Big Government and the Big Split

December 28, 2009

The WSJ nicely sums up 2008:

To prevent crumbling housing and credit markets from sinking the broad economy, the Bush and Obama administrations and the Federal Reserve spent, lent and invested more than $2 trillion on one initiative after another. If you owned a credit card or a money-market fund, had a savings account, bought a Dodge pickup or even a hunting rifle, or borrowed to buy a home or finance a small business, odds are good that the U.S. stood behind you or the firm that served you.

Washington pumped $245 billion into nearly 700 banks and insurance companies and guaranteed almost $350 billion of bank debt. It made short-term loans of more than $300 billion to blue-chip companies. It propped up life insurers and money-market funds.

It bailed out two of the three U.S. auto makers. It lent billions trying to jump-start commercial-real-estate, small-business and credit-card lending. In two February stimulus bills enacted a year apart, the government committed $955 billion to rouse the economy. Today the U.S. government, directly or indirectly, underwrites nine of every 10 new residential mortgages, nearly twice the percentage before the crisis. Just last week, the Treasury said it would cover an unlimited amount of losses at mortgage giants Fannie Mae and Freddie Mac through 2012.

But voters don’t seem to be buying the idea that the government saved the economy. This from pollster Rasmussen (note the last sentence):

The number who believe that the stimulus plan has hurt the economy rose from 28% in September, to 31% in October, and 34% in November before jumping to 38% this month. The week after the president signed the bill, 34% said it would help the economy, while 32% said it would hurt.

The Political Class has a much different view than the rest of the county. Ninety percent (90%) of the Political Class believes the stimulus plan helped the economy and not a single Political Class respondent says it has hurt. (See more on the Political Class). The underlying reason for skepticism about the stimulus plan is that 50% of voters believe increasing government spending is bad for the economy. Just 28% believe that increased government spending helps the economy.

Me: Americans rightly think the economy is in terrible shape. The argument that the economy would be worse if not for government is a hard one to make for Team Obama … especially since government played a critical role in creating the housing and financial crises. Making all this worse is a 2010 economy that may be a muddle at best — so-so growth, unemployment still above 9 percent, rising interest rates and moribund housing.

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