Even if it comes, under current policies it will only set the stage for a new recession immediately in its wake.
When can we expect economic recovery from the current steep recession causing so much suffering for the American people? That has been the main focus of Obama’s Administration so far. Will his policies speed or delay, and strengthen or weaken, the recovery?
The National Bureau of Economic Research (NBER) is the official scorekeeper as to when recessions start and end. The NBER says the current recession started in December, 2007.
NBER also reports that the average length of U.S. recessions since World War II has been 10.4 months. With the current recession starting in December, 2007, we have long since blown past that average.
The NBER further reports that the longest recession since World War II has been 16 months. We will break that record next month.
Even granting some leeway, we should expect recovery, defined as the return of economic growth, by mid-spring, when otherwise we will be breaking records every day for the longest recession in the modern era. If economic growth does not resume by then, we can legitimately ask whether Obama’s policies are delaying the recovery rather than helping to restore it.
When the economy falls into recession, it does not keep falling until the government comes up with the brilliant policy to turn it around. Though with foolish policies the government can keep the downturn going for a long time — see, e.g., The Great Depression.
We still have the biggest, most powerful, capitalist economy in world history. Every morning, hundreds of millions of hard working, skilled Americans wake up and go to work trying to make the economy more productive than the day before. That is what makes the economy eventually recover on its own, always within 16 months since World War II. Government can make this recovery faster and stronger with smart policies that contribute to economic growth. Or the government can delay the recovery and make it weaker with dumb policies that hold the economy back.
I expect Obama’s policies to delay recovery and make it weaker than it would be otherwise. The stimulus package just added a trillion dollars to government spending and the national debt. It did nothing to enhance incentives for saving, investment, starting or expanding businesses, job creation, entrepreneurship, or work. Economic growth does not result from massive increases in welfare, $2 trillion dollar deficits, and soaring government spending and debt, which is all that Obama’s stimulus foolishness does.
Then the week after the stimulus passed, Obama turned to supporting another $400 billion in increased spending, for this year alone, in the so-called omnibus spending bill. The next week, Obama proposed an additional $275 billion housing bailout. Obama’s budget reserved another $250 billion for still more bank bailouts, on top of the remaining $350 billion from the TARP bailout that Obama has also committed to spending. The budget also reserved still another $638 billion “down payment” on a new national health care entitlement that will be the biggest entitlement of all, even though we can’t afford all the entitlements we already have.
If this is how to make the economy grow, then we can all just quit working and watch Obama increase spending to infinity and beyond, as Buzz Lightyear likes to say, and just borrow the money for it from foreign countries on world capital markets.
Obama’s budget also proposes a trillion dollar increase in individual income taxes, including increasing top effective marginal tax rates by 20%, the capital gains tax rate by 33%, and the dividends tax rate by 33% as well. It also restores the death tax, otherwise phasing out completely under current law, to a 45% top tax rate.
The budget proposes as well a trillion dollar increase in business taxes, including a projected doubling of corporate income tax revenues in about 3 years. Also proposed is $645 billion in increased energy taxes through Obama’s global warming cap and trade program. This will result in sharply increased prices for electricity, gas, and heating oil, paid by consumers.
This will all work against recovery, reducing incentives for saving, investment, business expansion and creation, job creation, entrepreneurship and work. Obama says this is okay, because the tax increases won’t become effective until 2011, when he is sure the downturn will be over. But these enormous tax increases will work against economic growth whenever they occur. Moreover, they will begin to discourage investments in productive activity and start to cause further stock market declines within a year, if they haven’t already started doing that. Such extreme tax increases can cause a renewed recession by late 2010 or 2011.
Moreover, little noted have been the steps already taken by the Obama Administration to shut down further oil production offshore and onshore, and new nuclear power production. There are even moves to shut down current coal-fired electricity plants. This is going to deprive America of the powerful energy industry it could and should have. Even worse, it will deprive the entire American economy of a reliable, low cost supply of energy. Instead, it will result in further increases in energy costs also working against economic growth. Expect more manufacturing to flee overseas as a result. Expect gas prices eventually to soar back over $4 a gallon, and beyond. That will be great for the economy.
What I expect is that when the recovery does come, Obama’s huge deficits and government borrowing ($2.5 trillion this year alone), will cause interest rates to rise sharply. With the Fed pumping up money and credit madly, fully supported by Obama, I expect recovery to reignite inflation as well. The Fed is saying it will sharply tighten its loose monetary policies when recovery comes, to preempt inflation. But that will cause interest rates to soar further, so I expect the Fed to back off of that, out of fear it will preempt the recovery as well.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?