President Obama’s self-congratulatory “economic recovery” is way
too little, way too late. By historical standards for the American
economy, we should be in the second year now of a booming economic
recovery. Instead the economy is still struggling to get off the
ground, and what is booming instead is prices and inflation.
If you listen to what President Obama is saying in his
reelection campaign, which is already underway in his town hall
tour across America, the reason for this is clear. President Obama
does not understand the basics of economics. What he says
repeatedly is that increased government spending is the foundation
of economic recovery and growth. But the economic reality is that
incentives for increased production are the foundation for recovery
and booming growth.
As a result, what we are witnessing is a historical
reenactment of the 1970s, if not the 1930s, with the same throwback
economic policies that caused the dismal economic downward spiral
of those years. But this is not all that President Obama doesn’t
understand. He also doesn’t understand the budget, taxes, business,
the energy and oil markets, and even health care.
Consequently, the American people will continue to suffer
high unemployment, rising inflation, soaring gas prices, falling
real wages and incomes, record poverty, and ultimately worse. That
is until this tragically unqualified President who has spent his
entire life cloistered in the fever swamps of the far left is
replaced by new leadership that will restore the American
Dream.
Facebook Fallacies
On April 20, President Obama took his reelection campaign
to a town hall at the corporate headquarters of Facebook in Palo
Alto. Facebook founder Mark Zuckerberg began with a question on the
budget, asking “what specifically do you think we can
cut…?”
Obama responded by saying first let me explain why the
problem is Bush’s fault. (Get the
transcript if you don’t believe me.) This from the President
whose own 2012 budget projects that after just one term of office
he will have run up more national debt in four years than all prior
Presidents combined, from George Washington to George Bush. A
President who in that same budget proposed a fourth straight budget
deficit of over a trillion dollars, including a record deficit for
this year of $1,645 billion, when the highest previously in
American history was $458 billion.
If President Obama didn’t want those deficits, he could
have proposed spending cuts 2 years ago. Instead he enacted an
utterly failed, trillion dollar, government spending stimulus
package. And despite his misdirection rhetoric, he continues to
oppose any serious spending cuts to this day. The real cause of the
record deficits and debt is that President Obama increased federal
spending by 28% in his first two years alone. And in his 2012
budget he proposed to increase federal spending by another 57% by
2021.
Professor Obama told the Facebook audience that the
deficits arose because “we had a massive tax cut that wasn’t offset
by cuts in spending.” But from 2001 when the first round of the
Bush tax cuts were adopted until 2007, federal revenues
increased by almost 30%. From 2003 when the Bush tax cuts
were completed until 2007, federal revenues soared by
44%.
Obama’s excuse for his runaway spending is that it was
necessary to counter the recession. So he is both blaming Bush for
the deficits and taking credit for them in promoting recovery. At
the Facebook town hall, Obama further advanced his theory that
government spending is the foundation for economic growth and
recovery, saying, “If all we’re doing is spending cuts and we’re
not discriminating about it, if we’re using a machete rather than a
scalpel and we’re cutting things that create jobs, then the deficit
could actually get worse because we could slip back into a
recession.”
But it is obvious to everyone but Obama and his hypnotized
true believers, party apologists, and bought and paid for special
interests that his government spending has failed to produce a
timely and robust recovery. That is because President Obama’s
Keynesian theory that increased government spending and deficits
promote economic recovery and growth was proven fully and finally
wrong to everyone who was awake over 30 years ago.
President Obama persisted at the Facebook town hall,
however, explaining that his spending spree will promote recovery
and growth because then “we can still…invest in high speed rail”
and, “We can still invest in something called ARPA-E, which is like
DARPA except just focused on energy, so that we can figure out what
are the next breakthrough technologies that can help to reduce our
reliance on fossil fuels.”
Spoken like a true central planning neo-socialist, for it
is not the government’s role, nor does the government even have the
capability, to figure out what the next breakthrough technology is
to reduce our reliance on fossil fuels. America has always enjoyed
the world’s highest standard of living precisely because we leave
decisions like that to the competitive marketplace, not government
bureaucrats. And no we are not going to create a booming recovery
by wasting still more tens of billions of taxpayer funds on “high
speed rail,” which is a souped-up version of the mass transit
boondoggles that have long proven so adept at wasting taxpayer
funds without advancing any economic growth.
President Obama then thoroughly mischaracterized the
differences between him and House Budget Committee Chairman Paul
Ryan over the budget and taxes. Obama told the Facebook audience,
“So what his budget proposal does is not only hold income tax flat,
he actually wants to further reduce taxes for the wealthy, further
reduce taxes for corporations, not pay for those, and in order to
make the numbers work, cut 70 percent of our clean energy budget,
cut 25 percent out of our education budget, cut transportation
budgets by a third.”
There he goes again with his idea that increased
government spending on “clean energy” would enhance economic
growth. But saddling the economy with high cost, unreliable energy,
and burdening it with an entire energy industry that can survive
only on corporate welfare, is only going to tank the economy rather
than promote recovery and growth.
Moreover, exactly contrary to this misconceived rhetoric,
Ryan’s budget would only return federal taxes to their long run,
postwar, historical level relative to the economy over the past 60
years at 18% of GDP. What President Obama is proposing is to
increase the level of federal taxes well beyond that to new record
levels, as I explained last week.
Then, indicating that he doesn’t even understand his own
tax proposals, President Obama told the Facebook audience, “Keep in
mind, what we’re talking about is going back to the rates that
existed when Bill Clinton was President.” Counting the end of the
Bush tax cuts, Obama’s proposed phaseout of deductions, the new
Obamacare tax on investment, and Obamacare’s increased Medicare
payroll tax, the new top federal tax rate would be nearly 45%.
State income taxes would put that over 50% in most
states.
In his recent national budget speech, President Obama
proposed adding another trillion dollars in increased taxes on the
nation’s job creators, investors and small businesses. Then he
proposed an automatic tax increase trigger that would raise taxes
still further in 2014 if “our debt is not projected to fall as a
share of the economy.” In his Virginia town hall on April 19, he
raised the possibility of increasing the maximum taxable income for
the Social Security payroll tax. All of these tax increases would
leave the Clinton era tax rates in the dust.
A Tale of Two Budget Deals
Since President Obama doesn’t understand economic growth
or taxes, he fundamentally misconceives sound budget policy as
well. Restoring robust economic growth is the essential foundation
for balancing the budget. As revenues boom along with the economy,
government spending reductions would eliminate the deficit
relatively rapidly within a few short years. Trying to chase
consistently lower than expected revenues because of a weak economy
would lead to a vicious circle — America’s downward spiral of
deficits, debt, and stagnation.
The foundation for that economic growth is not increased
government spending, but incentives for increased production. Those
incentives arise from lower tax rates, which enable producers to
keep a higher percentage of what they produce, promoting still
further production. Reducing unnecessary regulatory costs and
barriers further promotes incentives to produce by increasing the
net reward for production.
This is why Paul Ryan’s reduced tax rates for both
individuals and businesses promote a balanced budget, and lead
ultimately to paying off the national debt entirely. In contrast,
President Obama record increases in federal tax rates for virtually
every major federal tax would have the opposite effect, on the
economy and on the budget.
The contrast between the Ryan and Obama budgets is shown
by the experience of the two budget deals of the 1990s. In 1990,
then President Bush broke his famous “read my lips, no new taxes”
pledge that won him the 1988 election, for a budget deal that
supposedly reduced spending by $3 for every dollar of tax
increases. But by 1992 the deficit, which had stabilized at around
$150 billion in the late 1980s, almost doubled to $290 billion
because the tax increases pushed the country into a brief
recession. President Bush was booted out of office in the 1992
elections as a result.
This is exactly what President Obama is calling for today,
only with much, much higher tax rates — an increase of $1 trillion
in taxes and more on top of the already scheduled tax increases
from terminating the Bush tax cuts, Obamacare, and his proposed
2012 budget tax increases.
But the 1995/1996 budget fight between the Gingrich-led
Republicans and President Clinton resulted in a budget balanced
much like Ryan has proposed, with all spending cuts and tax
cuts to promote the economy. The booming growth as a
result cut the 1995 deficit of $164 billion to $22 billion by 1997,
followed by 4 consecutive years of surpluses totaling $560 billion.
That was the biggest reduction in the national debt in world
history.
Confusing the Faithful
But President Obama’s double talk was confusing even the
faithful at the Facebook town hall. A very respectful, even
worshipful Lauren Hale rose to ask the President:
“At the beginning of your term you spent a lot of time
talking about job creation and the road to economic recovery, and
one of the ways to do that would be substantially increasing
federal investments in various areas as a way to fill the void left
from consumer spending. Since then, we’ve seen the conversation
shift from that of job creation and economic recovery to that of
spending cuts and the deficit. So I would love to know your
thoughts on how you’re going to balance the two going forward, or
even potentially shift the conversation back.”
Now here is a student who has been paying careful attention to
the Professor President. She has even adopted his language
perversion of calling government spending investment. She thinks
she has learned from the President’s prior lectures that government
spending is what promotes economic growth and jobs. But now she is
confused, for if that’s the case then why is he talking now about
spending cuts and the deficit?
Her problem is Aristotelian logic. Under the new Marxian
dialectic, you can both increase government spending to
create jobs, until they show up some day, and cut government
spending to close the deficit, if polls show that is what you need
to do.
