It's amazing how little President Obama has learned about economics in his four and a half years in the White House. Growth, incentives, tax reform, tax increases, private investment, the middle class, a second great depression, the sequester—all these issues have one thing in common: Obama doesn’t understand their role in our economy.
Nor does he appear interested in finding out. Members of the now-defunct President’s Council on Jobs and Competitiveness have privately talked about Obama’s economic shallowness. After the 2010 election, he invited four conservative economists to the White House. When former Congressional Budget Office director Douglas Holtz-Eakin broached the subject of the economic cost of Obamacare, the president dismissed it as politics, not economics.
Obama seems oblivious to the feeble recovery his policies have produced since the recession bottomed out in June 2009. The jobless rate is 7.3 percent. But if the millions who’ve dropped out of the job market altogether since Obama took office in January 2009 were counted, the unemployment rate would be 10.8 percent. “In other words, the United States faces a permanently larger pool of jobless Americans,” says the American Enterprise Institute’s James Pethokoukis.
The economy has grown at less than 2 percent during Obama’s presidency and shows few signs of picking up the pace. “We need to grow faster,” he acknowledged last week. “We need more good-paying jobs.” Yet he’s sticking to the same policies that led to stagnation in the first place.
His solution for slow growth is more government spending. Government is going to have a critical role, Obama said, in determining “whether we can hire more workers to upgrade our transportation and communications networks or fund the kinds of research and development that always kept America on the cutting edge.” Not really. What has kept America ahead of the curve is private investment, which has lagged in the Obama era.
Investment incentives spurred fast, robust, and stable growth and strong job creation in the ’60s and ’80s, thanks to tax cuts on individual and corporate income championed by Presidents Kennedy and Reagan. Obama acts as if he’s never heard of such a thing. True, he’s for killing some tax loopholes and preferences and lowering the corporate tax rate by a few percentage points. He’d also use some of the proceeds to spend still more.
Obama calls this tax reform. But it’s hardly the popular version, which would broaden the tax base and lower tax rates, including the rates on individual income. That would mean a lower rate for the investor class, the top 1 percent. Since Obama won’t consider that, tax reform is dead and along with it incentives to invest.
Among the president’s excuses for stunted growth is the sequester, the spending cut of $85 billion this year. It has “cost jobs, harmed growth, [and hurt] our military readiness,” he said in last week’s “Remarks by the President at the Five-Year Anniversary of the Financial Crisis.” In fact, the economic impact of the sequester is unknowable. It’s guesswork.
But Obama’s claim raises two questions should ask himself. One, if spending cuts impede growth, shouldn’t a massive spending increase unleash it? But the spending surge in Obama’s first term certainly didn’t. Two, if cutting the corporate tax rate (now 35 percent) will “create more good jobs and with good wages for the middle-class folks who work at those businesses,” won’t a tax hike have the opposite effect? Just this year, Obama boosted taxes, notably on business-related income, capital gains, dividends, and personal earnings. These came on top of a 3.8 percent surtax on investment income.
Despite all this, Obama claims his policies have “begun to lay a new foundation for economic growth and prosperity.” He boasts: “Our deficits are now falling at the fastest rate since the end of World War II.” That sounds impressive—until you realize the decline is from a deficit of $1.4 trillion in 2009 to $1.1 trillion in 2012. Meanwhile, the Congressional Budget Office reported last week the accumulation of national debt is on an unsustainable path. Some foundation!
Obama continues to talk up the fantasy that he saved the country from plunging into a full-blown depression in 2009. “The economy was on the verge of a great depression,” he told George Stephanopoulos of ABC News recently. “In some ways, actually, the economic data” pointed to a downturn “worse than what happened in the 1930s. And we came in [and] stabilized the situation.”
He insists the $821 billion “stimulus” package stopped the “downward spiral and put a floor under the fall.” But the recession was over by June 2009, well before the bulk of the stimulus had been implemented. Instead, the Federal Reserve had flooded the economy with liquidity, and the big banks had been bailed out, before Obama was inaugurated. The crisis had been largely quelled without his help.
There’s another fantasy in Obama’s economic dreams: He’s the savior of a beleaguered middle-class America that hasn’t gained economically in many years. “We also started pushing back against trends that have been battering the middle class for decades,” he said in last week’s speech. The rich got 20 percent of national income in 2012, “while the average worker isn’t seeing any raise at all,” he added. “In fact, that understates the problem.”
It overstates the situation and distorts it. The idea of a faltering middle class has been debunked frequently by AEI’s Pethokoukis. Now he has the Census Bureau to back him up. It pegged “real median household income”—a proxy for middle-class income—as rising during the boom years from 1983 through 2007.
The median income was $51,017 in 2012, close to what it was in 2011 but below the $55,627 level in 2007 (before the recession). The peak was $56,080 in 1999. “The Census Bureau is just tracking pre-tax, pre-transfer, non-fringe-benefit market income,” Pethokoukis wrote. So, the bureau said, median income “does not completely capture the economic well-being of individuals and families.”
Note that household income has fallen in the Obama years, as it did in George W. Bush’s second term. From this, I draw a simple conclusion. Middle-class Americans don’t need to be protected by Obama. They need to be protected from him.
Fred Barnes is an executive editor at The Weekly Standard.