There’s an Economic Boom Lurking Once President Obama’s Second Term Ends
This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Welfare Reform (CCWR) Peter Ferrara was published July 28, 2013 on Forbes.com.
The magician’s trick is deception, based on misdirection and distraction. He draws your attention over here, while he is carrying out the trick over there. President Obama’s economic policy speech last week at Knox College in Galesville, Ill. was a classic case of such misdirection, distraction, and deception.
He talked a lot about championing the middle class, a ploy he learned from Saul Alinsky, while all his policies have been trashing the middle class. He talked a lot about economic growth, while all his policies have been trashing economic growth. That is because the trick he is carrying out is to deceive you into supporting an Americanized version of his leftist ideology, which inherently trashes economic growth and the middle class.
For Barack Obama, the whole purpose of his public life is to foist the leftist ideology of his father on a mesmerized American public. He uses the middle class to achieve this goal like a cheap date, dazzling her with big talk of economic growth, which he has no intention of ever delivering.
The truth is Obama disdains economic growth and the middle class, because both are the progenitors of financial and political independence. What he treasures is the neediness of government dependency, which is the progenitor of a political machine, trading government handouts for votes.
Obama said in his speech he is for “Good jobs. A better bargain for the middle class and folks working to join it. An economy that grows from the middle out.” So where has that been for the last five years that he has been President?
What we have seen instead is middle class incomes declining for Obama’s entire Presidency. Middle class incomes are down the equivalent of a month’s pay a year, with no turnaround to come back in sight under Obama. As the Wall Street Journal reported on July 23, “Median incomes typically fall during recessions. But the striking fact of the Obama economy is that median real household income has fallen even during the recovery.”
Instead of good jobs, America is under transition to part time jobs, thanks to Obamacare, where part time jobs are free from the government’s health care dictates. Last month, full time jobs actually declined, and all the new jobs created were part time jobs.
Instead of an economy growing from the middle out, we have had under Obama for five years now an economy that has effectively not been growing at all. During Obama’s first term, real economic growth averaged a pitiful 0.8%. That is the worst of any President since the Great Depression, which ended over 70 years ago.
In fact, if you doubled the economic growth during Obama’s first term, it would still be worse than any President since the Great Depression, worse even than under George Bush, or Jimmy Carter. Economic growth during Carter’s one term was four times greater than economic growth under Obama’s first term.
The Journal added further, “Growth in the fourth quarter of 2012 was 0.4%. It rose to a still anemic 1.8% in the first quarter but most economists are predicting even slower growth in the second quarter.”
Indeed, in the 11 post depression recessions before President Obama, the economy recovered the lost GDP during the recession within an average of 4.5 quarters after the recession started. But it took Obama’s recovery 16 quarters, or four years, to reach that point. Today, 5½ years, or 22 quarters, after the recession started, the economy (real GDP) has grown only about 3% above where it was when the recession started. By sharp contrast, at this point in the Reagan recovery, the economy had boomed by about 20%, or one fifth.
In other words, this is not a President with the standing to lecture us about how his goal is economic growth for the middle class, or anybody else. The Journal said, “The President called his speech, ‘A Better Bargain for the Middle Class,’ but no President has done worse by the middle class in modern times.” See what I mean by calculated economic deception?
Obama proclaimed in his speech,
“In many ways, the trends that I spoke of here in 2005 – of a winner take all economy while a few do better, while everybody else just treads water – have been made worse by the recession. This growing inequality isn’t just morally wrong; its bad economics. When middle class families have less to spend, businesses have fewer customers. When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy. When the rungs on the ladder of opportunity grow farther apart, it undermines the very essence of this country. That’s why reversing these trends must be Washington’s highest priority. It’s certainly my highest priority.”
The Journal replied, “Which is the problem. For four and a half years, Mr. Obama has focused his policies on reducing inequality rather than increasing growth. The predictable result has been more inequality and less growth.” Indeed, official U.S. government data shows inequality has been growing under President Obama, while it did not under President Bush.
Moreover, as to inflating unstable bubbles, Obama should look to the Federal Reserve’s cheap dollar, zero interest rate policies, for which he could validly criticize the Bush Administration. But that is the one thing he hasn’t criticized Bush for, probably because the Fed has perpetuated the same policies with his support for his entire Presidency.
In addition, while President Obama also proclaimed, “we need to rebuild ladders of opportunity for all those Americans still trapped in poverty,” poverty has soared under Obama, with the number of Americans in poverty increasing to the highest level in the more than 50 years that the Census Bureau has been tracking poverty. Over the last 5 years, the number in poverty has increased by nearly 31%, to 49.7 million, with the poverty rate climbing by over 30%, to 16.1%. This is another natural result of negligible economic growth, paltry job creation, declining real wages, and the worst economic recovery since the Great Depression.
So what were President Obama’s ideas in his speech to finally, after 5 years in office, start creating good middle class jobs, reviving economic growth, and reducing rather than increasing poverty and inequality? He said he will “continue to focus on strategies to create good jobs in wind, solar, and natural gas….” But those strategies so far have involved corporate welfare for high cost wind and solar, which cannot survive on their own, and his EPA only threatening the fracking technology that has produced the breakthrough natural gas boom. Wind mills and solar batteries on corporate welfare are not going to meaningfully contribute to reviving national economic growth and good middle class jobs, and reversing declining middle class incomes and rising poverty and inequality. Ditto that for the “manufacturing innovation institutes” that Obama also touted in his speech.
Obama also said, “We’ve got ports that aren’t ready for the new supertankers that will begin passing through the Panama Canal in two years’ time. We’ve got more than 100,000 bridges that are old enough to qualify for Medicare. Businesses depend on our transportation systems, our power grids, our communications networks – and rebuilding them creates good-paying jobs that can’t be outsourced.” But isn’t that what the nearly $1 trillion 2009 so-called “stimulus” bill was supposed to be about? That didn’t work because taking a trillion dollars out of the private economy to increase government spending by a trillion dollars does nothing to add to the economy on net. It won’t work if we just try to do that again.
Obama’s “second cornerstone of a strong middle class” was “an education that prepares our children and our workers for the global competition they’ll face.” He added, “If you think education is expensive, wait until you see how much ignorance costs in the 21st century. If we don’t make this investment, we’ll put our kids, our workers, and our country at a competitive disadvantage for decades.”
But who is standing in the school house door stopping real education reform that would work, such as school choice, and sharply expanded charter schools? Obama, his Democrats, and their teacher union supporters, that’s who. It was Detroit that followed precisely their prescription for education policies. The high school drop out rate in Detroit reached as high as 76 percent in recent years. Yet per pupil spending in Detroit public schools has been higher than in rich and prosperous Marin County, California, where the high school graduation rate is 97%. Maybe that is because in return for the non-education of the young in Detroit, public school teachers there enjoy the highest pay in the country among major metropolitan areas, at nearly $50 an hour.
Obama’s breakthrough idea on education in his speech was the teachers union agenda of “high-quality preschool available to every four year old in America,” and his “plan to connect 99% of America’s high school students to high speed internet over the next five years.” But America’s economic problem is not that its high school students are not online. Obama added that, “we’ve begun meeting with business leaders, tech entrepreneurs, and innovative educators to identify the best ideas for redesigning our high schools so that they teach the skills required for a high-tech economy.” But the best way to do that is precisely school choice and charter schools, which Obama, his Democrats, and his teachers unions are preventing or stifling.
Obama boasted, “Three years ago, I worked with Democrats to reform the student loan system so that taxpayer dollars stopped padding the pockets of big banks, and instead helped more kids afford college.” But that empty rhetorical reform has not helped improve Obama’s economic performance, nor will fiddling with student loan interest rates. Obama further proposed adding still more to the 27 federal job training programs, including asking “Congress to start a Community College to Career initiative.” Don’t expect that to shake anything up.
Obama added that “to encourage homeownership that isn’t based on bubbles, but is instead based on a solid foundation,” he proposes not a change in the Federal Reserve or its policies, but “to cut red tape for responsible families who want to get a mortgage, but the bank says no.” Are banks being prevented from making desirable mortgages by red tape? Wasn’t government interference in bank mortgage lending policies at the root of the housing bubble and the financial crisis in the first place?
Obama continued to proclaim that “we should find new ways to make it easier for workers to put money away, and free middle class families from the fear that they’ll never be able to retire.” But the perfect way to do precisely that would be to empower working people with the freedom to choose personal accounts for Social Security, as the South American nation of Chile did over 30 years ago, helping to propel its economy to boom from the Third World all the way to the First World class economy it enjoys today. But that doesn’t fit Obama’s Big Government ideology to maximize government dependency, so forget about it.
Then for the poor, Obama advanced the breakthrough idea of increasing the minimum wage. That was one of the first things the new Democrat Congressional majorities did when he was in Congress, which is why the teenage unemployment rate today is 24%, with black teenage unemployment at a genocidal 43.6%, and Hispanic teenage unemployment at 30%.
This is all pretty thin gruel for restoring economic growth, job creation and the American Dream, and reversing plummeting middle class incomes and soaring poverty. That can all be easily achieved, however, by restoring capitalism to our national economic policies.
The foundation for creating jobs and increasing real wages under capitalism is capital investment. That provides the money to establish new businesses and expand existing ones, hiring more workers in the process. That increased demand for labor bids up wages. The capital investment also finances new tools and equipment for workers to work with, making them more productive. That increased productivity provides employers with the resources to pay the increased wages resulting from the increased demand for labor.
Combining that increased capital investment with the breakthroughs of our exploding modern science is a formula for an historic economic boom even greater than America has ever experienced before, in my opinion. But that essential capital investment must be liberated from current burdens and barriers keeping it in chains, and on strike.
Capital investment suffers today from excessive multiple taxation. Returns to such capital are taxed in America today by the corporate income tax, with a top marginal rate currently the highest in the world, except for the socialist one party state of Cameroon. Then it is taxed when the returns are passed through as dividends again by the individual income tax. When future expected returns increase, they are taxed today again by the capital gains tax. If anything is left at death, the returns are taxed again by the death tax.
President Obama has been increasing all four of these tax burdens, and calls for still more. Hence, capital has gone on strike. What is needed is tax reform, reducing loopholes, deductions and credits, in return for lower rates. House Budget Committee Chairman Paul Ryan has proposed beautiful tax reform along these lines, with a 10% rate for family incomes under $100,000 a year, and 25% rate for family incomes over $100,000 a year. Similar corporate tax reform would reduce the top marginal corporate rate to 25% as well. This can and should be combined with restoring the Bush rates of 15% for capital gains and dividends, which would likely increase revenues as compared to the current higher rates, as we have seen historically. This would further contribute to booming jobs, as we saw the unemployment rate plummet to 4.4% after Bush and the Republican Congress adopted those rates.
This needs to be combined as well with fundamental reform of the Fed and monetary policy to provide for a stable value for the dollar, at market interest rates. That enormously encourages capital investment, because investors know they will not be paid back in depreciated dollars, and their investments won’t be tanked by boom and bust bubble cycles. President Obama, if you realize artificial bubbles are the problem, here is your solution.
Then productive economic activity has to be liberated from stifling regulatory barriers. President Obama, if you want good middle class jobs with rising wages, why don’t you liberate the Keystone Pipeline to be built? Why don’t you terminate the War on Coal, because it is not the province of the President to conduct war against particular American industries, especially when an American economic advantage is an abundant supply of cheap, low cost energy through coal.
And repealing the excessive regulatory burdens, and taxes and spending, of Obamacare, would further liberate the historic, world leading, economic boom that is lurking inside the American economy.
This is the simple, tried and true formula for restoring the American Dream, creating good jobs at rising wages for the middle class, working people, and the poor, and restoring the ladders of economic opportunity out of poverty that you say you want. But that will have to wait, Mr. President, for the liberation of America, and the election of a President who knows something about economics, and how capitalism works.