ACRU General Counsel Peter Ferrara wrote this column appearing September 8, 2010 on The American Spectator.
House GOP Leader John Boehner created a stir last month when he called on President Obama to fire his top economic advisors, Treasury Secretary Tim Geithner and Assistant to the President for Economic Policy Larry Summers, because of the Administration’s disastrous economic performance. But while Summers is, indeed, a clueless Keynesian, and Geithner is a career bureaucrat, they are not the source of the problem. The source of the problem is the Godfather of the Administration’s economic policies, President Obama himself.
Consequently, what is needed is not to fire Geithner or Summers, but to fire Obama. While President Obama is not on the ballot this fall, the American people will nevertheless have the opportunity in November to do precisely that, by effectively removing him from power, as explained further below. Reality will continue to punish the American people harder and harder until they do.
President Obama’s Malaise
The National Bureau of Economic Research (NBER) officially scored the recession as starting in December, 2007. NBER also reports that since World War II, 65 years ago, the average duration of recessions has been 10 months, with the longest previously being 16 months. In April of this year, NBER issued a statement saying it could not yet determine an end to the recession, 28 months after it began.
What we do know is that in August, 2010, 32 months after the recession started, double the previous longest recession in the 65 year postwar era, the economy was still losing jobs, and unemployment was still rising. The Labor Department reported another 54,000 jobs lost in August, with unemployment rising to 9.6%. Major Obama voting blocks are being punished by Obamanomics, with African Americans suffering a sustained depression reflected by 16.3% unemployment, even worse for teenagers with unemployment at 26.3%, and Hispanics not far behind at 12% unemployment.
The total army of the unemployed remains stuck at nearly 15 million, with 42% of those classified as long-term unemployed, jobless for over 6 months, the highest since the Great Depression. The number of additional workers employed part-time for economic reasons was still rising in August, up by another 331,000 to nearly 9 million. The Bureau of Labor Statistics (BLS) defines these workers as those who “were working part-time because their hours had been cut back or because they were unable to find a full time job.”
Another 2.4 million were defined as marginally attached to the labor force, stuck at that total for a year. The BLS explains that these individual “wanted and were available for work, and had looked for a job in the prior 12 months,” but were not counted among the unemployed because they had not looked for work in the prior 4 weeks. These included 1.1 million discouraged workers, up 352,000 over the past year, who were not currently searching for work, and therefore not counted as unemployed, because they believe that in the economy of hope and change no jobs are available for them.
The army of the unemployed and underemployed consequently stands at 26.2 million Americans. That would add up to an unemployed and underemployed rate of 16.7%, almost 3 years after the recession started. The full picture of hopelessness is measured by the precipitous drop in the civilian-employment population ratio from 63% in 2007 to 58% today, fully reflecting the millions who have simply given up even trying to look for work.
Moreover, the economic growth we have experienced recently has been less than half the growth we experienced after similarly severe downturns. The economy grew by almost 7% in real terms in Reagan’s recovery in 1983 and 1984. Even under President Ford, real GDP grew by 6.2% in the year after the 1974-75 recession. But under President Obama, economic growth is again in a tailspin already, falling from 5% in the fourth quarter of 2009, to 3.7% in the first quarter this year, to 1.6% in the second quarter. Moreover, the stock market is stalled, mired 30% below its record highs over 14000 in the Dow.
This deteriorating economy couldn’t be a worse time to raise top federal tax rates across the board for every major federal tax, as will begin on Jan. 1 under President Obama’s economic policies. If those tax increases go through, the probability will be over 100% for a double dip recession, if not Art Laffer’s Coming Crash of 2011.
President Obama’s Fallacies
In his Labor Day speech before a cheering AFL-CIO crowd excited about their prospects of taking over the economy, President Obama revealed the root of the problem. He has no clue as to how the economy works, or what policies would produce economic growth. Indeed, while he may have physically been in America over the last 30 years, his mind may as well still have been in the Indonesia of his youth, for all he understands about what has happened in this country over that time.
After last year’s “stimulus” costing nearly a trillion dollars that was supposed to be focused on “shovel ready” infrastructure projects, President Obama on Monday announced his “new” economic recovery plan: another $50 billion in increased federal spending for infrastructure. He said, “I am announcing a new plan for rebuilding and modernizing America’s roads and rails and runways for the long term.” But even this simple statement of his own plan is false. For there is nothing new about it. That is what his stimulus of over a year ago was supposed to be about. But the American people are learning from hard experience that President Obama does not learn from experience. He is all theory and ideology, neo-Marxist ideology.
President Obama has made it clear over and over, including in Monday’s speech, that what he thinks drives economic growth is increased government spending, deficits, and debt. That is the sum and substance of his entire Keynesian economic theory. And he persists in that even though experience under his own Administration has proven once again that Keynesian economics doesn’t work. Indeed, that was proven so thoroughly in America in the 1970s, and again in Japan since the 1990s, that Keynesian economics today is frankly silly, and advocating still more of it now can only be accurately characterized as braindead.
Japan suffered its own financial crisis at the start of the 1990s. It responded with Keynesian government spending, deficits and debt, focused on infrastructure spending. The result has been what has been accurately called two lost decades of economic stagnation, very similar to what America is experiencing now.
Economic growth is not driven by soaring government spending, deficits and debt. It is driven by incentives to work, save, invest, start businesses, expand businesses, create jobs, and take on the risks of entrepreneurship. Keynesian economics does not work because borrowing or taxing another $50 billion out of the private economy to spend another $50 billion into the economy does not add anything to the economy on net. Nor does it do anything to change the fundamental incentives that do drive the economy, except maybe make them worse.
As to those who focus on these fundamental incentives, Obama said on Monday, “These guys, they just don’t want to give up on that economic philosophy that they have been peddling for most of the last decade. You know that philosophy — you cut taxes for millionaires and billionaires…and then you just cut working folks loose — you cut them loose to fend for themselves.”
Those poor working folks. Without the wise and all powerful government to take care of them, they are hopeless, like little lambs lost in the wood. President Obama has now accused Republicans of failing to control runaway federal spending and deficits, and of “cutting working folks loose to fend for themselves.”
In regard to those millionaires and billionaires, even before President Obama was elected, official IRS data showed that in 2007 the top 1% of income earners paid 40.4% of all federal income taxes, almost twice their share of adjusted gross income. The top 5% paid 60.6% of all federal income taxes, while earning 37.7% of adjusted gross income. The top 10% paid 71.2% of all income taxes, while earning 48% of adjusted gross income.
Yet, for the working folks, the IRS reports that in 2007 the bottom 50% of income earners paid only 2.9% of all federal income taxes. Indeed, the bottom 95% of income earners paid 39.4% of all federal income taxes. That means the top 1% of income earners paid more federal income taxes than the bottom 95%!
That was under the “economic philosophy of the last decade.” It is all fully and accurately explained in a study on the website of the Tax Foundation.
IRS data also shows that those on whom President Obama wants to increase taxes, earning more than $200,000 a year, constitute just 3% of taxpayers. Yet, that 3% already pays more in income taxes than the bottom 97% combined.
Moreover, in regard to the working folks, in 2007, again before President Obama was even elected, the bottom 40% of income earners as a group paid no federal income taxes. Instead, they received net payments from the income tax system equal to 3.8% of all federal income taxes. In other words, they paid negative 3.8% of federal income taxes. The middle 20% of income earners, the actual middle class, paid 4.7% of all federal income taxes.
This is the result of Reagan Republican supply side economics that began with Reagan and Jack Kemp in the 1970s and 1980s, continued through Newt Gingrich and his Contract with America, and further played out with the Bush tax cuts of 2001 and 2003. Reagan and his Republicans abolished federal income taxes on the poor and working class. Moreover, they almost abolished federal income taxes on the actual middle class (the middle 20%).
It was, in fact, Ronald Reagan who first proposed in the 1970s the Earned Income Tax Credit (EITC), his alternative to welfare, which has done so much to reduce income tax liabilities for lower income people. As President, he cut federal income tax rates across the board for all taxpayers by 25%. He also indexed the tax brackets for all taxpayers to prevent inflation from pushing workers into higher tax brackets.
In the Tax Reform Act of 1986, he reduced the federal income tax rate for “folks who make less” all the way down to 15%. That Act also doubled the personal exemption, shielding more income from taxation for everybody, exempting from taxation a bigger percentage of the income of lower income workers.
Newt Gingrich’s Contract With America adopted a child tax credit of $500 per child that reduced the tax liabilities of lower income people by a higher percentage than for higher income people. President Bush doubled that credit to $1,000 per child, and made it refundable so that low-income people who do not even pay $1,000 in federal income taxes could still get the full credit. Bush also adopted a new lower tax bracket for the lowest income workers of 10%, reducing their federal income tax rate by 33%. Again, he cut the top rate for the highest income workers by just 11.6%, from 39.6% to 35%.
Many conservatives do not think it was a good idea to exempt so many from paying any income taxes at all. Nevertheless, the charge that the Republicans only cut taxes for the rich is factually groundless. Under Reagan Republican tax policies, the share of income taxes paid by the rich has soared to arguably excessive, even abusive, levels, while income taxes were, again, abolished for the poor and working class, and almost abolished for the middle class.
In other words, in regard to the economy and taxes, President Obama has no idea what he is talking about. All he is doing is peddling that neo-Marxism he learned in that limousine liberal prep school he went to, still after all these years. But as Churchill said, if you are not a socialist when you are 20, you have no heart, and if you are not a capitalist when you are 40, you have no brains.
Carpet Bombing Jobs and the Economy
The result today of President Obama’s prep school Marxist fallacies are comprehensive, across the board policies that are effectively carpet bombing jobs and the economy. That includes job killing policies such as the top tax rate increases for every major federal tax starting next year, runaway federal spending, deficits, and debt, Obamacare, EPA global warming regulation, the cap and trade tax, financial regulatory reform squelching credit, the Gulf drilling moratorium and other energy production shutdowns, the Card Check specter, the minimum wage increase, the California San Joaquin Valley agriculture shutdown, and others.
The only way to stop the killing is through regime change. And even though President Obama is not on the ballot this fall, that can be accomplished by administering a brutal enough spanking to the Democrats this fall that the Washington Establishment will be shaken to its knees. That will require a gain of 60 to 80 seats in the House, and 10-12 in the Senate.
With that beat down, enough surviving Democrats will join with the new Republican majorities to effectively remove Obama from power, and implement alternative policies. I am not saying they will remove him from office, though with a double dip recession and a major foreign policy reversal, it is quite possible that the Democrats will demand that he step down. I am saying that enough Democrats will then turn to pass legislation Obama opposes, and even overturn key Obama vetoes.
What the polls are showing is that and more is possible. But that requires not accepting any phony baloney Blue Dog Democrat excuses, including from such supposed conservatives as Gene Taylor from Mississippi, Walt Minnick from Idaho, and Bobby Bright from Alabama. If they are running as Democrats, then voting for them is a vote for San Francisco uberliberal Nancy Pelosi as Speaker of the House. If they really are good conservatives, they can run for something else next time, or they can run as Republicans next time, or as Independents who will not vote Democrat for Speaker.
Meanwhile, those who really want to make a difference will go into their Rolodex, or Facebook friends, or email contact list now and begin organizing to get out volunteers, fundraising, and the vote in November.