A week ago, the President kicked off his latest campaign at Knox College in Illinois to garner support for his plans to lift a sluggish economy. On Monday, at the Mandarin Oriental in Washington, Mr. Obama gave a preview before an event organized by Organizing for Action, a P.A.C. formed from his last campaign organization – a tax exempt group (meaning that it is, in part, funded by taxpayers regardless of their political preferences) that continues Mr. Obama’s campaign begun more than six years ago. Before an “active and rowdy” crowd of supporters, the President said he would be “trying to get Washington and the press to refocus on the economy …exploring some big and bold ideas.”
However, what he actually said – and it took him over an hour to do so – was a re-hash of policies that have not worked. There was nothing big, nor anything bold. He spoke of income inequality, but offered little in answers other than redistribution. He called for increasing the minimum wage, which tests well in polls and always gets applause, but tends to destroy, not create, jobs. He asked for more money for renewable sources of energy, like wind and solar, despite heavy taxpayer losses in companies such as Solyndra, Abound Solar and A123 Systems. He continued to suppress expectations of approval for the Keystone XL pipeline, despite the jobs it would create and the reductions in dependency on foreign oil that would result. As mentioned, there was nothing new, big or bold.
Mr. Obama made three speeches, in Illinois, Missouri and Florida. In all of them, he said his priority was the middle class. (Remember when President Obama’s 2012 campaign roundly ridiculed Mitt Romney for his focus on the middle class?) He praised how his policies on healthcare, Wall Street, and tax and spending had pulled the country back from the brink of a financial crisis. (In truth, it was the Bush Administration that yanked us back in the late fall of 2008.) Mr. Obama said he could not understand why Republicans blame the Affordable Care Act for job losses when “our businesses have created jobs at nearly twice the pace of the last recovery, when there was no Obamacare.” I don’t know what he is talking about. Given that there are two million fewer people working full-time today than when he took office, one can only assume his statistics are only accurate if part-time jobs are included. Thus far in 2013, for example, the number of full-time workers has increased by 80,000 versus 592,000 new part-time workers. Employers are not required to offer part-time employees healthcare.
It is true, as Mr. Obama reminded us that our infrastructure is suffering. Roads and bridges are in disrepair, as are mass transit systems and airports. Yet, the $787 billion 2009 stimulus bill, which promised 3.5 million jobs aimed at fixing the infrastructure, came to naught, because, as the President admitted a year later, “shovel-ready jobs were not shovel-ready.” A principal reason infrastructure spending has declined is because so much of the budget is spent on entitlements. Including food stamps and anti-poverty programs, entitlements comprised 62% of the federal budget last year. They are the fastest growing part of the budget, expanding at twice the rate of inflation, and will only get bigger once Obamacare gets implemented. While deficits continue to expand – albeit at a smaller rate than earlier – interest expense has remained roughly constant because of extraordinary low interest rates. But that won’t last. Interest rates will go up, and if debt has not been cut there will be even less money for discretionary projects. Keep in mind, when the Interstate Highway System was built in the 1950s – the last major infrastructure program – entitlements consumed about 30% of the federal budget. As a nation we have made decisions: We opted for entitlements over infrastructure; we must live with the consequences.
Mr. Obama persistently took Republicans to task for being obstructionists and claimed they had not offered alternatives. That was campaign rhetoric, not an attempt at an honest dialog. He never acknowledged Paul Ryan’s “The Path to Prosperity,” nor the Simpson-Bowles tax plan that he ignored three years ago. Mr. Obama is the President. He cannot continually campaign as an outsider. It is his responsibility to work with a Congress on an economic plan that can gain enough support to pass both Houses. Millions of unemployed Americans are depending on his willingness to work with the Senate and the House.
God knows that the economy needs help, and it needs growth, but should government or the private sector be the engine? Those who pose the choice as between growth versus austerity, as the Europeans do, miss the point. Austerity never works. But how to generate growth? Over the past four and a half years, government has led the charge, which has resulted in a sub par 2% average annual rate of economic growth. Government deficit spending, as David Malpass noted in Tuesday’s Wall Street Journal, “surged 23% in 2009, 20% in 2010, 11% in 2011 and 10% in the year through March.” The Federal Reserve has kept interest rates near zero since the fourth quarter of 2008. Additionally, they have been buying Treasuries and mortgages at the rate of $85 billion a month. The Fed’s balance sheet has expanded from less than a trillion dollars in 2008 to $3.35 trillion at the end of May.
It is time to let the private sector take the lead. Government is nowhere near as efficient an allocator of credit as are individuals and businesses. But doing so requires tax reform and less regulation. Obamacare and an interest-rate scenario that everyone knows must end have created uncertainty. Too often Washington considers itself a source of confidence, when in fact it is a deterrent. Reflecting uncertainty, U. S. Banks, as James Grant notes in his most recent “Grant’s Interest Rate Observer,” have excess reserves of $1.2 trillion. That money could be lent out at a rate of 10:1, suggesting possible loans of $12 trillion. That that money sits idly is a commentary on the hapless policies of the Obama Administration.
Given the dismal economic recovery and the growing scandals that confront this President it is not surprising that he has taken to the hustings. Speaking is what he does best, as long as he has his Teleprompters. Adoring crowds greet the President, all rounded up by his advance people. One wonders, does Chris Matthew still get a thrill in his leg whenever Mr. Obama speaks? His speeches make good theater, but there was little of substance about the economy in his words. But what was most disconcerting was the President’s disregard for the rule of law. At Knox College he said, “I will not allow gridlock or inaction or willful indifference to get in our way.” And at the University of Central Missouri he said, “Sometimes, frankly, I can’t wait for Congress. It takes them a long time to decide on stuff.” In 2009, when a Democratic-led Senate and House failed to pass a cap-and-trade bill to limit greenhouse gas emissions, he employed the Environmental Protection Agency to do so on their own. When Congress did not pass the DREAM Act, allowing undocumented young people to remain in the U.S., he instructed the Department of Homeland Security to allow them to stay. Whether one agrees with the President or not, he is setting a dangerous precedent. A President is supposed to enforce laws enacted by Congress, not choose which ones he will support and which he will ignore.
‘Action August’ is actually a slogan from Organizing for Action, which is discussed in the first paragraph. Their purpose is to push the President’s agenda for his second term and the 2014 midterm elections – Obamacare, immigration, climate change and gun control are their four horsemen. They are all important issues, but notably absent is any emphasis on the economy. With the economy the stakes are much higher. Jobs are needed and the economy needs to get out of its two percent GDP growth rut. In lieu of working with Congress, the Administration has relied on the Fed to keep interest rates low; rather than emphasizing fiscal policy. As Ronald McKinnon of Stanford University points out in an op-ed in today’s Wall Street Journal, the consequence of the Fed’s actions may have had the opposite effect of what was intended. “By trying to stimulate aggregate demand and reduce unemployment, central banks have pushed interest rates down too much and inadvertently distorted the financial system in a way that constrains both short and long-term business investment.” In the meantime, in raising taxes and tightening regulation, the Administration has impeded growth and employment, not abetted it.
We need an ‘Action August,’ but I fear the President will yet again let the economy founder on the rocks of ideology.
“The thought of the day” by Sydney Williams
The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.
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