“The recession of the early 1990s spawned spontaneous militia groups across the country. What will we get this time?”

Tuesday, July 6, 2010
By Paul Martin

Hobos and welfare for America’s Rich

By Ambrose Evans-Pritchard
July 6th, 2010

My apologies to the people of New England. I mistakenly said in my Monday column that Representative Dean Heller comes from Vermont. He comes from Nevada, where 64pc of all home sales are from foreclosures and unemployment has reached 14pc.

Be that as it may, there is no dispute that he described America’s long-term unemployed as “hobos”. Was he just careless, or deliberately evoking the spirit of the Great Depression?

Reading William Manchester’s Glory And The Dream over the weekend, I came across this remark from President Herbert Hoover, blurted out famously in the cruellest year of 1932.

“Nobody is actually starving. The hobos, for example, are better fed than they have ever been. Hobos are eating well, in fact one had ten meals in a single day.”

Hoover took deep offence at reports that children were dying of malnutrition. This is not surprising for a man who first made his global reputation organizing food aid for Belgian children at the end of World War One

By then Hoover had lost the plot, a common problem for those over the age of 45 who stop thinking, stop observing, and rely reflexively on whatever set of views worked for them in the past (I am 52).

He never quite lived down these words. After he lost the lost presidency to Roosevelt in 1933, he was taken to see starving families in Colorado. Though Hoover was too self-righteous to admit error. He insisted that economy was well on its way to recovery until President-elect Roosevelt frightened everybody with his “socialistic” adventurism.

Mr Heller probably regrets his words already, but such damage cannot easily be undone. Republicans on Capitol Hill who backed the mobilization of $3 trillion of fiscal and monetary support to bail out the financial system are now going to great efforts to prevent the roll-over of temporary benefits to 1.2m jobless facing an imminent cut-off.
I don’t wish to enter deeply into an internal US dispute between Republicans and Democrats, but I do think think that the American political class will have to face up to the new reality of a semi-permanent slump for a decade or more that will blight a great number of lives. The cyclical recovery that normally makes it possible for most Americans to find a job if they want one is not going to happen this time because the overhang of debt, fiscal tightening, and a liquidity trap have combined to jam the mechanism.

The broader U6 rate of unemployment is 16.5pc. Jeff Weniger from Harris Private Bank estimates that over 9m Americans without jobs are receiving no support.

At some point this will become very political. Everybody knows that the wealthy have in fact been bailed out. Part of the purpose of quantitative easing was to raise asset prices, in the hope that this would course through the economy – and ultimately trickle down. The rich have benefitted enormously from federal action. Bond holders facing stiff losses on bank securities, or Fannie and Freddie bonds, and so forth, have been protected by the Fed and the Treasury.

I do not for one moment believe that Morgan Stanley or Goldman Sachs – for example – would have survived the Lehman storm without (implicit) intervention. This is not a criticism of federal action. It was right in such circumstances to step in to prevent a collapse of credit system.

But once welfare has been deployed so generously for the rich, it cannot be denied so easily for the poor. This was the Faustian Pact.

Republicans on Capitol Hill need to think long and hard about the nature of the contract they signed, and the language they now use. Otherwise American society risks splitting ever more bitterly into opposed camps.

The recession of the early 1990s spawned spontaneous militia groups across the country. What will we get this time?

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