“We are spending more money than we have ever spent before and it does not work… we have just as much unemployment as when we started and an enormous debt to boot.”
One could imagine Timothy Geithner in a confessional moment, uttering such words. But this quote is from a predecessor over seventy years ago: Henry Morgenthau, Franklin D. Roosevelt’s Treasury Secretary, proclaiming the bankruptcy of the New Deal policies in testimony before the House Ways and Means Committee. But the confession rings true today as well.
This week’s economic statistics – with news that house prices continue their decline, that consumer confidence is on the wane, and culminating in the disastrous employment report on Friday – provide gathering proof that the economic recovery remains weak. Indeed, it may be approaching the point where it tips back into recession.
The Obama Administration sent out its spin doctors, including Mr. Obama himself, who offered versions of the following: it was the Japanese earthquake disrupting the supply chain; it was the European debt crisis making investors anxious and risk-averse; it was the high price of gas making consumers retrench.
It is perhaps all of those things to some degree. But the complex global economy is never without its headwinds. A robust economy could absorb the shocks and uncertainties and continue to motor ahead. This one shudders at every turn, and never gets sustainable momentum.
“A bump in the road,” was one of the terms used by economic advisor Austan Goolsbee, referring to the terrible jobs report. Would that it were so. In fact, the prospect is for greater job losses in the months ahead as states start to come to grips with their own fiscal nightmares. A major portion of the $787 billion “stimulus” bill went to funnel money back to the states so that they could keep their staffs on the payroll. Now that that money is coming to an end, the job losses are coming, two years late.
This is, in fact, one of the great calamities of Obama’s response to the financial crisis of 2008: by shoveling borrowed money at various favored groups (aid to the states, cash for clunkers, mortgage modification, foreclosure restraint, green energy, etc) the government prevents the market from finding a natural equilibrium that does not rely on the federal fisc. And because the market is not at equilibrium, buyers and sellers are hesitant, and activity refuses to pick up.
But it’s worse than that. When the government is the key decision maker in the economy, it matters at least as much that a company has effective representation in the halls of government as that it has an outstanding product or service to sell. This administration, which came into office proclaiming the ideal of a government free of influence from lobbyists and special interests, puts its finger on the scale so that companies across the country are virtually compelled to hire the best lobbyist they can.
And of course, there is the spending. Totally apart from the “emergency” spending of the “stimulus” program, the Obama team ratcheted overall government spending up by nearly 30% between Fiscal 2008, the last Bush budget, and Fiscal 2011. This is not a temporary emergency measure – this is the baseline beyond which projections have spending growing.
Were government services so poorly funded in 2008 that a 30% increase was necessary? Here’s an interesting statistic – going back to 2008 spending levels, as the House GOP has suggested, would save over $800 billion per year. That right there is $8 trillion in savings over the ten year cycle that pols like to use. How is it that it is so easy to add $800 billion in a short time but to cut it back in times of economic distress brings howls of pain and accusations of heartlessness?
But the problem goes on. The Obama Administration’s greatest hammerlock on growth is its regulatory and administrative decisions. Whether it’s the moratorium on oil drilling (which has ostensibly been lifted, only to be replaced by delay), the EPA’s rules forcing Obama’s view of a carbon-free energy system, the thousands of rules (still being formulated) that will flow out of both the Obamacare and the Dodd-Frank legislations, the pro-union tilt of the National Labor Relations Board, which has told Boeing where it should build its new Dreamliner, this Administration has promulgated thousands of pages of rules intended to shape the economy to its liberal ideal. Often these rules are passed with no consideration of the impact they will have on the economy, as attested to by an active commissioner of the Consumer Product Safety Commission: “we are issuing regulations without having done the necessary work to understand the impact of our actions both on those being regulated and on the public.”
Obama won’t admit it, but his under-the-radar drive to remake America in his progressive image is more important than the “jobs, jobs, jobs” he claims is his top top tip-top priority. And these rules have the effect of making managers hesitate to launch a risky new venture.
I think Obama’s big gamble was that the natural vitality of the economy would be enough to support all the weight his vision would place on it. I think, also, that he probably believed the Keynesian fallacy that government could somehow take money from some people, whether by raising taxes or borrowing, and give it to other people, through expanded programs, and somehow have the economy respond more robustly than if the original people had spent their own money in the first place. This failed to work in the ’30’s and it has failed to work now.
Obama is running out of time. And his quiver is empty: there will be no more “stimulus” and interest rates are about to start rising. The economy is likely to continue stuttering, housing will continue to languish, and underemployment will continue to hover between 15 and 20 million until the next election. And the only way he can turn it around is to turn his back on the Obama revolution and follow a growth agenda – cutting taxes, reducing regulation, and limiting government interference in the economy. Not likely.
Obama spent much of his first two years blaming the Bush Administration for all the problems he faced. With the impact of his policies on the economy in that time, this is no longer remotely plausible. This economy is clearly his responsibility. As Peggy Noonan artfully pointed out this week, the sound bite for Obama’s opponents in this election is likely to be: “he made it worse.”