Barack Obama explained the principles behind his economic stimulus package last Sunday on ABC’s This Week with former Clinton Administration official George Stephanopoulos. Obama said:
“But our general philosophy is….we don’t have pride of authorship. There are a couple of basic principles I laid out. We’ve got to move quickly. We’ve got to make sure that any investments that we make have good long term benefits for the economy, not just short term….We can’t have waste and abuse in it. We can’t have earmarks in it….If people have better ideas on certain provisions, if they say, you know, this is going to work better than that, then we welcome that.”
That’s all. Just good government principles. No ideological blinders here. We are completely open to whatever works. Or as his spokeswoman said last week, “We are guided by what works, not by any ideology or special interests.”
This is political propaganda coldly calculated to distract the public from Obama’s highly ideological agenda that studiously avoids everything that would work, because Obama and his ultraliberal Democrats ideologically object to it, and studiously focuses only on what was tried and failed long ago, because Obama and the retro Ds are all ideologically so nostalgic for that.
We know how to get the economy booming again. The fundamental, practical principles of economics have worked over and over again, wherever they have been tried, throughout human history. Reagan’s economic recovery program was based on these principles, with 4 concrete components reiterated over and over again throughout his campaign, and implemented after he was elected.
Those components were (1) across the board reductions in tax rates to provide incentives for saving, investment, starting and expanding businesses, job creation, entrepreneurship, and work, (2) removing the costs of unnecessary regulation, which today would especially mean removing the onerous restrictions on energy production, allowing drilling offshore and onshore for oil and natural gas, and revival of the nuclear power industry, (3) controlling government spending, which contrary to longstanding liberal propaganda Reagan did do, as explained in my article in the November 2008 American Spectator, “When the Republicans Cut Spending,” and (4) sound anti-inflation monetary policy.
We know such policies work because they turned around in just two years an economy far worse than today’s, suffering from multi-year double-digit inflation, double-digit unemployment, double-digit interest rates, declining incomes, and rising poverty. What we suffer with today is not the worst economy since the Great Depression, but The Worst Economy Since Jimmy Carter, which was the last time Obama’s ultraliberals were dominant, politically and intellectually.
Indeed, these Reagan policies not only ended the disastrous stagflation of the 1970s, but created what economists Art Laffer and Steve Moore have rightly noted was the 25-year economic boom, from 1982 to 2007, the greatest period of wealth creation in the history of the planet. This was recounted in detail in my October 8 column, “Prepare for the Worst.” So, yes, we do know how to create an economic boom. But notice how the Obama/liberal Democrat stimulus package so carefully avoids all of the above components of the successful Reagan economic recovery package. That is for ideological reasons, not practical reasons.
Let’s Try What Never Worked Instead
The much ballyhooed Obama stimulus “tax cuts” avoid entirely any reductions in tax rates at all, because Obama considers such rate reductions ideologically immoral. The centerpiece of the proposal is the $500 per worker tax credit, which is another tax rebate giveaway just like the supposed $164 billion stimulus package that Bush and the Democrats agreed on and adopted at the beginning of last year. We all know now how well that worked. Why are we doing the exact same thing now one year later? Where the heck is the change? As discussed in detail in my column last week, this and the rest of the Obama supposed tax cut package will not stimulate anything, because it does not involve any change in the fundamental incentives that govern the economy, and just borrowing $150 billion from the private economy to cover for the $150 billion revenue loss from Obama’s braindead tax credit will not add anything to the economy on net.
On regulation, Reagan specifically campaigned in 1980 on unleashing the private sector to produce more energy supplies to counter the energy crisis of his day. He did so soon after entering office, and the price of oil and natural gas plunged and remained low for over 25 years. If we did the same today, if we removed needless regulatory barriers to increased oil and gas and nuclear energy production, we would enjoy booming energy industries that contributed mightily to the economy. We would also boost the entire economy, but particularly manufacturing, with low cost, reliable supplies of energy.
But, again, Obama’s stimulus package is not going to do anything like this, because Obama and his ultraliberal Democrats are ideologically opposed to it. Instead, they are talking about doing just the opposite. Their global warming cap and trade regulation would impose limits on the use of current energy supplies, and raise their costs sharply. During the campaign, in fact, Obama told radical environmentalist groups that he would drive the U.S coal industry out of business by making it too expensive for them to operate. Plentiful U.S. coal supplies now produce 50% of America’s electricity. Cap and trade legislation would impose at least a trillion dollars of increased costs every year on the American economy. Suddenly we are talking about trillions all the time, and nobody knows what that means. But the total federal budget for fiscal 2008 was $3 trillion, so a trillion dollars in new costs is the equivalent of increasing that federal budget by one-third. These increased costs are just going to drive manufacturing completely out of the country. And this is just the beginning of the increased regulatory costs Obama and the ultraliberal Democrats envision.
Obama argues that he is going to get the country booming by creating new green alternative energy industries like solar and wind. If there are any regulatory barriers to these alternative energy industries, removing them would be fine. But what Obama is talking about is creating new industries dependent on government spending and corporate welfare for survival. That is not going to promote economic growth, that is just going to be another drain on the economy.
On government spending, while Obama talks about this or that minor spending reduction, overall he is promoting the greatest increase in government spending in world history, again just the opposite of Reagan, again to serve his big government ideology. Obama’s budget in a couple of weeks will propose a spending increase over the fiscal 2008 budget of at least 50%, with a budget deficit at least 50% as large as the entire 2008 budget, close to $1.5 trillion or more, again the largest in world history by far. This is true fiscal insanity. Liberals weeped and wailed for years that Reagan’s $200 billion deficits would be the end of the world.
On monetary policy, Reagan supported tight money policies to restrain the growth of money and credit, reducing inflation. As I have mentioned in this column before, it worked spectacularly, with double digit inflation in both 1979 and 1980 cut in half to 6.4% in 1982, and cut in half again to 3.2% in 1983, remaining low thereafter. But again, Obama and his liberals are supporting just the opposite, easy money policies pumping up the growth of money and credit, which will end up bringing back roaring inflation.
Keynesian Economics, Leisure Suits, and Babe Ruth
Obama is trying to stimulate the economy through increased welfare, government spending and deficits, based on the old-fashioned Keynesian economics of the past. His stimulus package includes such hot new ideas as hundreds of billions for infrastructure, building new roads, bridges, schools, and buildings, like Roosevelt’s make-work programs of the 1930s. Another hot idea is hundreds of billions in state aid for higher state and local spending. His alternative energy subsidies are reminiscent of Jimmy Carter’s Synfuels Corporation. Does Obama have any new ideas at all?
His outdated, braindead, Keynesian approach is not going to work, just as it has failed over and over in the past, again because it does nothing to change the basic incentives governing the economy, and because just borrowing trillions from the economy to spend in the economy does nothing to expand the economy on net. It didn’t work the last time it was tried, in the 1970s, when it disastrously produced instead worsening recessions throughout the decade, along with runaway inflation. And it didn’t work in the 1930s, when it only extended the Great Depression for over a decade. Did those voting for change think Obama was going to take us backwards to the failed ideas of the 1970s, or even the 1930s?
Obama himself is actually downplaying the expectations for his stimulus plan, releasing a report from his economic advisors saying it will create “or save” 3.7 million jobs. At $800 billion for the stimulus (and it could easily be a trillion), that is a cost per job of over $200,000. But the fine print shows that the advisors only expect an actual increase of 2.1 million jobs from the plan, from 135.5 million today to 137.6 million. That leaves a cost per job of $381,000. (The 3.7 million comes from assuming another 1.6 million decline in jobs over the next two years, to 133.9 million, based on the guesswork of Obama’s brilliant advisors. The advisors argue that the stimulus plan would “save” those jobs, and create 2.1 million more, for a total created or “saved” of 3.7 million. Obama and his advisors consequently would take credit for not losing 1.6 million jobs during the first two years of his administration).
If we add in the $700 billion bailout to save the economy, the total cost would be over $700,000 for each new job created. If Obama wants to cut some costs, he could hire 2.1 million or 3.7 million workers at $40,000 each a year to just march around all day chanting “Yes, we can,” saving taxpayers at least $500 billion on the cost of his stimulus package, or over $600 billion if we just focus on the new jobs created.
Finally, on ABC’s This Week, Obama started talking about over the course of his Presidency “some kind of a grand bargain” dealing with entitlements like Social Security and Medicare, “where everybody in the country is going to have to sacrifice something, accept change for the greater good.” In response to George S. emphasizing that means “eventually sacrifice from everyone,” Obama said, “Everybody is going to have to give. Everybody is going to have to have some skin in the game.”
I don’t know what Obama means by “the greater good.” I don’t consider over half of the nation’s income going to government taxes and spending “the greater good.” I would consider that to be tyranny.
But what I do know is that during the campaign I never heard Obama talking about sacrifice from everyone. I heard him say that the bottom 95% of income earners would get a tax cut. I heard him say during one of the debates, “If you are in the bottom 95% your taxes will go down.”
So whatever Obama’s Grand Bargain might be, this is what I expect, a tax cut, not a tax increase, for the bottom 95% of income earners. And the minute Obama proposes any tax increase for anyone in the bottom 95%, I expect the grassroots to rise up and call on him to resign, for obtaining office under false pretenses.
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
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