In one of the great rhetorical reaches of all time, Financial Times columnist Edward Luce recently wrote of the paradox that America’s first Black President has presided over the biggest drop in African-American wealth since the Great Depression – a true statement. However, he added the following: “By no honest reckoning can Mr. Obama be blamed for the decline in black America’s fortunes. Yet the facts are deeply unflattering.” It read like an apology, but I am unsure to whom.
The facts are not just “unflattering,” they are condemning. Under Mr. Obama’s watch, the rich have become richer and the poor, poorer. Asset prices have boomed, while wages for non-white households have declined 10%, since 2009.
The economy has limped along because of the underlying strength of American entrepreneurship and because of fracking that gave new life to the oil and gas industry – a technology that Mr. Obama did his best to shutter. Around the world, we are more disliked in the Middle East than we were when George Bush was President. Our relations with our European allies have sunk, and the “re-set” with Russia has been to increase the animosity between our countries.
With Mr. Obama, Harry Truman’s “buck” slithers past like a snake through the grass. He is a master of ducking responsibility for all unpleasant consequences of his policies: Blame Republicans in the House, blame Mitch McConnell, blame the Koch Brothers, blame the Maliki government, blame accountants (for tax inversions), blame the video, blame social media (for fomenting fears of terrorism), blame the media (for his slumping poll numbers), blame Bush (for everything!) He is the Teflon man. His acolytes in the press see-no-evil and hear-no-evil; so they neither speak-no-evil nor write-no-evil. One senses that fear of offending does not allow principles of accountability to apply. Mr. Obama’s supporters, in this regard, reflect an unspoken racial prejudice. It should make no difference what race, gender, religion or culture one is, one should always be held accountable for the ideas one espouses, the actions one takes and the results one gets.
The economy did receive a bit of good news a couple of weeks ago when unemployment dropped below 6%, the lowest point since the summer of 2008. But at the same time, the Labor Department noted that the labor force participation rate also fell to a 36-year low of 62.7%. Total non-farm workers in the U.S., as of last month, were preliminarily stated as 139,435 – about 5.5 million more people employed than when Mr. Obama took office in January 2009. While those numbers get touted by the Administration, what is omitted is that if the labor force participation rate were the same today as it had been in January 2009 (65.7%), and one accounts for the increased population there would be approximately 8.0 million more Americans working today.
The Administration is fast off the mark when it comes to citing inequality in incomes and wealth, yet the Administration sees no correlation between cause and effect. They fail to mention that the gap has widened in the past six years. The basic problem, in my opinion, stems from the fact that Mr. Obama was never able to forge a coalition with Republican legislators to implement fiscal reform. Consequently the recovery has been primarily dependent on the Federal Reserve and monetary policy. Less than two weeks after his inauguration, at a meeting of Administrative officials and Party leaders from both houses, Mr. Obama responded to Senate Minority Whip Jon Kyl (R-AZ): “I won,” he said, setting the tone for the next several years. The United States is a two-Party country. Mr. Obama won 52.9% of the vote, clearly making him the winner, but almost 60 million people voted for John McCain. Unilateralism may work in some international situations and in one-party countries, but it does not work in a democracy.
In April 2010, Mr. Obama issued an Executive Order, which created the Simpson-Bowles Commission to explore a fiscal response to the economic crisis. On December 1st, 2010, with Democrats still in control of both the Senate and the House, the Commission issued its report, but with only 11 of the 18 members endorsing it, not the 14 that would have required it being taken to the floor for debate. (Incidentally, more Democrats opposed the report than Republicans.) But instead of using the Commission’s report as a starting point for a dialogue, it was ignominiously dropped. A lack of bipartisanship can be blamed on both Parties, but the President, because of his position, bears the greater responsibility.
There is general unanimity that the first round of quantitative easing (QE1), in the summer of 2009, helped avoid what might have been a far worse downturn. There is little agreement as to the success of subsequent rounds, however, at least in terms of spurring economic activity. The problem was that the Fed became the only game in town. A recalcitrant Congress and an aloof President, more interested in fund raising and golf than in governing, proved unable to collaborate on a fiscal package designed to encourage economic activity. Instead, when Mr. Obama’s Party controlled both the House and the Senate, they focused on enlarging government’s role in the economy. They passed – unilaterally – a healthcare bill with yet-to-be determined costs and with questionable benefits. They instituted Dodd-Frank, which issued rules for the financial sector that have allowed banks “too big” to become even bigger while creating 400 new regulations, at an annual cost of $20 billion. And they passed a stimulus package that even Mr. Obama acknowledged did not stimulate.
Apart from favored industries and businesses like Solyndra and Tesla, the President has done little to help small and midsize companies. These businesses need tax and regulatory relief. Companies expand by reinvesting earnings back into their business or in accretive and business-compatible acquisitions. Very low interest rates encourage riskless investments. In 2002, according to a Barclay’s study, 50% of earnings were spent on capital expenditures and 15% on stock buybacks. Today those numbers are 40% and 30%. Since 2009, $1.99 trillion has been spent repurchasing shares. That has helped shareholders, but has not done much for jobs or the economy. Mr. Obama may not deserve all the blame, but he is the President who has increased taxes, especially those related to ObamaCare, and added stiff regulations, particularly in regard to the EPA and Dodd-Frank. He is the President who has allowed monetary policy, not fiscal policy, to drive what feeble economic recovery we have had.
While the annual deficit has recently fallen – because of higher tax revenues and sequestration – total debt continues to grow. At the end of fiscal year 2014 total federal debt, including that owed to government accounts like Social Security, was $17.823 trillion, an increase of $1.077 trillion from the year earlier. Driving revenues were individual and payroll tax collections (+7.5%) and corporate taxes (+13.1%). Driving expenses were transfer payments (+5%) and interest on the public portion of the debt (+5.4%). Defense spending, in contrast, declined 4.9%. Should interest rates go up, or should conditions in the Middle East, Asia or Eastern Europe further unravel, expenses will rise. When the next recession hits, which is inevitable, transfer payments will continue to rise, but tax collections will decline.
In 2011, Standard & Poor’s downgraded U.S. debt from AAA to AA+, the first instance in our history. Since recovery began in the spring of 2009, there have been only three quarters when economic growth in the U.S. exceeded four percent – Q4, 2009; Q 3, 2011, and Q2, 2014. The other seventeen quarters have shown mediocre growth. Mr. Obama’s focus on increasing the government’s sphere of influence in the economy is principally to blame. Europe, with its greater role of government in the economy, has underperformed ours for decades; yet that is the model Mr. Obama chooses to emulate.
Mr. Obama’s legacy has been one of rising inequality. Obamanomics is characterized by very low interest rates, widening wealth and income gaps, slow economic growth, greater involvement of the State in the economy and increased dependency. Its manifestations indicate that the brunt of the recession has been borne by the least affluent. Since Mr. Obama took office almost six years ago, the gap between white households and black households has risen from seven times to eight times. The median non-white American family has a net worth 20% lower than when he took office, while median wealth for the Country as a whole is one percent higher. Black unemployment has consistently been twice that of whites. And now Mr. Obama wants to grant permits to illegal immigrants, hurting those he has pledged to help. He has further marginalized the already marginalized.
Corruption and cronyism have flourished. Mr. Obama has attended approximately 60 fundraisers so far this year, raising millions for himself and his Party, while costing taxpayers millions in added security.
In the end, it is Mr. Obama’s belief in the altruism of government that has defined his Presidency. He has allowed it to become bigger. He ignores the truism that it is the private sector that creates jobs in this Country. In doing so, they do the most to help the poor. As Brian Wesbury wrote in Wednesday’s Wall Street Journal, “The larger the slice [of the economy] taken by government, the smaller the slice left over for the private sector.” Amen.
The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.
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