalist