WASHINGTON (CN) – President Barack Obama on Tuesday defended his administration’s effort to spend its way out of the recession and his expansive agenda on healthcare and energy, while comparing the past economy to one built “on a pile of sand.”
“Nobody is more frustrated with AIG than me,” he said, but argued the necessity of everything he’s done as a way of rebuilding this economy’s foundation. “Our task is to make sure this crisis never happens again.”
Speaking at Georgetown University, the President told the story of a man who built his house on a pile of sand, and another who built his on a rock. After a fierce storm, only the house on a rock remained. “We cannot rebuild this economy on the same pile of sand. We cannot go back to the bubble and bust economy that led us to this point,” he said.
Obama outlined new rules for Wall Street, a reduction of the deficit, and increased investment in education, new energy technology, and healthcare. “That’s our house on a rock,” he said.
“I know there’s a criticism out there that my administration has been pushing a liberal agenda,” he said. “Well, let me make three points.”
Obama argued first that the enormous government spending under the Recovery Act is necessary to minimizing the duration of this recession. Historically, he said, when governments do not take early, aggressive action, they have years of slow growth instead of months. If everybody cuts back, there will be no customers. The government must stimulate demand, he explained.
For the many who ask “where’s my bailout?”, Obama explained why lending money to banks is better than lending directly to citizens. “A dollar of capitol in a bank can actually result in eight to ten dollars of loans to families and businesses,” he said.
He then addressed the cries of foul over his call for healthcare reform and for greater investment in education in the midst of the crisis. “If we don’t lay this new foundation now, it won’t be long before we are right back where we are today. Difficulties cannot serve as an excuse for inaction.”
1.5 million people could lose their houses this year because of medical crises, he said, explaining the economic need for healthcare reform. Medicare, Medicaid, and Social Security are some of the government’s primary expenses. Healthcare reform will bring down costs across the board, he argued, citing electronic medical records and preventative healthcare as examples of ways to cut costs.
Education is another investment we need to make now. He said that for decades the United States has led the world in education and, as a result, in economic growth. “Now we are trailing,” he exclaimed. Without an educated and skilled workforce, the country will not be competitive.
Obama outlined his solution. He has already expanded early childhood education and wants to tie teachers’ pay to their performance. Tax credits, he said, will make college more affordable. “Even for those who attend Georgetown,” he joked.
Finally, he defended the growing deficit. “The problem with our deficit and debt is not new,” pointing to the two wars and tax cuts. While Obama acknowledged the enormous government spending, he reminded us of the ultimate reduction of cost of a renewed healthcare system and the increased revenue earned by closing tax loopholes. He left room for more solutions, recognizing debt as an enormous problem and that more would have to be done.
Apart from defending his actions from critics, he expanded on other plans. Obama called on investments in renewable energy. “The first country to harness this new energy source will lead the 21st century. So the investments we made in the Recovery Act will double this nation’s supply of renewable energy in the next three years,” he promised, adding that it’s important for our planet.
The President also stressed the role of citizens who actually make products for export. “For so long, we have placed at the top of our pinnacle folks who can manipulate numbers. But what we can really use is some more scientists and some more engineers,” he said.
“Now, to understand how we get there, we first have to understand how we got here,” said Obama.
He then launched into an explanation of the recession. “It was caused by a perfect storm of irresponsibility and poor decision making,” said the President. Enormous loans became readily available because of the advent of securities which held a variety of mortgages. Credit agencies believed that by pooling the mortgages, the risks were reduced, and securities were labeled with their safest rating.
Banks and investors bought and sold these securities without knowing their actual value. Banks took on more debt than they could handle, and when the housing bubble burst, people defaulted on their mortgages. With fewer debtors paying, the value of the securities fell. Investors pulled their money from the market and financial institutions which couldn’t pay their debts collapsed. Money became scarce and lending stopped, explained Obama.
Obama continued by explaining that loans important for everyday functioning of businesses dried up. With less money, businesses laid off workers. Without jobs and loans, people stopped consuming. The international community, which was also tainted by these toxic securities, soon felt the recession and slowed its consumption of American goods.
He argues that this is why sparking demand and easing credit flow are necessary. And through the Recovery Act, the bank capitalization program, and the auto plan, it’s what he’s been doing.
“If we use this moment to lay that new foundation, then I have no doubt that this house will stand and the dream of our founders will live on in our time,” he said.