When he visited the Oval Office last week, Warren Buffett could have done the nation (and himself as a major investor) a big favor by telling the president that it was time to pull the plug on his failed economic policies. But -- sad to say -- he passed up the opportunity.
Poll after poll shows deteriorating consumer confidence and a growing belief that major policy initiatives undertaken by the Obama administration have hurt the economy and have set the stage for a long-term loss of growth and national competitiveness. In late May, for instance, a Rasmussen poll of 1,000 likely voters showed a 2-to-1 majority in favor of repealing the just-passed health care bill. That included a stunning 46% of likely voters who "strongly" favored repeal, against just 25% who "strongly" opposed repeal of this landmark legislation. In a recent CBS poll, only 40% of Americans said they approved of Obama's handling of the economy.
At the same time, major business groups -- including the Business Roundtable and the U.S. Chamber of Commerce -- have stepped up their criticism of the administration. Ivan Seidenberg, the CEO of Verizon and the chairman of the Roundtable, said that "by reaching into virtually every sector of economic life, government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses." U.S. Chamber of Commerce CEO Tom Donohue drafted an open letter to Obama and Congress urging "immediate action to address the new regulatory stranglehold placed on America's job creators."
In his "Recovery Tour" -- talking up the allegedly beneficial effects of the $862 billion stimulus package in Holland, Michigan, last week -- the president boasted, "We're leveraging nearly three private dollars for every public dollar. That's an incredible bang for the buck." However, the most recent statistics from the Federal Reserve's Flow of Fund series tell a completely different story. Rather than reinvesting in their businesses, corporations are hoarding cash and fearful of making new commitments. According to Fed statistics, cash and equivalents on nonfarm, nonfinancial corporate balance sheets have risen to a record high of $900 billion -- more than double the level of 18 months ago and far above the average over the last decade and a half.
With public support for the president's economic policies at an all-time low, Buffett did not exactly endorse Obamanomics, but he did give the president a couple of talking points that lend artificial credence to the view that everything that is wrong with today's economy is rooted in events that occurred before the start of the Obama presidency. And the president wasted no time in taking advantage of that.
According to the president's account of his hour-long chat with so-called "Sage of Omaha," Buffett cited the housing market as an example of how the recession had created "a huge overhang of excess capacity" that would take months or years to "mop up." Obama said that Buffett noted that 1.2 million new homes were built on average per year in the United States over a long period of time, and how that surged to more than 2 million during the property boom and bubble. Here are a couple of snippets from Obama's interview on NBC News on July 15, the day after Buffett's visit:
I'll tell you exactly what Warren Buffett said. He said, "We went through a wrenching recession. And so we have not fully recovered. We're about 40, 50 percent back. But we've still got a long way to go…"
What Warren pointed out was, look, we're going to get back to 1.2 [i.e. 1.2 million new home starts per year]. But right now we're soaking up a whole bunch of inventory. So a lot of the challenge is to work our way through this recession.
Perhaps Obama gets some bounce out of speaking in the same kind of business jargon that an MBA would use, while also showing himself to be on a chummy, first-name basis with the legendary investor. Nevertheless, there are several problems with the narrative cited above.
First, it is not the case that an inventory build-up in anything other than housing (the one sector of the economy that was most distorted by wrong-headed government policies) had anything to do with the financial crisis and the severe economic downturn that began in late 2008.
Second, it omits the fact that $862 billion stimulus plan has plainly failed to deliver as promised in keeping unemployment rate at 8% or less. Similarly, there is mounting evidence that Obamacare will be far more costly and cumbersome than advertised.
And third, what looked like a recovery seems to be fading and more and more people have come to the firm conclusion that the administration economic policies are doing more harm than good.
This is hardly surprising. Obama did not come to power on a tide of left-wing sentiment. The United States has been, and remains, a right-of-center country. According to Election Day exit polls, only 22% of American voters identified themselves as liberals, compared with 34% of self-described conservatives and a whopping 44% of self-described moderates. While hard-core liberals formed the base, Obama won the election on the strength of his appeal to moderates and independents as a charismatic and self-style "post-partisan" politician.
Only a small minority of voters agrees with the idea that the solution to the nation's economic difficulties lies in a massive increase in government power through increased taxation, public spending and regulation. There has been a huge reaction against that whole line of thought among moderates and independents who, in any case, were never in favor of a massive "transformation" toward European-style socialism or statism.
With one major piece of legislation after another, the Obama administration has taken a first-things-last-approach -- insisting upon rushing massive, poorly understood and hugely expensive programs through the Democratically-controlled Congress, with the idea that it could sell these programs to the people after they were already law. It has done so again with its misnamed "financial reform."
This is all too clearly not the change that people want or believe in. It's a shame that Warren Buffett seems not to have said as much. Then again -- as a billionaire who will be soon be celebrating his 80th birthday -- why should he stop to worry about the rest of us? He's already got it made.
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