The Huffington Post, July 19, 2010
See article on original website
It is amazing how people in Washington are so forgiving -- of each other. We have close to 15 million people unemployed and more than 8 million people under-employed because the folks managing our economy were incompetent.
In spite of the efforts of economists and policy types to portray the cause of the economic collapse as being complicated, it wasn't. It was really really simple. Prior to the downturn the economy was being driven by an $8 trillion housing bubble. This led to a boom in residential construction. (A separate bubble in commercial real estate led to a boom in non-residential construction.) The equity generated by the housing bubble also led to a surge in consumption, with the saving rate falling to almost zero at the peak of the bubble.
It was inevitable that the bubble burst. Bubbles do that. They lead to an over-supply and eventually we run out of suckers willing or able to pay bubble-inflated prices for houses. The collapse caused the economy to lose $1.2 trillion in annual demand from the private sector. Annual construction spending fell back by close to $600 billion and consumption fell by roughly the same amount as a result of the loss of housing wealth.
There is no mechanism that allows the economy to easily replace this much demand. Hence we were guaranteed a severe downturn, without massive amounts of spending by the government.
All of this is really simple. Any competent economist or policy analyst should have recognized the problems created by the housing bubble. Unfortunately, we did not have competent economists at the Federal Reserve Board; we had Alan Greenspan and Ben Bernanke.
But, the blame does not end there. Congress is charged with overseeing the Fed. It is their responsibility to ask Greenspan and Bernanke (who was at the Fed since 2002, apart from a brief stint in the Bush administration) about the housing bubble. Congress, and specifically the Republicans in the Senate, never raised such questions. They just looked the other way as Greenspan and Bernanke were driving the economy over a cliff.
The reason for singling out the Republicans in the Senate, among all the people whose incompetence contributed to the economic crisis, is that they have decided to obstruct the extension of unemployment benefits for the long-term unemployed. People should recognize the irony in this story.
The unemployed have the skills, the ability, and the desire to work: they had been working until the economy collapsed. They are unemployed because the people who were running the economy - including the Republican senators with oversight responsibilities -- were incompetent.
So now we have Republican senators who share the blame for an economic collapse, drawing healthy salaries and generous health care and pension benefits, telling the unemployed workers who were victims of their incompetence, that they can't get $300 a week in benefits. This is Washington at its best.