The Magazine

Know-Nothing-in-Chief

There's no evidence Obama has even a sketchy grasp of economics.

Aug 3, 2009, Vol. 14, No. 43 • By FRED BARNES
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Is President Obama an economic illiterate? Harsh as that sounds, there's growing evidence he understands little about economics and even less about economic growth or job creation. Yet, as we saw at last week's presidential press conference, he's undeterred from holding forth, with seeming confidence, on economic issues.

Obama professes to believe in free market economics. But no one expects his policies to reflect the unfettered capitalism of a Milton Friedman. That's too much to ask. Demonstrating a passing acquaintance with free market ideas and how they might be used to fight the recession--that's not too much to ask.

But the president talks as if free market solutions are nonexistent, and in his mind they may be. Three weeks after taking office, he said only government "has the resources to jolt our economy back into life." He hasn't retreated, in words or policies, from that view.

At his press conference, Obama endorsed a surtax on families earning more than $1 million a year to pay for his health care initiative. This is no way to get the country out of a recession. Like them or not, millionaires are the folks whose investments create growth and jobs--which are, after all, exactly what the president is hoping for.

Another tax hike--especially on top of the increased taxes on individual income, capital gains, dividends, and inheritances that Obama intends to go into effect in 2011--is sure to impede investment. It's an anti-growth measure, as those with even a sketchy grasp of economics know. But Obama doesn't appear to.

The president also spoke favorably at the press conference of taxing "risky" ventures by Wall Street investors. It wasn't clear what risky investments he had in mind. Never mind. Reckless risk-taking is hardly a problem at the moment. It's the lack of any risk-taking at all by investors that's holding back the economy.

Obama said the funds raised through his risk tax would be available for bailouts of large financial institutions whose collapse might harm the economy. Fine, but there's a smarter, simpler, and tax-free way of dealing with outfits deemed "too big to fail." It consists of requiring deeper capital reserves as they grow in size. If that solution is known to the president, he hasn't let on.

Then there's the matter of corporate profits. You'd think Obama would love profits since they nurture a robust economy and job growth and are largely responsible for the rise in the stock market last week to its loftiest point since January. And strong profits may foreshadow an economic recovery. But the president's opinion of profits ranges from ambivalent to hostile.

He declared it "a good thing" that banks are profitable again, but he couldn't leave it at that. He went on to bemoan the absence of "change in behavior and practices" among bankers. As for the "record profits" of insurance companies, he had nothing but disdain. "What's the constraint on that?" he asked, as if those profits should indeed be constrained.

A good example of Obama's economic shallowness is his unrelenting defense of the $787 billion "stimulus." Enacted in February, it has had minimal impact on the economy. Yet Obama has no second thoughts. He says he wouldn't change a thing about the stimulus. It has "already saved jobs and created new ones," he said at the press conference, neglecting to note that 2 million jobs--a net 2 million--have been lost since it was passed.

He seems oblivious to what the stimulus palpably lacks: incentives for private investment. These were a major reason (but not the only one) for Ronald Reagan's success in ending the deep recession in 1981-82. They also aided the rebound from the milder recession in 2001. In both cases, investment in the private sector led to job creation.

Obama, ignoring history, relied instead on government spending and small, one-time tax rebates (with no incentive power). Ideology may have played a role here. The stimulus was drafted by congressional Democrats, who loathe tax cuts. Obama could have insisted that tax incentives be added. He didn't. A fair conclusion: He simply doesn't understand the economic value of tax incentives.

"Tax cuts alone can't solve all of our economic problems," Obama said last winter. Nobody had said they could. This was a straw man. But tax incentives would surely have helped and might already have begun to stimulate the economy had Obama included them.