This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published November 17, 2011 on Forbes.com.
The history of America’s recessions is provided at the website of the National Bureau of Economic Research (NBER). 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. Yet here we are 47 months after the last recession started, and we still have no real recovery.
Instead, unemployment has been stuck at 9% or above for the longest period since the Great Depression. Unemployment for blacks has remained over 15% for over 2 years, with Hispanic unemployment stuck well into double digits over that time as well. Teenage unemployment has persisted at nearly 25%, with black teenage unemployment still nearly 40%.
The U6 unemployment rate, reflecting all of the unemployed still wanting work and the underemployed who can’t get full time work, is still 16.2%. That includes an army of the unemployed or underemployed of over 26 million Americans. And that still doesn’t fully count the millions of Americans who have given up and dropped out of the work force altogether.
On September 13 came the Census Bureau report fleshing out the full meaning of no economic recovery under Obama. Median family income has fallen all the way back to 1996 levels. The Wall Street Journal further reported on September 14, “Earnings of the typical man who works full time year round fell, and are lower–adjusted for inflation–than in 1978.”
The poverty rate climbed to 15.1%, higher than in the late 1960s when the War on Poverty was getting underway, $16 trillion ago. The child poverty rate climbed to 22%, nearly a quarter of all American children. The total number of Americans in poverty is higher than at any time in the over 50 years that the Census Bureau has been tallying it. Moreover, the number of Americans ages 25-34 living with their parents has soared by 25%.
Yes, I know NBER declared the recession technically over in June, 2009, still the longest recession on record since the Depression. But the point is next month will be 4 years since the recession started, and there is still no sustained real recovery. Or as economist John Lott has emphasized, Obamanomics has produced the worst recovery since the Great Depression.
Obama apologists can’t continue to blame the depths of the previous recession, and they can’t because the historical record makes plain that the worse the recession, the stronger the recovery. Based on that historical record, we should be completing the second year of a booming economy by now.
In the second year of the Reagan recovery, real economic growth boomed by 6.8%, the highest in 50 years. In the first two years of that recovery, 7.6 million new jobs were created, on the way to 20 million jobs created during the first 7 years. Presently, we are still 6 million jobs below the peak before the last recession, four years ago.
The chief excuse of the Obama apologists is “this time is different,” citing the book of that title, This Time Is Different: Eight Centuries of Financial Folly, by Carmen Reinhart and Kenneth S. Rogoff. But the theme of that book is exactly the opposite of what it is cited for here – that “this time is different” is never true.
The apologists cite the book to argue that what we have suffered this time was not just a recession, but a financial crisis, and the data in the book shows, they argue, that 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 were a “financial crisis” that breaks the pattern?
The data discussed in the book, by contrast, “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 instead to explain the fundamental principles common to the data, and 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 the economic performance standards of American history is just political propaganda.
Moreover, the concept of a recession is well-defined. It is two consecutive quarters or more of negative GDP growth. By that standard, we can rigorously define when a recession starts and when it ends. But trying to label a recession as a “financial crisis,” for the purposes of giving policymakers a free pass on their performance, is not similarly so well-defined. Again, which of the postdepression recessions in America was a “financial crisis” that shows a break in the pattern?
The only previous American economic performance, at least within the last 100 years, that begins to look like the results of Obamanomics is the 1930s, which makes sense because that is when America followed similar policies to Obamanomics. That is when Obama’s unreconstructed, nave, Rip Van Winkle, Keynesian economics first arose. It failed then for the same obvious reasons it has failed now.
Increasing government spending, deficits and debt does not promote economic growth and prosperity, as Obama and ineducable Democrats to this day believe. What promotes economic growth and prosperity is incentives for increased production, as Reaganomics proved 30 years ago for anyone sentient who was paying attention.
Moreover, as I argue in my new publication, Obama and the Crash of 2013, unless the policies of Obamanomics are changed, the result will be another severe recession in 2013 that will make the results overall of the Obama years look similar to the 1930s. That should not be a surprise, because Obama is modeling his Administration and its policies and political strategies on the Franklin Roosevelt years.
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 the nation’s small businesses, job creators and investors.
As a result, if the Bush tax cuts expire just for singles making over $200,000 per year, and couples making over $250,000, 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, 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. Yet under President Obama there is no relief in sight. Instead he continually proposes still further tax increases on American business. Indeed, President Obama is already campaigning all over America for still further tax increases, on top if his 2013 increases.
In addition, the blizzard of new regulatory costs and barriers imposed by the Obama Administration will be building to a crescendo by 2013 as well. The EPA is effectively imposing cap and trade by administrative regulation under the Clean Air Act, without Congressional approval. EPA is joining with the Interior Department to leash the private sector from traditional American energy production. The new regulatory burdens from Dodd-Frank are scheduled to flow, as are the regulatory burdens of Obamacare, including the employer mandate, which is already massacring jobs.
Then there is the Fed and the effects of its monetary policy. When the Fed follows a typical pattern of cutting off its monetary crack right after the election to forestall inflation, that will be contractionary as well.
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 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 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, quite analogous to the double dip of 1937.