Zakaria Makes the Media's (False) Case on the Economy

On Sunday’s Global Public Square on CNN, host Fareed Zakaria presented a version of the same argument percolating through much of the mainstream media: that our economy is succeeding thanks to government. 

Zakaria did allow that the private sector had led the way–and added the somewhat iconoclastic observation that the federal budget sequester had not hurt the economy. Yet his overall conclusion was that the big-spending, heavy-intervention of the Bush and Obama administrations, and the Federal Reserve, had worked.

The hook for Zakaria’s observation was the recent rise in housing prices, which normally would signal that an economic recovery was in full swing. Yet there has not been a similar increase in mortgage applications, which have actually fallen in recent weeks. As Wynton Hall of Breitbart News cautioned, the primary reason for price hikes may be “not individuals buying homes but rather large investor groups swooping in to snatch up homes that can be rented to families and individuals who lack either the credit or capital to buy a house of their own.” That is a sign of ongoing stagnation–partly driven by Washington’s tight credit rules since the 2008 crash.

Zakaria also made one glaring, misleading claim: declaring that corporate profits are rising. As Breitbart News’ Mike Flynn observed last week when the government released revised economic growth figures for the first quarter, there had been an alarming drop in corporate profits. Along with an unexpected drop in consumer spending, and faster-than-expected consumer price drops, these are troubling signs of stagnation.

In addition, Zakaria repeats several myths to which the left, in particular, has clung in recent months: that the Troubled Asset Relief Program (TARP) bailouts of 2008 were swift and effective; that the federal stimulus of February 2009 worked; that the automobile industry’s restructuring was successful; and that the Fed’s heavy involvement in the economy has helped keep the economy afloat. 

The truth is that TARP was implemented slowly, with much of the spending deferred for months, and created bad incentives that may have harmed the strength of U.S. economic institutions. The stimulus was a corrupt failure that only delayed state and local government cuts, while ballooning the debt and leading to a downgrade of the U.S. credit rating. The auto industry would have been restructured through ordinary bankruptcy, but the Obama administration’s effort to sideline primary creditors and reward its union allies sent a negative signal to investors. And the Fed’s many interventions may have created new asset bubbles in both the stock market and, lately, the housing market.

Zakaria notes that the U.S. is doing better in the recovery than Europe and Japan. That is true–but also reflects the fact that our economy was stronger than both before the 2008 crisis. What Europe and Japan have in common is that both have generally failed to make fundamental reforms in their state-led industries, their entitlement systems, and weak labor markets. Japan in particular undertook the sort of stimulative policy that the U.S. has pursued under President Barack Obama and Fed chair Ben Bernanke, with very poor results.

Predictably, Zakaria’s recommendations for improving the U.S. economy are a liberal policy checklist–worker training, immigration reform, infrastructure spending, government investment in high-tech. Only entitlement reform, last on his list, is something that conservatives have also stressed. He ignores the fundamental shift that has occurred during the Obama years away from an entrepreneurial culture of individual opportunity, and towards an economy centered on big government and the largest private institutions that depend on it.

That may satisfy Zakaria, who makes no secret of his preference for elitist policy-making. But it will not satisfy the needs or aspirations of the generations of Americans who must pay the bill for the policies he endorses.