Saved from Another Great Depression?

Occasionally one hears a guest on a talk show say that a statement is counterfactual. What they mean is merely that the statement is contrary to the facts, untrue. It's a polite way of saying:You don't know what you're talking about, pal. If you were on some TV talk show with Senator Dick Durbin (D-IL) and he stated yet again that Social Security "does not add a penny to the deficit," instead of calling Durbin a damned liar, however cathartic that might be, you'd probably be more likely to get invited back on the show by simply saying: That's counterfactual, Dick.

One can also hear guests on talk shows say that a certain statement or claim is an instance of the counterfactual. Used in this way, the word "counterfactual" becomes a noun rather than an adjective, and it refers to a type of statement that takes a particular form. Since we're proponents of thinking here at American Thinker, this type of statement, the counterfactual, needs a little attention.

An entry in the Stanford Encyclopedia of Philosophy gives the form of the counterfactual as this: "If A had not occurred, C would not have occurred." When employed for some cases, the counterfactual generates no argument. Example: If Jack hadn't overslept, he wouldn't have missed his job interview. However, when the counterfactual is employed for certain large claims it can become a bone of contention, such as this recent claim made by progressives: If President Obama hadn't intervened, the economy wouldn't have recovered and we would be suffering another Great Depression.

It's true that had the dive taken by the economy in late 2008 not been reversed, America would be in depression. But what actually brought about that reversal? After all, America was already in recession when the financial crisis hit and was officially out of recession by June 2009. So the recession was over before Obama's stimulus could begin to have had an effect. What saved America from the depression that loomed in late 2008 were the measures initiated by the Bush administration, mainly the $700 billion Troubled Asset Relief Program (TARP), not Obama's interventions. Nonetheless, Obama apologist Bernard Whitman writes:

To prevent another Great Depression, Obama signed the American Recovery and Reinvestment Act [aka the stimulus] less than a month after being sworn into office. [...] Princeton University's Alan Blinder and Moody's chief economist Mark Zandi estimate that without the financial interventions and the Recovery Act, we would have entered another depression.

America has suffered quite enough from Princeton U., thank you, but leave that aside. The 2008 financial crisis, with its frozen credit markets and bank runs, was primarily a liquidity crisis. As such, it had to be dealt with quickly, and it was. When the recession ended in 2009, America was awash in liquidity and depression had been averted. But the economists above are suggesting that there was some other menace after we recovered from the financial meltdown that also threatened depression. Progressives want folks to think of the financial crisis and the bad economy ever since as a single crisis. But they are distinct. Michael Booth, aka Cato the Eldest, writes:

First conclusion: we don't have a liquidity crisis at the moment. We had one in 2008-2009 and the Fed dumped $2.3 Trillion into the system (QE1, QE2, Twist). [In other words], the Fed threw a huge tourniquet around the wound. The Federal Reserve, unlike the inflation-phobic ECB [European Central Bank], is depression-phobic. This is important, because if we can't solve our solvency issues, grow our economy, we Americans are much less likely to experience a deflation or depression than a repeat of the 1970′s, with much higher and persistent inflation. The Fed has clearly shown itself much more willing than the ECB to print as much money as necessary to paper over the insolvency of the US government, without regard to the inflation damage that potentially creates, because the alternative is in the judgment of the Fed much worse.

Progressives' counterfactual claim takes advantage of how Americans meld two different things: the 2008 financial crisis and the lousy economy that ensued. And they're easy to mentally fuse together because they're contiguous. All that many Americans know is that things are bad and they've been bad since 2008. So it all becomes one.

Progressives need crises to give them the cover they need to change America to their liking. So they want folks to conflate the current weak economy with the 2008 financial crisis precisely because 2008 was so horrific (e.g., the Dow Jones Industrial Average lost more than half its value). Progressives want Americans to think that the stimulus, the trillion-dollar deficits, Solyndra, and such were all a necessary response to a single scary crisis that's still going on, even though Bush handled the liquidity crisis four years ago. Heck, even the auto bailouts began under Bush.

The relative economic calm right now, at least when compared to 2008, masks our real crisis. The crisis of the moment is not a crisis of liquidity, but of solvency; specifically, the solvency of government. America's solvency crisis was caused by Congress's spending addiction. Whereas our 2008 liquidity crisis was dealt with quickly, our solvency crisis threatens to ruin America. Booth again:

It's worth noting that solvency issues cannot be dealt with by central banks. The Fed, like the ECB, simply lacks the tools to fix issues of competitiveness, productivity, entrepreneurship and innovation in the economy. Solvency issues are everywhere and always political issues.

Although Booth's article ends on a positive note, he makes some grim predictions about America's coming solvency crisis, which he thinks will unfold within the next two years. Democrats, however, are doing nothing to deal with this impending crisis. They are transfixed by issues like "fairness" rather than getting the economy going again.That is evidenced by their utter lack of seriousness in the ongoing "fiscal cliff" negotiations.

The problem with sweeping counterfactual claims is that often they can't be tested. Economists can't recreate the exact economic conditions of September 2008 to test how effective other solutions would have been. So it's all just speculation. But the basic message of the progressives' counterfactual is that things could be worse... and if Congress doesn't stop its insane spending, they will be.

Jon N. Hall is a programmer/analyst from Kansas City.

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