President Obama has been touted by friends and family as the smartest man ever to sit in the White House. Perhaps. Yet he surely is the slowest learner to gain the presidency and probably the most intellectually inflexible. Obama is not only presiding over the most sluggish economic recovery in 80 years, but the economic future looks even worse. In May, a woefully small number of jobs were created, the unemployment rate rose to 8.2 percent, and the rate of growth in the first quarter of 2012 was shaved from 2.2 percent to 1.9 percent. Meanwhile, the Congressional Budget Office warned that if Obama leaves his economic program in place, a recession in 2013 is all but certain.
His response? Let’s do more of the same. This means a tidal wave of tax increases would hit the economy. The Bush era tax cuts for incomes over $200,000 ($250,000 for couples) would expire, boosting the top rate to 42 percent, when deduction phaseouts are included. And two Obama-care increases would take effect, a 0.9 percent hike in the Medicare tax and a 2.9 percent surcharge on investment income.
That’s not all. Obama is bristling with plans for “some things we do better together,” his euphemism for jacking up spending on anything he can think of except defense. Government programs, he suggested last week in Chicago, are “what has made this country great.” His 10-year budget would increase the national debt by $6 trillion.
True, the president routinely feigns love for free markets. “We believe in the marketplace,” he declared at a fundraiser with Bill Clinton last week. “We believe in entrepreneurship and rewarding risk-taking.” This was followed, as always, by a “but” and the claim that government is at the core of what made America “an economic superpower.”
No doubt Obama believes that. Having never been an entrepreneur or risk-taker, he hasn’t a clue about what prompts them to invest their time and money in ways that produce growth and jobs. And he’s too ideologically committed to government programs to find out how the private economy works.
Which leads us to President Reagan, the record of economic recoveries around the world, and suggested reading over the summer to broaden Obama’s economic understanding.
As Obama must know, the Reagan recovery was a stunning success. And it wasn’t spurred by government spending. It was based on a 25 percent cut in individual income tax rates, phased in over three years, and initial spending cuts followed by efforts to curb spending growth.
Five months before Reagan was reelected, the jobless rate had fallen from a high of 10.8 percent and was heading to 7.2 percent on Election Day. Reagan was talking about “morning in America.” Five months before the 2012 election, Obama is reduced to concocting misleading economic claims to justify his reelection—or changing the subject.
Reagan’s economic record is not unique. Harvard economists Alberto Alesina and Silvia Ardagna studied policies aimed at stimulating the economy in 21 countries between 1970 and 2007. Their conclusions were unequivocal. “Fiscal stimuli based upon tax cuts are more likely to increase growth than those based on spending increases,” they wrote. “We would argue that the current stimulus package in the United States is too much tilted in the direction of [federal] spending rather than tax cuts.” They added that spending cuts are “much more effective than tax increases in stabilizing debt and avoiding economic downturns.”
The Alesina-Ardagna study is hardly a secret. It may not have come to the president’s attention, but his economic advisers are bound to know of it. In any event, it hasn’t had an iota of influence in the Obama White House.
But there’s still a chance Obama could learn the error of his economic ways. Every summer, he puts together a list of serious books he intends to read while on vacation. Last year, the list included books on civility, migrations, and a novel by Geraldine Brooks.
This summer, the president would benefit from including Job Creation: How It Really Works and Why Government Doesn’t Understand It. The authors are David Newton, a finance professor at Westmont College in California, and Andrew Puzder, CEO of CKE Restaurants.
They make two main points. One is that “private enterprise, unencumbered by excessive government intervention, will create jobs. Period!” The other: “If job creation and economic prosperity were the result of government action and stimulus, currently we should be experiencing one of the greatest economic booms in our history.”
When the freshman class of House Republicans elected in 2010 arrived in Washington, Representative Paul Ryan gave a copy of Economics in One Lesson by Henry Hazlitt to each of them. Hazlitt’s overriding lesson: There is a “persistent tendency of men to see only the immediate effects of a given policy . . . and to neglect to inquire what the long-run effects of that policy will be.” If Obama is as smart as he’s supposed to be, he’ll ask Ryan for a copy.