The Democrats’ Recession

The public seems to believe that the current economic problems are primarily the Republicans doing, and that is what swung the election, according to exit polls. Read John Lott’s newest piece published at FoxNews.com. He writes about various Democrat-pushed policies that directly led to the current economic problems.

There are two additional issues not brought up by Dr. Lott. He notes that the increase in the unemployment rate was (partly) caused by an increase in the length of unemployment benefits pushed by the Democrats. It also directly followed an increase in the minimum wage. When the hourly rate for labor increases above the value of that labor, the price becomes too high and the labor is not purchased–that is, someone loses their job. It’s not limited to workers making the minimum wage, though. Many labor contracts are written with wages specified as a factor of minimum wage (this job pays 2.3 times minimum wage, that job pays 6.7 times minimum wage). A minimum wage hike means higher pay for lots of people (hurrah!), but some of those workers won’t be worth keeping at the new higher wage (oops!). Determining how much of the increase in the unemployment rate was a function of government mandated higher wages and how much was extended government incentive to remain unemployed would take a great deal of data I don’t have and probably some additional statistics courses. But both were clearly factors, and both were Democrat-pushed policies.

Dr. Lott described the problems with the mortgage industry and the Democrats’ policies that were behind those problems, and he notes that the inherent problems didn’t manifest so long as home prices continued to rise. But what lead to the smaller downturn earlier this year, that led to the slowdown in the rise in home prices, that led to the mortgage meltdown? Two closely related things: higher fuel prices and higher food prices. Higher fuel prices were part of the reason for higher food prices–you have to run tractors to farm the food and trucks, ships, and trains to move it to market. The other factor was government subsidies for, and mandated use of, ethanol. Government subsidies and mandated use made it more profitable to grow crops for ethanol instead of food for people, or food for animals that become food for people. That meant less food grown for people, which meant higher prices for that food. Unfortunately, while ethanol removed a large quantity of food from the market, it didn’t introduce a similarly large amount of fuel into the market. That’s because ethanol isn’t a very efficient way to produce fuel. It is considered more “green” and “renewable” though, which is why it was so popular with the Democrats. But real increases to the energy supply could have been realized by drilling for oil in the United States, and by building nuclear power plants. Oil drilling has been widely opposed by the Democrats since the seventies, although to be fair, enough Republicans opposed it during their majority that with the Democrats solid opposition it never went anywhere. Nuclear power could have helped by freeing up more natural gas for taxis and municipal vehicles and promoting coal to petro conversion technology by reducing the market for coal for electricity. Nuclear power is another big Democrat no-no.

The mortgage problem would still have been looming, but perhaps without food and fuel prices pushing us over the tipping point we might have had time to get enough Democrats on board with minor corrections to Fannie Mae and Freddie Mac and averted the current crisis. Well, probably there would have been no convincing them–after all, they still deny any responsibility. At any rate, Dr. Lott’s piece is well worth a good read.

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