The Worst Economic Recovery Since the Great Depression
This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published March 14, 2012 on The American Spectator website.
The record of President Obama’s first three years in office is in, and nothing that happens now can go back and change that. What that record shows is that President Obama, with his throwback, old-fashioned, 1970s Keynesian economics, has put America through the worst recovery from a recession since the Great Depression. The American people are much poorer now because of that, and will remain poorer, falling farther and farther behind, until we change course and restore traditional American prosperity.
The recession started in December, 2007. Go to the website of the National Bureau of Economic Research to see the complete history of America’s recessions. What that history shows is that before this last recession, since the Great Depression recessions in America have lasted an average of 10 months, with the longest previously lasting 16 months.
Dude, Where’s My Recovery?
Yes, the economy was in recession when President Obama entered office, which he never tires of telling us. But that was not unique to Obama. There have been 12 recessions in America since the Great Depression. The American people have forgotten what that was like because President Reagan and his Reaganite Republicans gave us a 25 year economic boom from 1982 to 2007 with no serious downturn.
President Obama’s responsibility was to manage a timely, robust recovery to get America back on track again. His record in achieving that is not to be measured from the worst of the recession, but to previous recoveries in U.S. history. And, no, President Obama cannot say that his recovery is so bad because the recession was so bad (worse than he thought he now tells us, after spending all of 2008 telling us it was the worst recession since the Great Depression). The American historical record is that the worse the recession the stronger the recovery, as traditional, long-term, American prosperity has always been restored.
Based on that historical record, we should be in the third year of an economic recovery boom right now. That is what we experienced under Reagan, which was the last time we recovered from a recession of similar magnitude.
In the first 2½ years of the Reagan recovery, the American economy created 8 million new jobs, the unemployment rate fell by 3.6 percentage points, real wages and incomes were jumping, and poverty had reversed an upsurge started under Carter, beginning a long-term decline. While Obama crows about 227,000 jobs created last month, in September, 1983 the Reagan recovery less than a year after it began created 1.1 million jobs in that one month alone. In the second year of the Reagan recovery, real economic growth boomed by 6.8%, the highest in 50 years.
In contrast, under President Obama, unemployment actually rose after June 2009, when NBER counts the recession as officially ending, and did not fall back down below that level until 18 months later in December 2010. Instead of a recovery, America has suffered the longest period of unemployment this high since the Great Depression. Even today, 51 months after the recession started, the U6 unemployment rate counting the unemployed, underemployed, and discouraged workers is still nearly 15%.
And that doesn’t include all the workers who have fled the workforce under Obama’s economic oppression. Under Obama’s supposed recovery, the number of working age Americans not in the labor force rose by 7.14 million. As John Lott and Grover Norquist recently observed, “There is no comparable post-World War II ‘recovery’ where this type of exodus has occurred.”
While in the second year of Reagan’s recovery the economy boomed with real economic growth of 6.8%, the highest in 50 years, last year the American economy limped along with real economic growth a paltry 1.7%. The first quarter of this year will be similar.
Today, over 4 years since the recession started, there are still almost 24 million Americans unemployed or underemployed. That includes 5.6 million who are long-term unemployed for 27 weeks, or more than 6 months, the highest since the Great Depression. The number of Americans employed part-time for economic reasons was still 8.1 million. The Bureau of Labor Statistics (BLS) says, “These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.”
Another 2.6 million persons were marginally attached to the labor force, essentially unchanged from a year earlier. The BLS says, “These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.”
African Americans have been suffering an outright depression under Obama, with unemployment today, 51 months after the recession started, still over 14%. Black unemployment has been over 14% for Obama’s entire term in office. Black teenage unemployment today is still nearly 35%, where it has persisted for Obama’s entire term as well.
Hispanics have also been suffering a depression under Obama, with unemployment today still in double digits at nearly 11%, where it has also persisted for Obama’s entire term. Over one fourth of Hispanic youths remain unemployed today, which also has persisted for years.
The Census Bureau reported last September that more Americans are in poverty today than at any time in the entire 51 year history of Census tracking poverty. Americans dependent on food stamps are at an all time high as well. White House spokesman Jay Carney recently tried to blame the Republicans for that, saying that it was their policies of deregulation that caused the recession. But actually it was liberal policies of overregulation forcing the looting of the banks for subprime loans under threat of discrimination suits that caused the recession. See, e.g. Paul Sperry, The Great American Bank Robbery.
Moreover, it was Obama’s responsibility to foster a timely, robust recovery restoring traditional American prosperity. Where is that? The absence of that is because Obama doesn’t believe in traditional American anything.
Census also reported last September that real wages and incomes have been falling so steadily under Obama and his confused, throwback, Keynesian/neo-Marxist Obamanomics, that real median family income in America has dropped all the way back to 1996 levels.
Obama’s Rip Van Winkle Act
Supposedly a forward-looking progressive, Obama proved to be America’s first backward-looking regressive. His first official act in office was to increase federal borrowing, the national debt, and the deficit by nearly a trillion dollars to finance a supposed “stimulus” package, based on the proven failed Keynesian theory left for dead 30 years ago by President Reagan. Keynesian economics holds that increased government spending, deficits and debt are what promote economic growth and recovery. That theory arose in the 1930s as the answer to the Great Depression, and, of course, it never worked.
Obama’s dogged, unlearned, continued pursuit of such failed Keynesian policies is why his own budget shows that by Election Day 2012, he will have doubled the national debt, in just one term of office, added as much to the national debt in that one term as all prior Presidents, from George Washington to George Bush, combined!
This was the beginning of President Obama’s Rip Van Winkle act, pretending not to notice anything that happened over the prior 30 years proving the dramatic, historic success of the new, more modern, supply-side economics. That more modern view holds that incentives for increased production are what promote economic growth and recovery. Indeed, Obama’s Rip Van Winklism pretended not to remember the 1970s either, when double digit inflation and double digit unemployment proved Keynesian economics grievously wrong.
As should have been long expected, Obama’s trillion dollar Keynesian stimulus did nothing to promote recovery and growth, and almost surely delayed it. That is because borrowing a trillion dollars out of the economy to spend a trillion back into it does nothing to promote the economy on net. Indeed, it is probably a net drag on the economy, because the private sector spends the money more productively and efficiently than the public sector.
Now on the horizon is the revival of inflation, thanks to the Keynesian cheap dollar, negligible interest rate, monetary policies pursued at the Fed. The beginning of that is seen at the pump now with soaring gas prices. It was the combination of inflation and recession in the 1970s that led thinking people to give up Keynesian economics by the 1980s. If Obama’s relapse into Keynesian foolishness proven so wrong in the real world does revive inflation, setting the stage for renewed recession when the Fed inevitably tightens to stop it (as happened repeatedly in the 1970s), there should be serious hell to pay by Obama and the Democrat Party that supported him and these policies.
Indeed, exactly none of President Obama’s policies have been well designed to restore economic recovery and traditional American prosperity. They have consistently been the opposite of everything that Reagan did to end the American decline of the 1970s, and restore booming growth for 25 years. That is why Rush Limbaugh is saying Obama deliberately wants to trash the economy, thinking the resulting dependency will lead a majority to continue to vote for the liberal political machine. President Obama does think that traditional American, world leading prosperity is morally embarrassing because of the global inequality it represents.
No Excuses for Obamanomics
The chief excuse of the Obama apologists is that what we have suffered was not just a recession, but a financial crisis, and, they argue, recovery from a financial crisis takes a lot longer than recovery from a recession. But that is not the experience of the American, free market, capitalist economy. The experience of the American economy is reported in full at the National Bureau of Economic Research, as cited above — recessions since the Great Depression previously have lasted an average of 10 months, with the longest previously 16 months, and the deeper the recession the stronger the recovery. That is the standard by which the performance of Obamanomics is to be judged. Which of those American recessions was a “financial crisis” that breaks the pattern?
The apologists cite in their support the book This Time Is Different: Eight Centuries of Financial Folly, by Carmen Reinhart and Kenneth S. Rogoff. That book “covers sixty-six countries over nearly eight centuries.” It “goes back as far as twelfth century China and medieval Europe.” The data “come from Africa, Asia, Europe, Latin America, North America, and Oceania.” The experience from 12th century China, medieval Europe, spendthrift demagogues and socialist economies from Latin America, Europe, Africa and Asia, do not set the standard of expectations for post-depression, free market, capitalist America over the last 70 years, the most powerful economic engine in the history of the world.
The data in the book is marshaled to explain why, in fact, “this time is different” is actually always wrong. Seizing upon the data in the book to try to give some sort of pass to Obamanomics for failing to meet the economic performance standards of American history is just political propaganda.
The Worst Is Yet to Come
But even worse than his first term is what Obama is brewing up for 2013 on his current course. Most people do not know that already enacted in current law for 2013 are increases in the top tax rates of virtually every major federal tax. That is because the tax increases of Obamacare become effective that year, and the Bush tax cuts expire, which Obama has refused to renew for singles reporting income over $200,000 per year, or couples reporting over $250,000 per year (in other words, the nation’s small businesses, job creators and investors, in plain English).
As a result, if the Bush tax cuts expire just for these upper income taxpayers, along with the Obamacare taxes, in 2013 the top two income tax rates will jump nearly 20%, the capital gains tax rate will soar by nearly 60%, the tax on corporate dividends will nearly triple, the death tax rate will increase by over 20%, and the Medicare payroll tax will leap by 62% for those disfavored taxpayers.
This is on top of the U.S. corporate income tax rate, which is virtually the highest in the industrialized world. The federal rate is 35%, with state corporate rates taking it close to 40% on average. But even Communist China has a 25% rate. The average rate in the social welfare states of the European Union is less than that. Formerly socialist Canada, which has been booming since President Obama was elected, now has a 15% corporate rate.
These U.S. corporate tax rates leave American companies uncompetitive in the global economy. Yet under President Obama there is no relief in sight. Instead, he has spent the past year barnstorming the country calling for still further tax increases on American business, large and small, investors, and job creators.
Higher tax rates mean producers can only keep a smaller percentage of what they produce. So tax rate increases reduce the incentive for productive activities, such as saving, investment, starting businesses, expanding businesses, job creation, entrepreneurship and work, resulting in less of each. And that is what the tax tsunami of 2013 would do, which would once again swamp the weak economy.
Most small business profits are reported from households earning more than $200,000/$250,000 per year, and those small businesses produce more than half the new jobs. So the 2013 tax tsunami effectively targets small business, and the nation’s job creators. That will hurt working people the most, because they will lose the jobs and the wage income they need to maintain their basic standard of living.
In addition, the Obama Administration is in the process of imposing a blizzard of new regulatory costs and barriers that will be building to a crescendo by 2013 as well. Academic studies estimate the total costs of regulation in the economy to be rapidly rising towards $2 trillion per year, or $8,000 per employee. That is close to 10 times the corporate income tax burden, and double the individual income tax. When the resulting effects on the economy are considered, the total losses due to regulatory burdens may total $3 trillion, or one fifth of our entire economy.
But by 2013 these regulatory costs will have exploded in unprecedented fashion. That reflects the Obama Administration’s global warming crusade, assault on private energy production, the still oncoming Dodd-Frank regulatory burdens on the financial community, Obamacare regulations, particularly the job killing employer mandate, and many others.
By 2013, the Fed may be in contractionary mode as well. If history is any guide, the Fed might decide that right after the election would be the perfect time to cut back on its historically loose monetary policy with record low interest rates that have persisted for years. Adding rising interest rates to the above brew of soaring marginal tax rates across the board and exploding regulatory costs would accumulate to a powerful contractionary force.
Art Laffer predicted the Coming Crash of 2011 on the basis of the expiration of the Bush tax cuts on the upper income earners alone. Those tax rate increases were extended to 2013 in December 2010 out of fear that that prediction was right. But now in 2013, in addition to those tax rate increases, we have all of the tax increases of Obamacare, the further exploding costs of Obama’s building regulatory blizzard, and the possible contractionary effect of the Fed’s monetary policies, all at the same time. Unless we reverse course, the result will be one big, bad crash in 2013.
Adding that on top of Obama’s first term, the entire period will look like an historical reenactment of the 1930s. Unless the American people choose to change leadership this year, we will have achieved that result the old-fashioned way — we will have earned it.