090211: Rick Santelli: The Man Who Talked Back

By James Pethokoukis, Capital Commerce

Which, do you suppose, would be the bigger draw right about now: a) a Barack Obama house party supporting the housing bailout package, or b) a Rick Santelli-inspired "Chicago Tea Party" opposing the bailout package? Well, given that a) more Americans oppose the plan than support it, and b) Obama's house parties in support of the stimulus package drew mere dozens of Obamaniacs in major cities around the nation, "tea time" it is. (Plus, the Obama wingdings would probably all be held in homes about to be foreclosed upon. Total downer!) A few points:

1) Clearly, CNBC reporter Santelli tapped into something last week with his housing harangue from the floor of the Chicago Board of Trade. A YouTube video of Santelli has been downloaded more than half a million times, and commentary on the diatribe is burning up the blogosphere. He even made Meet the Press. Lots of pundits are comparing him to Howard "I'm mad as hell and I'm not going to take it anymore!" Beale, the crazed anchorman from the 1976 film "Network."

But there is a big difference, I think. Beale was telling anesthetized TV viewers to wake up to a world and reality gone horribly wrong. (Unfortunately, they all woke up to the Carter administration.) Santelli, though, represents not a call to mere awareness but a call to action for those folks who, as Democrats like to put it, "work hard and play by the rules" -- and who now are watching those that didn't get rewarded. Here is what "Larry from L.A." emails me:

"I was actually travelling and was watching it live from my hotel room while preparing for my day. It struck such a cord with me personally that it has, along with the way the stimulus plan has been handled by Congress and the Obama administration, ignited a fire in me to really get involved in the political process."

2) Actually, I prefer a different comparison. In 1937, there was a radio debate between Wendell Willkie— later to become the 1940 Republican presidential nominee—and Franklin Roosevelt administration official Robert Jackson—later a Supreme Court justice—about the proper economic role of government. (The event and its fallout are wonderfully described in the outstanding book "The Forgotten Man" by Amity Shlaes.)

By all accounts, Willkie won easily by arguing that FDR's efforts at nationalizing the utilities industry, his dramatic tax increases, and his administration's push for prosecutions of businessmen had frozen the private sector with fear and prevented the country from returning to prosperity. The Saturday Evening Post would later dub Willkie "The Man Who Talked Back" against the New Deal and Big Government. I would love to see a debate between Santelli and Obama spokesperson Robert Gibbs.

3) This may have been Santelli's most important economic point: "You know, they're pretty much of the notion that you can't buy your way into prosperity, and if the multiplier that all of these Washington economists are selling us is over… that we never have to worry about the economy again. The government should spend a trillion dollars an hour because we'll get 1.5 trillion back." Of course, all this government spending doesn't create prosperity. It merely transfers/steals prosperity from the future and brings it to the present to cushion the current downturn. Remember, here is what the Congressional Budget Office had to say about the stimulus spendathon:

"In contrast to its positive near-term macroeconomic effects, the Senate legislation would reduce output slightly in the long run, CBO estimates, as would other similar proposals. The principal channel for this effect is that the legislation would result in an increase in government debt. To the extent that people hold their wealth in the form of government bonds rather than in a form that can be used to finance private investment, the increased government debt would tend to "crowd out" private investment—thus reducing the stock of private capital and the long-term potential output of the economy. ... Including the effects of both crowding out of private investment (which would reduce output in the long run) and possibly productive government investment (which could increase output), CBO estimates that by 2019 the Senate legislation would reduce GDP by 0.1 percent to 0.3 percent on net."

4) It's now clear why Team Obama was following Rahm Emanuel's "shock doctrine" recommendation of not "letting a crisis go to waste." When you are trying to govern a center-right nation from the left, you need to grab whatever advantages fortune hands you and then move fast and hard to exploit them. But did Obama really win a mandate to borrow and spend taxpayer money like never before, rescue bad banks and then bailout financially-inept or even fraudulent homeowners? Rick Santelli doesn't think so and that is why he talked back.

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