In dealing with our current economic crisis, we might remember that a recession is not a once-in-a-lifetime experience. Although economists differ on just what constitutes a recession, there have been some 47 in the United States since 1790. There have been 11 since 1945, and they have averaged 10 months in length. In truth, since World War II, it has not been an overwhelming task to bring the American economy out of recession. The sheer dynamism of our economy, the strength of its entrepreneurial drive—what Keynes called its “animal spirits”—has been enough to revive it very quickly.
Indeed, despite President Obama’s complaints that he had been left “an economic crisis as deep and dire as any since the days of the Great Depression,” he and his advisers did not suggest initially that the future was going to be bleak. Christina Romer, chair of the White House Council of Economic Advisers, famously predicted that the unemployment rate would shortly top out at 8 percent.
Compare that with what Ronald Reagan had to deal with to overcome the Carter “malaise” in 1980: inflation at 11 percent, mortgages at 15 percent, and, by the time he had broken the inflationary cycle, unemployment at 10.8 percent. As Reagan noted in a microphone test which inadvertently went into the press room prior to his weekly radio broadcast on November 20, 1982, “My fellow Americans, I’ve talked to you on a number of occasions about the economic problems and opportunities our nation faces, and I’m prepared to tell you, it’s a hell of a mess.”
Reagan got the country out of the mess because he cut taxes, cut regulation, set clear objectives, and let ordinary Americans make money. Obama is failing to get the country out of a recession because he’s telling Americans what money they can make, what kind of jobs should be created, what extra regulations will be imposed on them (once he and his dysfunctional party have made up their collective minds), and how much more they’re going to be taxed once that has been decided by all the committees that have jurisdiction. In short, he has done the one thing he should have avoided like the plague—he has created uncertainty.
Obama and the belligerent anti-business cartel running Congress have created an increasingly hostile environment for businesses to operate in. It is hard to keep track of all the sectors which have incurred Obama’s wrath or over which he has asserted control. He told the banking industry that he did not run for office to help out “a bunch of fat cat bankers on Wall Street.” He has threatened the health insurance industry, saying that the administration wouldn’t hesitate to block mergers or “to require the settlement concessions necessary to protect consumers.” He extracted concessions from the pharmaceutical industry and then double-crossed them. He used the BP oil spill as an opportunity to close down drilling operations by all companies at depths greater than 500 feet. He has revived all the uncertainties of the coal and utility industries with his promotion of cap and trade legislation.
The sheer perversity—the ideological rigidity of the administration—is well illustrated by its treatment of Milwaukee-based Bucyrus International. Bucyrus stood to win a three-year, $600 million contract to supply mining equipment for a coal-fired power plant in India, subject only to its getting favorable financing rates from the Export-Import Bank. The deal met all the criteria, including the more stringent environmental standards imposed by the Obama White House. The bank denied the financing because the “carbon footprint” of the project was too large. This is not going to stop the construction of the power plant, which is due to open in 2012, as other countries will be happy to supply the machinery. It will just deny jobs to American workers.
But all this is the merest drop in the gusher of complexity and uncertainty which has engulfed business. Read the 54-page report by the Business Roundtable on “Policy Burdens Inhibiting Economic Growth” and you will understand the paralyzing precariousness of industries confronting laws that have not been laid down, regulations in a continuing state of flux, departments and agencies with no clear sense of direction, liabilities that change like the weather, and the certainty that the one force that will not be controlled is tort lawyers.
You will also realize that the model here is the administration of Franklin Delano Roosevelt. (“I would put these four months,” said Obama after four months as president, “up against any prior administration since Franklin Roosevelt.”) FDR, according to the myth, gave the country the courage to face its problems, and Democratic leaders believe that Roosevelt succeeded because of his tough rhetoric against the rich. The truth is almost exactly the opposite. Roo-se-velt’s economic policies were a failure. If it had not been for the war that came in 1939, Roosevelt would have retired as a discredited president, having failed for eight years to build the confidence that was essential to restoring the economy.
It would have been hard to have devised an economic program more calculated to deepen the Depression than the one employed in FDR’s second term. And indeed it did—unemployment climbed back above 17 percent in 1939. Hoover had raised the top marginal tax rate from 25 to 63 percent, but Roosevelt, over the protests of his secretary of the Treasury, Henry Morgenthau, boosted it to 79 percent and then later to 91 percent. Morgenthau presciently argued, “We must have additional revenue, but in my opinion the way to make it is for businessmen to make more money.” Roosevelt refused to make any reduction in personal or corporate taxes, dismissing it as a “Mellon plan of taxation,” a reference to the secretary of the Treasury who had spurred growth in the 1920s by lowering the top tax rate to 25 percent.
Keynes himself wrote a letter to Roosevelt telling him that it was time to stop talking about the “wickedness” of the utility holding companies and to consider a guarantee of fair earnings on new investment. “Businessmen have a different set of delusions from politicians,” Keynes wrote. “You could do anything you liked with them, if you would treat them (even the big ones), not as wolves and tigers, but as domestic animals by nature, even though they have been badly brought up and not trained as you would wish.” Keynes was politely told to get lost.
But it is not just that Obama views the abuse of businessmen, erring or otherwise, as a political masterstroke in the Roosevelt tradition. The truth is that Obama himself knows nothing about business. There is a good example of his fundamental lack of economic understanding in his book Dreams from My Father when he describes his thoughts on returning to Chicago after completing his law degree at Harvard:
I tried to imagine the Indonesian workers who were now making their way to the sorts of factories that had once sat along the banks of the Calumet River, joining the ranks of wage labor to assemble the radios and sneakers that sold on Michigan Avenue. I imagined those same Indonesian workers ten, twenty years from now, when their factories would have closed down, a consequence of new technology or lower wages in some other part of the globe. And then the bitter discovery that their markets have vanished . . . [and] they would settle into their own Altgeld Gardens, into a deeper despair.
This was written more than halfway through a 20-year period in which 40 million new jobs were created in the United States, and several hundred million more abroad—including in Indonesia, China, and India—all of which combined to create an unprecedented global prosperity. Obama’s account is based on the belief that the workers in Indonesia were somehow leading idyllic lives weaving their baskets.
The Obama administration consists of politicians who believe that a crisis is too good to waste, academics whose main contact with business has been soliciting money for endowments, bureaucrats impervious to economic considerations, environmental visionaries, and—to the extent that there is anyone who has spent time in business—quick buck artists who went briefly into “finance” to translate their political connections into money. Obama has appointed a cabinet and a White House staff which contains not a single former business executive. It is an administration whose only contact with Main Street is shopping.
John Chettle is completing a book on what presidents read and why it matters.