The Obama Watch

No Friend of the Middle Class

By his reasoning, Obama needs to destroy the middle class in order to save it.

By 12.30.11

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It's not surprising that President Obama's re-election strategy is to "cast himself as a middle class warrior." What is surprising is that he thinks he can get away with it. The fact that he actually might says less about Obama than about Americans' understanding of economics and the Republicans' particular skill at turning smart policy into stupid politics.

The obvious question when a politician wants to run as a champion of any particular group is "what has he done for that group?" So, let's think about what Obama has done for, or -- more precisely -- to, the middle class.

Unemployment, the single most important economic statistic for the middle class, spiked to over 10 percent before recently "improving" to 8.6 percent (with December data due out Friday, January 6). The last time unemployment was this high was in 1983, coming out of the Jimmy Carter recession. Under Reagan, the unemployment rate dropped 2.5 percent in one year from its peak and another full percent in the subsequent year. Under Obama, the rate has dropped only 1.5 percent in two years from its peak.

This is no accident. The slowest economic recovery in modern American history is a direct result of Obama's policies.

The administration's doomed-to-fail Keynesian economic approach is based on assuming that Americans, and especially entrepreneurs, are stupid. They trust that we don't realize that massive deficit spending now must translate into higher taxes later (and perhaps higher interest rates, though historically that connection is not as strong as one might expect).

By way of analogy: Imagine you don't have any cash, so you borrow $20 from your teenage son. You spend $10 on lunch and put the remaining $10 in your pocket. According to President Obama, you're $10 richer than you were before. And indeed you may be, but your family is $10 poorer.

Nevertheless, this is the exact sort of thinking that caused Obama and his economic team to tell us that if they were allowed to spend over a trillion dollars (including interest) of our children's future earnings, unemployment would not go over 8 percent. Instead, as Gene Epstein wrote for Barron's, "The recovery from the 2008-09 recession has been the slowest since any recession in the post-World War II era."

Epstein also notes that based on growth rates from prior severe recessions, "the recovery from the recent recession should have taken half as long" and that even calculating GDP without the impact of residential real estate (for those who want to say the real estate crash is the problem, and isn't Obama fault) this recovery "still comes up woefully short."

It's not just spending that would make the drunken sailor blush that has sapped the strength of the economic recovery. It is also every other important policy aspect of the Obama reign.

What could be worse for employment growth than health care "reform" that penalizes employers for reaching 50 employees? This is just one example of the anti-growth aspects of Obamacare, which in turn is just one, if the most important, of the job-crushing laws and regulations imposed by Obama and his radical environmentalist and union thug apparatchiks.

As investment bank UBS noted in a research report entitled "Great Suppression II: Revolt of the Employers," "Observers are gradually starting to recognize that the tax hikes and regulations emanating from Washington are frightening employers and discouraging hiring.… Rising taxes and the surge in regulation [are] suppressing what J.M. Keynes called 'animal spirits -- a spontaneous urge to action rather than inaction.' For corporations, a spate of new regulations raises the risk of investing in the U.S., delays projects that companies do wish to pursue, and raises the cost of labor relative to capital."

The National Labor Relations Board, having been overtaken by Barack Obama's recess-appointed union attorneys, is using the Board's power to inspire fear in any company which would expand into a right-to-work state. And given recent extreme aggressiveness by unions (laid perfectly bare by Teamsters President Jimmy Hoffa who, talking about Tea Party activists, said that union supporters should "take these son-of-a-bitches out"), who would want to expand a business anywhere but a right-to-work state?

With his tax policy, his "signature" legislation, and his regulatory apparatus, President Obama attacks would-be job creators at every turn. Is it any wonder that our economic recovery is so slow, with the main victims being the middle class?

But harming employment is not all Obama has done and will do to the middle class. A recent study by the National Federation of Independent Business (NFIB) notes that Obamacare will "impose a cumulative cost of nearly $5,000 per family by 2020" through increased health insurance costs as well as "reduc[ing] private sector employment by 125,000 to 249,000 jobs in 2021, with 59 percent of those losses falling on small business."

A report by Oliver Wyman consulting says that Obamacare's costs "will increase premiums in fully insured coverage markets by an average of 1.9% to 2.3% in 2014. The impacts generally increase over time such that we estimate by 2023, the fees will ultimately increase premiums by an average of 2.8% to 3.7%. For small group coverage, this well on average increase the cost to cover an individual by about $2,800, and a family by about $6,800 over a 10-year period, beginning in 2014."

So while Obama is making it much harder for those middle class Americans, whom he claims to care so much about, to get a job, at least he's making it much more expensive to have health insurance.

BUT WAIT, there's more!

Just a week ago, the Environmental Protection (aka Employment Destruction) Agency released details of its Utility MACT rule which regulates mercury and other emissions from coal-fired power plants. According to the Republican Policy Committee of the U.S. Senate, this rule is "one of the most expensive rules in EPA's history," with the EPA's own estimates saying it will cost almost $10 billion per year. "When combined with the final Cross-State Air Pollution Rule (CSAPR), up to 183,000 jobs per year will likely be destroyed on account of these two rules from 2012-2020. By 2020, 1.4 million jobs could be lost on account of these rules."

But this isn't just a job killer. It's a middle class killer.

"According to EPA's Regulatory Impact Analysis, the final Utility MACT rule will increase electricity rates by up to 6 percent in some regions of the U.S. When combined with CSAPR, electricity rates are expected to increase by up to 23 percent in some areas. National Economic Research Associates projects that Utility MACT and other EPA regulations could increase electricity and other energy prices by $170 billion by 2020."

And while your electricity prices are rising, your electric system reliability will be falling: "[T]he North American Electric Reliability Corporation (NERC) projects that up to 59 GW of power generation will be terminated by 2018 due to cumulative impacts Utility MACT, CSPAR (Cross-State Air Pollution Rule), coal ash reclassification, and new water intake rules. The NERC assessment predicts that eight regions -- home to 190 million Americans -- could drop below acceptable reserve margins by 2018 on account of EPA's actions."

It's not just individuals who should be frightened of the EPA's rule. In fact, most individuals have no idea it exists. But energy-intensive industries do. As the Ohio Manufacturers Association noted in a recent op-ed, "a preliminary analysis for the American Coalition for Clean Coal Electricity projects that Utility MACT and CSAPR will result in 1.4 million lost jobs nationally over the next nine years, including 53,500 jobs in Ohio. And that's net job losses, because the research takes into account jobs created by the two new rules as well those that will be lost. Additionally, according to NERA, utilities' compliance costs for the two regulations would total $17 billion annually and electricity costs in Ohio would increase by about 13 percent."

It bears repeating: This is no accident. Barack Obama is on record supporting electricity prices that "necessarily skyrocket" due to his policies.

Meanwhile, as with the many Obamacare "waivers" designed to inoculate states, citizens, and politically-connected special interests from the disease the rest of us will be forced to contract in the economic equivalent of a Tuskegee experiment, the House of Representatives passed H.R. 2681, co-authored by a Republican and Democrat, entitled the "Cement Sector Regulatory Relief Act of 2011" which delays effectiveness of the EPA's rules for 15 months "for the Portland cement manufacturing industry and Portland cement plants subject to such rules." Anyone think a cement worker isn't "middle class"? And if cement needs to be protected from the Obama administration, what about steel, autos, chemicals, refineries, and other remaining areas of U.S. manufacturing?

Politicians of all stripes bemoan the loss of U.S. manufacturing (which is more of a myth than a fact if you measure in terms of our share of world manufacturing output), but if there's one thing a government can do to stick another nail in that coffin, it's to jack up energy prices. This is precisely what Obama's EPA is doing -- and precisely what he wants them to be doing.

The EPA claims its rule has health benefits, but detailed analysis shows its claims to be based on "co-benefits" of reducing air pollution -- something that could be done in a much simpler and less expensive way through existing rules. In fact, "monetized benefits" are estimated at reaching, at most, $6 million per year, less than 0.01% of the rule's total costs. Meanwhile the EPA argues -- I kid you not -- that the rule offers economic benefit by preventing an average loss of 0.002 IQ points in newly born children.

This is your champion of the middle class.

SO WHY DOES the president think he can get away with running as a fighter for the great middle of America? Two reasons: Americans are as economically stupid as he assumes, and Republicans routinely perform the equivalent of reverse political alchemy, turning what should be political gold into lead weights around their necks.

The payroll tax cut extension is a perfect example.

First, let's be clear on the economics: This is not a supply-side tax cut of the sort that Reagan or any wise economist would support. It is Keynesian, demand-side hokum, just more of the same "give them spending money and everything will be OK" thinking that has failed every time it's been tried, whether in recent or not-so-recent times, including with George W. Bush's misguided 2008 tax rebate plan.

The payroll tax cut, as currently implemented, offers a cut only on the employee side of the ledger; no cut to the employer. How exactly is this supposed to increase employment? In the Obama-Geithner-Sperling economic fantasy world, people will spend their extra $80 per month and create additional economic demand, causing companies to increase staffing to meet that demand. But this has not happened, and will not happen. First, some of the $80 will go toward debt reduction. Second, some will go to buying things where the producing industry already has excess capacity. Third, employers will find productivity gains instead of hiring more employees, not least because of the huge Obamacare penalty for small companies that expand to 50 employees.

Employment growth will only come from increased desire by entrepreneurs to take risk. And they will not do so when faced with a government that at every turn makes them out to be something between a parasite and a target for higher taxes should someone have the gall to be successful.

A two-month extension of the payroll tax cut is worse than no extension at all (and an extension of any length is worse than no extension at all until the cut is aimed at employers along with, or instead of, employees). Nobody can or will plan hiring (or spending) based on a two-month long policy. But beyond that, it reinforces the idea that this government will for the foreseeable future be incapable of implementing tax policy with a long enough time horizon that a business could trust it as a solid foundation on which to build.

The Republicans had a strong policy argument to make against the extension of the payroll tax cut, both on the two month duration and on the economic stupidity of its current design. But they managed to make a weak case on the former and no case on the latter, leaving Barack Obama free to tell Americans with little understanding of economics that he was right.

A Gallup poll released this week shows Americans having "slightly more confidence in President Barack Obama and the Democrats in Congress (41%) than in the Republicans in Congress (34%) when it comes to the looming debate on what the government should do about a more permanent extension of payroll tax cuts and unemployment benefits." How, during a time of extreme unemployment and weak economic growth, Republicans can allow the middle class-destroying president to get the political upper hand is a testament to the incompetence of GOP leadership and messaging -- but it doesn't mean that Obama is correct and certainly not that he is a champion for the majority of Americans.

The purported benefits of the payroll tax cut is one of many economic lies Obama tells, such as the Goebbels-scale whopper that upper income Americans are not "paying their fair share" -- when the top one percent of income earners pays close to 40 percent of all federal income taxes while making just over 20 percent of national income. The top one percent pays more in income taxes than the bottom 90 percent. No, that is not a typo. The top 5 percent pay nearly 60 percent of all federal personal income taxes. And the Republicans and Obama-invested media let the president and his econo-moron supporters and employees continue to get away with saying that the "rich" don't pay enough. (By the way, to be in the top 5% requires only $155,000 in family income.)

But this is not -- as Obama would have you believe -- about Republicans standing up for "millionaires and billionaires." It's about American politicians not standing up for America. It's about the Barack Obama's never-ending quest to divide and conquer this nation by pitting us against each other. The good news is that it's not working. The bad news is that it's not not-working by enough to allow one to feel comfortable that Americans will refuse to re-elect the greatest enemy of the middle class who has ever occupied the White House.

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About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver's NewsRadio 850 KOA on Saturday mornings from 6 AM to 9 AM. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.