A Second Term Will Be Terminal: Another four years of Obamanomics and Argentina will be crying for us.
This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published July 11, 2012 on The American Spectator website.
With a second term for Obama, the world-leading America we have known and hoped to leave to our children will be gone. Last Friday’s jobs report confirms that Obama is well on his way to transforming America into a third world country, with declining living standards and perpetual economic stagnation.
Argentina enjoyed the world’s fourth highest per capita GDP in 1929, on par with America at the time. But then the nation lost its way in embracing a leftist, union allied government, which took control of the economy and imposed wildly irresponsible taxes, spending, deficits, and debt. After World War II, the hugely popular Juan Peron came to power and institutionalized the madness. It has been all downhill for Argentina ever since. Do you recognize the pattern?
Today, Argentina ranks 53rd in the world in per capita GDP, according to the International Monetary Fund, 57th in the CIA World Factbook, at a level less than one third that of America. But its national debt at 51% of GDP is actually less than that of the United States under the Obama administration, where we are rocketing towards 100% of GDP by the end of this year, and 200% in 25 years, according to CBO.
The Worst Economic Recovery Since the Great Depression: Confirmed
Last Friday’s jobs report indicated the most commonly cited U3 unemployment rate remains stuck at 8.2%. That makes 41 straight months of unemployment over 8%, which the Joint Economic Committee of Congress confirms is the worst recovery from a recession since the Great Depression almost 75 years ago. The total number of Americans unemployed actually rose over the last 3 months by 76,000, 54 months after the recession started, and 3 years after it was supposedly over. Since the Great Depression, and before this last recession, recessions in America have lasted 10 months on average, with the longest previously lasting 16 months.
Indeed, the last time before Obama that unemployment was even over 8% was December 1983, when Reaganomics was bringing it down from the Keynesian fiasco of the 1970s. It didn’t climb back above that level for 25 years, a generation, which is a measure of the spectacular success of Reaganomics. That success was centrally based on reducing tax rates, which our ignorant Marxist President says was tried but didn’t work.
Moreover, Obama’s June unemployment rate was not much, much higher only because over 7.2 million working people have given up even looking for work as a hopeless waste of time under President Obama, so they are not counted as unemployed in the U3 unemployment rate. Including these workers, who still exist and still do not have jobs, the unemployment rate would be 11%.
Besides the 12.7 million Americans who are counted as unemployed, another 8.2 million were employed part-time for economic reasons. “These individuals were working part-time because their hours had been cut back or because they were unable to find a full-time job,” the Bureau of Labor Statistics (BLS) reported. Another 2.5 million workers were marginally attached to the labor force, as they “wanted and were available for work, and had looked for a job sometime in the prior 12 months,” but “[t]hey were not counted as unemployed because they had not searched for work in the [prior] 4 weeks.”
That leaves the total army of the unemployed and underemployed at 23.4 million Americans. Counting these workers, the BLS reports the U6 unemployment rate as rising to 14.9% in June. If we add in the long-term discouraged workers that the BLS does not even count anymore, the Shadow Government Statistics website reports the total unemployment rate increasing to 22.8% in June.
In contrast, Obama promised us when he first entered office that if his nearly $1 trillion in stimulus spending passed, the unemployment rate would never exceed 8%, and would decline to 5.8% by May of this year, when in reality it was 8.2% and rising that month. The peak of the Obama Presidency came in February 2009, his first month in office, which is the last time he said something correct about the economic recovery, predicting to Matt Lauer on national television, “If I don’t have this done in three years, then this is going to be a one-term proposition.” We are now well past Obama’s own self-imposed deadline.
The unemployment rate for African -Americans actually rose last month to 14.4%, and it has remained at such depression era levels for Obama’s entire Presidency. Hispanics have suffered double digit unemployment throughout Bush’s Presidency as well, at 11% again last month. For teenagers, the rate last month stood at 23.7%. For black teenagers, unemployment rose last month to 39.3%. For Hispanic teenagers, the unemployment rate rose to 31%.
Friday’s labor report further indicated that the jobs picture has only been worsening under Obamanomics. A million more workers were suffering long-term unemployment of 27 weeks or longer in June than at the supposed end of the recession 3 years ago. Moreover, the median length of unemployment had risen to 19.8 weeks in June compared to 17.2 when the recession supposedly ended.
How Stupid Do They Think We Are?
Obama tells us that the 80,000 jobs created last month (25,000 were mere temp jobs) were “a step in the right direction.” A very tiny baby step at best, as the working age population grew by 191,000 in the same month. Moreover, 85,000 went on the disability rolls during the month, fleeing the Obama economy for their only alternative, taxpayer dependency. Another 275,000 applied for disability during the month.
Obama’s chief economic policy advisor Alan Krueger actually boasted that private sector jobs have grown for “28 straight months for a total of 4.4 million payroll jobs during that period.” But at the same point during the Reagan recovery, the economy had created 9.5 million new jobs.
Krueger thinks we are too stupid to know that job growth is the norm and not the exception for the American economy. In the 62 years from the end of World War II in 1945 until 2008, jobs grew in 86% of the months, or 640 out of 744. His statement is just a further example of the Obama administration’s practice of Calculated Deception.
Reagan’s recovery produced job growth in 81 out of its first 82 months, with 20 million new jobs created in those first 7 years alone, increasing the civilian work force at the time by 20%. That grew into 50 million new jobs over the entire Reagan 25 year boom from 1982 to 2007. Compare that to the disgrace of Obamanomics. While Obama tries to claim 4.4 million new jobs created, total jobs today are still half a million less than in January 2009 when he entered office. Even George Bush oversaw 52 consecutive months of job growth, including 8 million new jobs created after his 2003 capital gains and dividends tax rate cuts became effective (which Obama is dedicated to reversing).
Krueger also solemnly told the public, “it is important not to read too much into any one monthly report.” But as documented July 6 by Bryan Preston for PJMedia, the Obama Administration has said the exact same thing for each of the last 30 months. Do ya think 2 ½ years might constitute a trend?
The Disgrace of Obamanomics
Obama’s tragic jobs record reflects the dismal economic growth under his Administration’s perverse economic policies. For all of last year, the economy grew by a paltry real rate of only 1.7%, only about half America’s long-term trend. The average so far this year has been no better.
In sharp contrast, in the second year of Reagan’s recovery, the economy boomed by a real rate of 6.8%, the highest in 50 years. During the first 7 years alone, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third largest in the world at the time, to the U.S. economy. Real per capita disposable income increased by 18% from 1982 to 1989, meaning the American standard of living increased by almost 20%. The poverty rate, which had started increasing during the Carter years, declined every year from 1984 to 1989, dropping by one-sixth from its peak.
But President Obama, following the exact opposite of the policies of Reagan in every detail, is on exactly the opposite course. The Census Bureau reports falling real wages under Obama, kicking median family income back over 10 years. Census also reports more Americans in poverty today than at any time in the more than 50 years that Census has been tracking poverty. That is why Obama can also boast an all-time record number of Americans on food stamps, which is why Newt Gingrich has rightly labeled him “the food stamp President.”
Obama cannot explain away this disgrace of Obamanomics by arguing that the economy has performed so poorly under his Administration because the recession he inherited from Bush was so bad. That is exactly what he is arguing when he says “there are no quick fixes to the problems we face that were more than a decade in the making.” But the American historical experience is that the worse the recession, the stronger the recovery, as the American economy snaps back to its world-leading, long-term, economic growth trend line. Based on this historical record, we should be enjoying the third year of a raging economic recovery boom right now.
This historical experience was reflected by the surging Reagan recovery boom from the deep 1981-1982 recession. And it is why Obama was confident enough to tell Matt Lauer and the nation in 2009 that if he doesn’t have the economy hopping after 3 years, he is going to be a one-term President. If anything, because of the severity of the recession, Obama should have been blessed with an even more booming recovery than Reagan. But the dismal economic performance we have suffered instead, with no real recovery from the steep 2008-2009 recession at all, is the disgrace of Obamanomics.
The Coming Crash of 2013
For the first time on Monday, Obama indicated that the Bush tax cuts may not be made permanent for those making less than $200,000 a year. For why would he otherwise propose only a one-year extension of those tax cuts? If he terminates those tax cuts after one year, that would constitute yet another tax increase on the middle class, besides Obamacare.
This partial one-year extension of the Bush tax cuts will not do anything to promote the economy. Temporary tax relief does not work in any event to advance economic growth, because it is discounted by investors, consumers, and businesses as only a passing fad. But extending the Bush tax cuts for those making less than $200,000 per year would not be a tax cut from the current rates, but only an extension of the same rates that have been in force for 10 years or more. So there is no boost to the economy from that. Note that these are the tax cuts adopted by Bush and the Republicans for those making less than $200,000 per year, contrary to Obama’s claims that Bush and the Republicans only cut taxes for “the rich,” which are only despicable, manipulative lies so dishonest that they should disqualify Obama from office.
Indeed, instead of adopting tax cuts promoting the economy, Obama’s tax proposal on Monday would terminate the Bush tax cuts for those making over $200,000. So it would only trash the economy, because it would involve a huge tax increase on the nation’s small businesses, job creators, and investors. Counting the tax increases of Obamacare that will also go into effect next year under current law, the top two income tax rates would increase by nearly 20%, the capital gains tax rate would increase by nearly 60%, the tax on dividends would nearly triple, and the death tax would rise from the grave with a 55% top rate. While Obama says only 3% of small businesses would be affected, the tax increases would apply to close to two-thirds of small business income, which is the foundation for most jobs.
This is all on top of the corporate tax rate which under President Obama is the highest in the industrialized world at nearly 40%, counting state corporate rates on average. Even Communist China offers a 25% corporate rate. The social welfare states of the European Union are even lower on average, with formerly socialist Canada now featuring a 15% corporate rate, and economic powerhouse Germany not much higher.
American businesses are uncompetitive in the global economy with this tax burden. But under President Obama, there is no relief in sight. Instead, he has been barnstorming the country for the last two years calling for still more tax increases. Under his so-called Buffett Rule, which would double the capital gains tax, America would suffer the fourth-highest capital gains tax rate in the industrialized world, besides the world’s highest corporate tax rate.
When you add up all those multiple tax rate increases on top of Obama’s exploding regulatory costs, the result will be to push the economy back into recession next year, with unemployment soaring back over double digits, and the deficit soaring to new all time records over $2 trillion, the highest in world history. It is working people who will be hurt the most, because they are the ones who will lose the jobs they need for their basic standard of living. Even those with jobs will suffer further declining real wages and incomes because of the shredded demand for labor.
There is no economic theory under which increasing tax rates promotes economic growth and recovery, particularly rate increases on job creators and investors. Even under Keynesian economics, such tax increases are contractionary. Indeed, even Karl Marx would tell you that such tax rate increases would bring a market economy down, not up.
Obama falsely claims he is only restoring the Clinton era tax rates. But Obama is well beyond that now, because he is imposing the Obamacare tax increases next year as well, and he has been proposing still further tax increases. The top marginal income tax rates that drive the economy would consequently soar by well over 30%, probably close to 40% or more.
Obama says we tried the Bush tax cuts for “the rich” and they didn’t work. So let’s review how exactly they did work out. Bush cut the top income tax rate by 11.6%, from 39.6% to 35%, and the second highest rate by about 8%, from 36% to 33%. But he cut the lower rates by higher percentages, including slashing the bottom rate by 33%, from 15% to 10%. Then in 2003, he cut the tax rates on capital, reducing the capital gains tax rate by 25% from 20% to 15%, and the tax rate on corporate dividends to 15% as well.
These tax rate cuts first quickly ended the 2001 recession, despite the contractionary economic impacts of 9/11, and the economy continued to grow for another 73 months. After the rate cuts were all fully implemented in 2003, the economy created 7.8 million new jobs over the next 4 years and the unemployment rate fell from over 6% to 4.4%. Real economic growth over the next 3 years doubled from the average for the prior 3 years, to 3.5%.
In response to the rate cuts, business investment spending, which had declined for 9 straight quarters, reversed and increased 6.7% per quarter. That is where the jobs came from. Manufacturing output soared to its highest level in 20 years. The stock market revived, creating almost $7 trillion in new shareholder wealth. From 2003 to 2007, the S&P 500 almost doubled. Capital gains tax revenues had doubled by 2005, despite the 25% rate cut!
Consequently, the Bush tax cuts helped to extend the Reagan boom for 25 years, until 2008. By then, the government had induced the financial crisis, through regulations looting the banks for subprime mortgages demanded in the name of affordable housing for the poor and minorities, and through the Fed’s cheap dollar monetary policies, which began the restoration of perverse Keynesian economics. Punishment for the results is now long overdue for the advocates of those policies.