Summary: Can Obama make America like Zimbabwe? Or is this widespread warning a sign that we’ve become gullible fools? The easy acceptance of this preposterous warning suggests the latter. It’s sad that such a post is necessary. Worse, explaining these facts is unlikely to change the mind of many people believing this nonsense. This is a follow-up to Would a default by the US government help America?, and another in a series looking at the important role of propaganda in modern American politics.
Conservatives have warned that President Obama is wrecking America, perhaps deliberately. The early comparisons were mild.
“What you’re doing is buying into the notion that if we just print some more money that we don’t have and send it to different states, we’ll create jobs,” he said. “If that’s the case, why isn’t Zimbabwe a rich place?”
— Mark Sanford (R, Governor of S. Carolina), CNN, 11 March 2009
In the past year they’ve become explicit.
“Bruce, I’m not trying to turn the United States into Zimbabwe. That would be the guy in the White House, whom you seem surprisingly anxious to defend.”
— Glenn Reynolds (Law Professor at U of Tennessee), Instapundit, 19 February 2010 — Red emphasis added.
Update: Prof Reynolds was circulating the GOP narrative. For a more explicit statement, here is Peter Schiff on Glenn Beck’s Fox News show, 28 December 2009 (transcript here):
SCHIFF: You know, look, I know inflation is going to get worse in 2010. Whether it’s going to run out of control or it’s going to take until 2011 or 2012, but I know we’re going to have a major currency crisis coming soon. It’s going to dwarf the financial crisis and it’s going to send consumer prices absolutely ballistic, as well as interest rates and unemployment.
PAYNE: And what does that mean? For people watching this show, what does that mean for the average American?
SCHIFF: It means their life is going to get a lot more difficult. It means things that they need to buy, things like food and energy, are going to be much more expensive. Ultimately, interest rates are going to rise and their entire standard of living is going to plunge. And I’m hoping the government doesn’t respond to this inflation with price controls because that’s going to make it even worse. Now, you’re going to be waiting in long lines to get basic food items or to get energy because there’s going to be shortages. People might be going to the black market.
PAYNE: You’re talking you’re talking Zimbabwe, Weimar, Germany — I mean, you’re really talking about something like that actually happening in this country.
SCHIFF: It will happen if we don’t change policies. There is still time to change. … I mean, I’m running for the United States Senate, so I can try to change that myself. But if we don’t reverse course, if we continue to stimulate, then we will end up with hyperinflation and it will be like Zimbabwe.
That intelligent and educated people make this comparison — either sincerely or as agitprop — shows the sad condition of political debate in the US. By comparison with this “Tippecanoe and Tyler too” (Wikipedia) looks like The Federalist Papers. This fear of becoming like Zimbabwe has taken root among conservatives, frequently appearing in comments on this website and others. For one sample see this Google search.
Let’s count the ways this comparison fails.
- Obama’s economic policies closely follow those of President Bush.
- The expansion of the money supply took place under President Bush; it’s been flat under Obama.
- Conventional economic theory says that expanding the money supply during a depressionary shock is the correct action.
- There are no significant similarities between Zimbabwe and the USA.
- There are no significant policy similarities between Zimbabwe and the USA.
Below you’ll see a brief analysis of each point. Anyone making this comparison needs to read this: Where to go to learn about economics, and help you understand what’s happening to America and the world.
Update: As noted in the comments, this comparison serves to incite fear much as the equally absurd Bush=Hitler did among liberals.
(1) Obama’s economic policies closely follow those of President Bush.
The recession started in December 2007. In response the Bush Administration and Congress passed…
- Economic Stimulus Act (February 2008) — Gave money to households and businesses (not just rebates and rate cuts), expanded the mortgage lending activities of the Federal Housing Administration, Fannie Mae and Freddie Mac (virtual nationalization of the mortgage lending industry, with the government now the nation’s top subprime lender)
- Emergency Economic Stabilization Act (October 2008) — A massive bailout of the banking system, which is now condemned by the Tea Party Movement.
President Obama’s economic policies continued those of Bush. The bank bailouts continued, without any meaningful reform of bank regulation. As did the stimulus programs. In February 2009, with the recession in its 15th month (by which point most recessions had ended) and the global economy rapidly contracting, Obama signed the American Recovery and Reinvestment Act — bigger and broader than the February 2008 package.
The timing shows the political basis of these warnings about Zimbabwe-ifaction. During 2008 many conservatives mocked those economists who warned that we were in a severe downturn. Such as Glenn Reynolds, with his repetition of “Dude, where’s my recession?” (for examples see these links on Google; for analysis see this and this). Bad news for his loyal readers who failed to prepare. With Obama in the White House, the President gets tagged with every bit of bad economic data. Using Instapundit as an example:
- “ER, SO IS THIS THE HOPE? OR THE CHANGE? Deficit To Hit All-Time High.” (1 February 2010, link)
- “CHANGE: December home sales down nearly 17%: Home sales plunge nearly 17% in December after tax credit deadline extended.” (25 January 2010, link)
(2) The expansion of the money supply took place under President Bush; it’s been flat under Obama.
In February 2009 — after Obama’s inauguration — M2, the broadest measure of the US money supply, was $8.29 trillion. In January 2010 it was $8.45 (not seasonally adjusted; source: Federal Reserve). The same is true for M1, the adjusted monetary base, and the Federal Reserve’s balance sheet. The massive expansion took place in the second half of 2008, during the Bush Administration.
(3) Conventional economic theory says that expanding the money supply during a depressionary shock is the correct action
By late 2008 the shock to the global economy was as large as that of the early Great Depression. For more about this see…
- ”A Tale of Two Depressions“, Barry Eichengreen and Kevin H. O’Rourke, VOX, 1 September 2009
- “The Labor Market during the Great Depression and the Current Recession“, Linda Levine, Congressional Research Service, 19 June 2009 — The similarities are even stronger now, 8 months later.
During severe economic downturns people increase their savings. The want cash and its equivalents assets (e.g., bank deposits, money market funds, treasuries). Almost all economists believe that the Federal Reserve’s failure to accommodate this desire for cash contributed greatly to the Great Depression. An analogy is an emergency room doctor failing to give oxygen to a patient. This time the Federal Reserve did better, a major reason this shock did not create a depression.
(4) There are no significant similarities between Zimbabwe and the USA
Zimbabwe is a third world state that was never really a nation. The #2 worst failed state on the 2009 Fund for Peace-Foreign Policy Magazine list (Somalia is #1). It has almost nothing in common with the condition of the USA.
- Small, aprox 12 million people. vs. our 310 million.
- Poor, GDP aprox $100/person vs. our $48 thousand/person
- New, government recognized in 1980 vs. our 1788 (one of the oldest government and oldest democracies in the world)
Zimbabwe’s hyperinflation is extraordinary, the second largest hyperinflation on record as shown by this table from “On the Measurement of Zimbabwe’s Hyperinflation“, Steve H. Hanke and Alex K. F. Kwok, Cato Journal, Spring/Summer 2009):
(5) There are no significant policy similarities between Zimbabwe and the USA.
This is too obvious to deserve discussion. Wikipedia has a clear description of the Zimbabwe hyperinflation. As always with Wikipedia, the links are the most useful part.
(6a) For more information on the FM website
To read other articles about these things, see the FM reference page on the right side menu bar, including About the FM website page. Of esp relevance to this topic:
- About Financial crisis – what’s happening? how will this end?
- About Information & disinformation, the new media & the old
Posts about Solutions:
- A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
- Slow steps to nationalizing the US financial sector, 7 April 2008 — How this will change our society.
- A solution to our financial crisis, 25 September 2008
- A quick guide to the “Emergency Economic Stabilization Act of 2008″, 29 September 2008
- The last opportunity for effective action before disaster strikes, 3 October 2008 — How to stabilize the financial system.
- Effective treatment for this crisis will come with “The Master Settlement of 2009″, 5 October 2008
- Dr. Bush, stabilize the economy – stat!, 7 October 2008
- The new President will need new solutions for the economic crisis, 9 October 2008
- New recommendations to solve our financial crisis (and I admit that I was wrong), 23 October 2008
- A look ahead to the end of this financial crisis, 30 October 2008
- Expect little or nothing from meetings like the G20 – or the Obama Administration, 18 November 2008
- Everything you need to know about government stimulus programs (read this – it’s about your money), 30 January 2009
- Bush’s bailout plan is now Obama’s. His quiet eloquence guides the sheep into the pen, 30 March 2009
- Economists discuss the impact of the stimulus on our recession, 7 October 2009
- Explaining the government’s response to the financial crisis, 3 December 2009
- A lesson from the Weimar Republic about balancing the budget, 10 February 2010
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