Sunday, Apr 14, 2024

The Road to Election 2012: Obamanonics vs. Reaganomics

There is fresh evidence that US economic growth has slowed. This has forced economists to reduce their estimates for 2011 year-long growth, and increased the possibility of a double dip recession in 2012. The average monthly rate of job growth has been cut in half since the beginning of the year. The long-depressed housing sector has shown fresh signs of weakness, with an unexpected recent increase in mortgage defaults. The Commerce Department has also reduced its previous growth estimate for the second quarter of 2011, from 1.3% to 1.0%, meaning that the recovery slowed even more drastically than most realized during the spring. The continued high unemployment rate, plus the recent turmoil in the financial markets and the gridlock in Washington this summer over efforts to raise the federal debt ceiling, have combined to damage consumer confidence. Consumer spending, which accounts for about 70 percent of the US economy remains depressed. Some blame this in part to the high price of gasoline at the pump. Even though the price of crude oil on international markets has fallen sharply in recent weeks, the average price at the pump is still a dollar higher per gallon than it was a year ago.

Most Americans have little patience or appreciation for economic statistics. But one number they can’t ignore is the money they spend each week filling up their car’s gas tank. Incidently, one of the biggest political secrets of the Obama administration is that it wants gasoline prices to rise even further to the punitively high levels of Western Europe, where gas sells for $8-9 a gallon. That is the only way that Obama’s pet “green” energy ideas, like substituting electric cars for those using gas, can win wide public acceptance.




Another economic statistic that Americans understand is joblessness. Obama’s greatest domestic failure has been to ignore the fact that there are 25 million Americans who are either unemployed or cannot find a full-time job, and have to settle for part time work. In fact, there are fewer Americans working full-time today than there were when Obama first took office. Yet only now, as he mobilizes his forces for re-election, have jobs finally gained his attention. For several weeks, Obama has said that he will soon announce a new program to increase employment in the US.


Obama as president has talked about creating jobs before. The 2009 stimulus package was supposed to create lots of jobs on “shovel-ready” infrastructure projects, most of which never materialized. In June, Obama finally acknowledged that fact when he joked that, “shovel-ready was not as … uh .. shovel-ready as we expected.” But 25 million jobless Americans didn’t think it was funny.


As he allowed job creation to founder, the president focused on forcing Obamacare down the throats of an American public that didn’t want it, and raising taxes on higher income people. Only now that he has become obsessed with his own re-election has Obama elevated the task of putting the country’s unemployed back to work on his liberal to do list.


Many consider Obama’s recycled job creation proposals to be too little and too late. As Doyle McManus, who writes for the Los Angeles Times, succinctly put it, “Can this president persuade voters to let him keep his job when so many have lost theirs?”


All the extra deficit spending from Obama’s stimulus package did have some effect, but because it did not create enough new jobs, the boost did not last, and was not worth the long term cost. Growth spurted briefly during the first quarter of 2011, with real disposable income increasing by 1.2 percent and corporate profits 8.3 percent higher than at the same time last year.




The real question is how long those profits can last, with consumer confidence down at home and other economies around the world slowing down at the same time. For example, the French government acknowledged last week that its economy slowed so much that it has to impose $16 billion in new taxes to reach its budget deficit-reduction targets. France is raising income taxes on high-wage earners and increasing levies on alcohol, tobacco and soda, in an effort to maintain its AAA credit rating, which the US has already lost. France had no choice because keeping its credit rating high is crucial to the effort to keep the embattled common European currency, the euro, from imploding.


US retail chains, like home improvement giant Lowe’s Co., are reducing their profit projections for the rest of the year in anticipation of consumers cutting back on discretionary spending. Computer and electronics makers, with some notable exceptions, like Apple, have also cut back profit projections. Recently, disillusioned American businessmen have been making their growing pessimism about Obama’s economic policies felt where they hurt him the most, by cutting back contributions to his re-election campaign.


These negative factors have been adding up, and the result is not pretty. Economic research firm, IHS Global Insight Inc., recently doubled the probability of a double-dip recession next year to around 40 percent, while reducing its forecast for 2011 year-long growth to 1.6 percent from 2.5 percent.


Wall Street firm Goldman Sachs has also advised that, “it appears that the US economy is losing further momentum.” It has reduced its current economic growth estimates to just 1 percent in the current third quarter and 1.5 percent in the fourth quarter, down from the 2 percent for both it projected in July.




Yet, liberal Democrats refuse to attribute these problems to the failed economic policies of the Obama administration. They still claim that after 30 months in office, with control of both houses of Congress for most of that time, voters should not hold Obama responsible for the sorry state of the US economy.


In next year’s election, the Democrats will try to convince voters that all of the US economy’s lingering problems can still be blamed on the policies that Obama inherited from Bush administration.


The most convincing argument that such arguments are without merit is a comparison of the economic policies and records of Obama to Ronald Reagan thirty years ago, when the country faced a similar economic problem.




Both Reagan and Obama inherited an American economy in collapse. Both applied daring, expensive remedies. Reagan’s measures worked admirably, and quickly led to an era of renewed prosperity, while Obama’s stimulus efforts have wasted America’s economic resources without providing any relief. Reagan’s policies of tax cuts, combined with government deregulation, and spending controls, based upon supply side economics, unleashed rapid growth, while Obama’s $1 trillion in stimulus spending has resulted in a brief spurt which has now died out, leaving the economy on the brink of a double dip recession.


At the same point in the third year of Reagan’s first term in office, the US economy was soaring at a 5% growth rate, and accelerating toward 7%, or even 8%. By contrast, today economists are cutting back their growth projections sharply. Toward the end of Reagan’s first term, the main worry of most economists was that the economy would “overheat,” unleashing a new round of inflation, rather than concerns about it stalling once again.


Reagan was able to campaign for re-election on the memorable slogan that under his leadership, it had become Morning in America once again, with the country’s best years still ahead. By contrast, under Obama, there are only gloomy long term projections of budget deficits as far as the eye can see. Millions of middle class Americans have been out of work so long that they given up hope of finding another job.




Today’s young working families are also disillusioned. They are struggling to maintain their current standard of living and hold out little hope of a better economic future for their children. According to the polls, most of them do not expect the federal government to keep its promises to provide Social Security and Medicare benefits by the time they are ready to retire.


Tens of millions of older workers who have seen their life savings and the value of their homes wiped out over the past few years no longer believe that they will ever be able to afford to retire, even with Social Security and Medicare. The optimism which swept this country at the end of Reagan’s first term has been replaced by the fear, as we approach the end of Obama’s first term, that the US is in decline, and has entered the twilight of its economic power and global influence.




The simple truth is that Reagan’s approach worked, even though liberals still ridicule his “supply side” economic theories. Obama’s big government spending policies failed to deliver the relief he promised and made it far more difficult to bring runaway government deficits under control.


Reagan’s approach was to incentivize production. He lowered barriers on business expansion and investment by slashing income tax rates, while controlling inflation with a tighter monetary policy.


Liberal Keynesian economists at the time mocked Reagan’s approach as doomed to fail. In 1980, Paul Samuelson, the era’s most respected liberal economist, predicted that Reagan’s policies would doom the economy to years of sluggish growth and high unemployment. Instead, the economy took off on an expansion that lasted for more than six years. At the same time, the 13% inflation which Reagan had inherited from Jimmy Carter in 1980 fell to just 4% by 1983.




Liberal economists like Robert Reich and Paul Krugman are still struggling to explain why Reagan’s policies, which contradicted all of their theories, were so successful, while Obama’s policies which follow their philosophy have failed so badly. Krugman argues that Obama’s policies, which did follow his big spending ideas, failed to reignite growth because they didn’t spend enough deficit money on dead-end government jobs and welfare programs. Krugman and Reich are still cheering Obama on, as he calls for more deficit government spending as “investments in the future.” They are hoping that the voters have already forgotten how Obama made similar promises about where the money in his first stimulus package would go, and how badly that worked out.


History refutes the claim that more government spending alone can stimulate the economy. The federal government’s deficit when Reagan was trying to bring the economy out of recession was 4-5% of the country’s GDP at the time. Since Obama took office, deficits have been running at twice that level, 8-9% of GDP. If Obama is right and more deficit spending is the answer, Obama’s recovery should be twice as strong as Reagan’s was, but instead, it has been much weaker.


Unfortunately, the left and Obama’s supporters are too steeped in denial to recognize these facts. Now they argue that Obama’s big spending programs haven’t worked because, “This Time Is Different,” which is the title of the latest book by liberal economists Carmen Reinhart and Kenneth Rogoff. Published in 2009, the book claims that the recovery from this recession should take six years or more simply because it was accompanied by a financial crisis, without really explaining why that should make a difference.




It is true that Obama did inherit a financial crisis when he first took office, but the key measures which brought this country back from the brink of disaster, such as the TARP bailouts and other unprecedented government and Federal Reserve interventions, were almost all initiated before the end of the Bush administration.


While Obama does deserve some credit for the successful rescue of the US auto industry, most of his own economic initiatives have been failures. His program to halt the flood of foreclosures due to homeowners walking away from their underwater mortgages has been an expensive failure.


Home prices are in free fall today and foreclosures are rising once again around the country, but not because of sub-prime mortgages. Today’s low mortgage interest rates have made that largely a non-issue. The main driver of the housing crisis today is long term unemployment. The breadwinners of too many middle class families have not been able to replace the jobs they lost, and so cannot make their monthly mortgage payments. Again, the crucial missing element is jobs, and Obama has done nothing to solve that problem.




TARP bailed out Wall Street and the big banks. Most of Obama’s stimulus package went to protect the jobs of members of the state and local government employee unions. In recent years, they have negotiated wage and benefit packages that were far more generous than those in the private sector, and which have proven to be unsustainable.


The giant banks and Wall Street brokerages, which were judged to be “too big to fail” after the collapse of Lehman Brothers 3 years ago, are even bigger today.


Financial giants like AIG were considered to be “too big to fail.” They sold hundreds of billions of dollars worth of insurance, known as credit default swaps, mostly to foreign banks, on worthless mortgage-backed securities. When the market value of those securities collapsed, the federal government did make good on those insurance claims, using taxpayer money to pay 100 cents on every dollar to those foreign banks.


The Wall Street executives who were responsible for the crisis were rescued from the results of their greed by taxpayer money. None of them are in jail today.


The weaker banks and Wall Street firms have been rescued or merged into healthier institutions. Life goes on as usual for the banks which made those irresponsible subprime mortgage loans, the Wall Street firms which turned them into marketable securities and sold them to unsuspecting investors, and the credit rating agencies which rated those worthless securities AAA.


The argument is made that the Wall Street TARP bailout, while unpalatable, was necessary in order to protect the financial system from collapsing. But simple fairness would argue that the government should have also come to the aid of all the millions of little people who have been badly hurt by the financial crisis, and who have been largely left to fend for themselves.


That is the real reason why so many taxpayers are still so angry about the government bailouts. Middle class taxpayers were the ultimate victims of the financial crisis, but nobody is bailing them out. By the millions, they are still losing their homes, living in poverty and fear, and worrying about whether they will ever be able to retire.


Nobody has come to the aid of small businessmen who can’t get a line of credit to run their still profitable businesses. There is no government help for families who saw their life savings wiped out when the stock market crashed, and the value of their home was halved. The government has not refunded the money lost when the AAA-rated mortgage-backed securities sold to their 401-K retirement plans turned out to be worthless.




Obama’s financial regulation bill was supposed to correct the underlying problems which led to the financial crisis. But in the end, it is still protecting the interests of the big banks and Wall Street investment houses, while shifting higher lending costs to consumer, and making it even harder for ordinary families to qualify for loans.


That is why the anger of the taxpayers and voters at Obama and his supporters in Washington is so great. The tens of millions of outraged Americans who have flocked to the Tea Party and become avid listeners of Rush Limbaugh and other conservative talk show hosts sense instinctively that their government’s priorities are all wrong. They want to see a return to government by common sense. They want their elected leaders to use their taxes to pay only for the government services and the programs the people really need, and cut out the ones that are “earmarked” to help the special interests. Finally, they don’t want the bill for any more government spending put on the credit card, to be paid for by our children and grandchildren.




Obama has a different approach. As seen with Obamacare, he wants to put the US on a path to become a quasi-socialist country like France or Sweden, but his reckless spending has put this country on course, instead, to become another Greece.


As a result, President Obama now has a tremendous credibility problem, even with many of his own liberal supporters. They have no faith in his leadership, and do not trust him to protect their best interests. At the same time, most of the millions of moderates and independents who voted for him in 2008 feel, at best, disillusioned, and at worst, betrayed. As for the conservatives, they are eagerly counting down the days to the first Tuesday in November, 2012, while seeking every possible avenue to defeat his reelection bid.


The public and even the once sympathetic media now largely ignore Obama’s pronouncements. When the Wall Street roller coaster began its wild ride on August 8th, Obama decided to make a televised address to the nation in the middle of the trading day to calm the apparent panic.


His response to the reduction of the triple-A credit rating of federal government securities was a flippant, “We’ve always been and always will be a triple-A country.” The market’s response was a drop of another 300 points in the Dow Jones Average. The markets have been in constant and often extreme flux since then, but trending steadily down. This is another resounding vote of “no confidence” by investors around the world in Obama’s economic policies and leadership.




The attitude of the voters toward Obama, according to the latest polls, is equally negative. Over the weekend, Obama’s job approval rating, according to a Gallup tracking poll, hit a new low, at just 38%, while 55% expressed disapproval of his job performance.


Obama and the Democrats have continued to try to blame Republicans in Congress for the lack of a coherent economic recovery plan. But it is the president who must ultimately take responsibility for putting the country’s interests first. Obama showed that he was capable of doing that when he negotiated a deal after the midterm election with Republicans to extend all the Bush tax cuts for two years and put in place other stimulus measures which were difficult for liberal Democrats to accept, but which were generally popular with the rest of American people.




Obama decided not to follow the same course this summer in the confrontation over the debt crisis. Instead of accepting generous proposals offered first by GOP House Speaker John Boehner and then by a bipartisan plan developed by the Senate’s “Gang of Six,” Obama chose to fall back on his class warfare political rhetoric, whining about the need to raise taxes on millionaires and billionaires, which even liberal economists agree would be totally insufficient to put a dent in the nation’s long term deficit problem. As Republicans have pointed out, the deficit problem is not due to a shortage of federal tax revenues. They remain roughly the same. The crux of the problem has been an increase in federal spending under Obama from 18% to 24% of the national GDP.


Both the debt ceiling crisis and the 2010 budget crisis were deliberately provoked by Obama and the Democrats. Obama could have easily avoided both of them by demanding a vote on them before the end of last year when the Democrats still controlled large majorities in both houses of Congress. Instead, Obama and the Democrats deliberately avoided their constitutional responsibilities. That is what precipitated the totally unnecessary legislative crises over the unfinished 2010 budget and the debt ceiling, both of which the Democrats tried to milk for maximum political advantage.


Obama is still insisting on the need for higher taxes on higher income individuals and couples in the name of fairness. But he remains silent on the fact that almost half of US citizens are not currently required to pay any federal income taxes at all. This includes citizens with incomes of up to $50,000 per year. Is that fair?




Boehner and the bipartisan plan offered Obama a truly comprehensive solution to the deficit problem. It would have totally revamped the hodgepodge inequities and special interest provisions in the federal tax code, but Obama turned it down on purely partisan considerations.


Many of the ideas in both of these plans can be traced to the bipartisan Simpson-Bowles commission appointed by Obama in 2010 to deal with the deficit problem. However, as soon as the commission presented recommendations, Obama started to distance himself from them. In the end, both the Boehner proposal and the “Gang of Six” plan to resolve the deficit ceiling problem would have required significant departures from the positions of both major parties, but only the Republican leaders were willing to take that political risk.


Instead, Obama and the Democrats rejected both plans and forced a last minute, temporary fix for the debt ceiling crisis which sets up another bitter partisan confrontation over government spending policies at the end of this year.




That is hardly the kind of leadership in a crisis which one would expect from a president. Writing in the Wall Street Journal, Mortimer Zuckerman, who supported Obama in the 2008 election campaign, claims that this conduct has led to a “competency crisis” in his presidency within the business community. This, in turn, has contributed directly to the reluctance of small business leaders in particular to create the jobs this economy so desperately needs.


Nevertheless, Obama refuses to admit his past errors. At the same time, his Democrat and media apologists struggle to find new reasons to explain the dismal failure of his economic policies and his sinking job approval ratings, from bad weather, to the Japanese tsunami, to the stubborn refusal of the American people to recognize and acquiesce to the liberal wisdom and benefits of Obama’s proposals. It is ironic that a president who won election based largely on his oratorical powers should be so incapable of communicating the rationale for his policies once in office.


Zuckerman now admits that he, like many other Americans, who were “elated by the historic novelty of his candidacy and presidency,” have now lost faith in Obama. He is hardly alone.




Even Maxine Waters, arguably the most extreme left wing member of Congress, spoke out publicly last week in Detroit condemning the high black jobless rate as “unconscionable.” She also blasted Obama’s highly publicized Midwestern bus campaign tour for focusing on rural white communities, while failing to meet with a single black audience.


In a later meeting between Don Graves, the executive director of the President’s Council on Jobs and Competitiveness, spoke to members of the Congressional Black Caucus at a black church in Miami. Waters challenged him to “let me hear you say ‘black,’” when he talked about “certain communities that have been hit harder than other communities,” by joblessness. Reluctantly, Graves responded, “black, African-American, Latino, we’re going to focus on getting people back to work.” At the same meeting, another member of the Black Caucus, Congresswoman Laura Richardson, said of Obama’s approach, that assisting all ethnic communities helps blacks to get jobs, is “a bunch of bull.”


The majority of Democrats disappointed with Obama have no desire to split the party by putting up a challenger for their party’s nomination next year. As a result, they are now entering another election cycle with the same “intensity gap” they suffered in last year’s midterm election, while the Republicans are more determined than ever to thwart Obama re-election. A full 25% of Democrats do want to see a primary challenge for Obama, but their wish is likely to go unfulfilled.


Assuming that the economy does not improve significantly over the next year, and unemployment remains well over 8%, Obama seems likely to lose his re-election if it becomes a referendum on his first term in office. For that reason, Republicans must avoid choosing a presidential challenger whose background or political positions could be seized upon by the Obama campaign to distract voter attention away from the president’s dismal record. That record will surely doom his hopes for re-election if it is allowed to remain the central focus of the campaign.



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