Is Barack Obama Nuts?

The writer Rita Mae Brown once wrote, “Insanity is doing the same thing, over and over again, expecting different results.” In 1963 the laissez-faire economist Milton Friedman and Anna Schwartz publish a hugely influential book titled, “Monetary History of the United States 1867-1960.” The ideas presented by Friedman and Schwartz came to be known as “monetarism” because they argued that the supply of money circulating through the economy had a direct effect on the amount of spending (demand). Print more money, people will buy more stuff. Slow down the printing presses and people will buy less stuff.

In the late 1970’s a crisis known as stagflation was gripping the economy. The economy was not growing, more and more people were losing their jobs, but the price of stuff kept rising. Spooked by this contradiction, President Jimmy Carter appointed the “monetarist” and Friedman disciple Paul Volcker to head the Federal Reserve Bank. Volcker slowed the printing of money, threw the economy into a severe recession, and stopped the weird increases in the price of stuff thereby ending stagflation. Monetarist became the darlings of Washington. When Volcker’s term ended, President Ronald Reagan appointed uber- monetarist and Ayn Rand fan Alan Greenspan to head the Fed. Greenspan was reappointed by Presidents George H.W. Bush, Bill Clinton, and George W. Bush. Presently monetarist Ben Bernanke chairs the Fed.

So what happened to the economy under the direction of the monetarist over the last 30 years? The recession of the early 1980’s has already been mentioned. The national debt increased by 1000%. There was the Garn-St. Germain Act that deregulated and busted the savings and loan industry. That cost the tax payers 900 billion dollars. The stock market crashed in 1987. Next came the recession of 1990-92. In 2000 the “dot-com” boom turned into another bust. Meanwhile monetarist Senator Phil Gramm (his wife sat on the board of ENRON) and Representative James Leach with the help of Clinton’s monetarist Treasury Secretaries Robert Rubin and Lawrence Summers repealed Glass-Steagall in 1999. That, in-turn, retarded banking industry regulation causing another boom-bust cycle costing so far more than a trillion dollars.

President Barack Obama has surrounded himself with monetarist Volcker, Bernanke, Christina Romer, Summers, Rubin, and Timothy Geithner among others. Therefore I have a question for Progressives and Liberals: Is Barack Obama nuts?

February 2009