The Obama Watch

The Rout of Obamanomics

The situation is worse than even harsh critics expected.

By 7.7.10

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In February 2009, I published a commentary in the Wall Street Journal entitled "Reaganomics v. Obamanomics," which pointed out that President Obama's economic policies were exactly the opposite of President Reagan's. I predicted that as a result they would produce exactly the opposite results. Art Laffer has produced a far more sophisticated argument advancing a similar analysis.

But the June unemployment report released last Friday shows an economy doing much worse at this point than even I expected. More than 30 months after the official start of the recession, the economy is still losing jobs, with non-farm payroll employment declining by 125,000 jobs in June. A total of 652,000 workers fled the workforce in June, and therefore were no longer counted as unemployed, which is why the unemployment rate fell from 9.7% to 9.5%. That follows 322,000 who dropped out of the workforce in May, for a total of nearly a million workers dropping out of the labor force in the last two months alone. If those million workers had remained in the workforce looking for work, the unemployment rate would be 10.1%.

Moreover, average hours worked per week dropped for all workers, as did average hourly earnings.

President Obama's Fairy Tale Bedtime Story

But there was President Obama in a highly revealing speech on June 30 in Racine, Wisconsin, congratulating himself for having saved America from another Great Depression. He said, "Now every economist who has looked at it has said that the Recovery Act [stimulus bill] did its job," starting a passage that will soon be memorialized as another chapter in Aesop's Fables. As Obama said those words, on the very same day in the Wall Street Journal was a commentary by Allan Meltzer, Professor of Economics at Carnegie Mellon University, entitled, "Why Obamanomics Has Failed." Maybe Obama just hadn't read the Journal yet that day.

But Obama continued in Racine, "[The stimulus bill] put a brake on the collapse of the economy. We avoided a Great Depression. We are now growing again." (Emphasis added.)

Instead of avoiding a Great Depression, however, President Obama is leading us into one. The National Bureau of Economic Research (NBER) scores the recession as officially starting in December, 2007. Now 31 months later, with unemployment still near 10% and the work force still declining, NBER says it still cannot determine an official end to the recession. The longest recession since World War II previously has been 16 months, with the average being 10 months. By next month, the period since the last recession started will be twice as long as the previous postwar recession record.

Yet, now we hear talk of another, double dip, downturn, reflected in the newly declining markets, where the S&P 500 is now lower than the price of gold for the first time in history. The comprehensive Obama tax rate increases scheduled for next year stand poised to pour napalm on this developing bonfire. For all the talk of how uncertainty is hurting the economy, the certainty of those tax rate increases once they become effective will be far worse.

A renewed, double dip, downturn, 31 months after the recession started and with unemployment already near 10%, would be a depression scenario, far worse than I have been predicting here and elsewhere for over a year now. While I have discovered from my sojourns on "progressive" talk radio ("progressive" is a polite word for socialist) that the Left is now denying history. For hundreds of years Western economies have been plagued by the business cycle, with the economy falling into downturns, and then naturally recovering. Since 1945, there have been 12 such downturns in the U.S., with the economy recovering sans Obama pixie dust within 16 months at the longest.

By this standard, the recovery was overdue a year ago. Moreover, the sharper the downturn, the stronger the recovery. But compared to the last downturn of similar magnitude, the 1981-1982 recession, the renewed economic growth today President Obama has been so vigorously trumpeting has been less than half what it should be. The positive economic results Obama can and does point to are way too little, way too late.

Two Christmases ago, I feared that by now Obama and his socialist policies would be riding the wave of inevitable recovery, before his policies crashed the economy in what I later called The Coming Crash of 2011. But politically as well as economically, it is all disintegrating faster even than during the Carter Administration, where 1978 was a hopeful year for conservatives that mostly didn't pan out. President Obama is on the same trajectory as President Carter, times some multiplier of Keynesian foolishness.

With the most productive now scrambling to produce as much as they can before next year's sweeping tax rate hikes, the double dip will probably be delayed until 2011. I privately told some major political players at the beginning of this year that the unemployment rate in November would be 9%. That may turn out to be right on the money. But if the unemployment rate does turn north again before then, which can well happen just from workers returning to the labor force to search for work, you can turn out the lights for the Democrat party.

The stock market, which tends to look 6 months ahead, seems to be predicting that Coming Crash of 2011. There is not enough upside compared to the double dip downside to be playing the stock market now even for short-term gains. That will change, however, the moment the market comes to believe in the regime change scenario. The great 1990s stock market boom began on Election Day, 1994.

The Perversity of Obamanomics

Over and over in Racine, Wisconsin, last week, President Obama made clear that he thinks it is government spending that creates economic growth. Besides touting the brilliance of his stimulus spending, and the growth opportunity in government subsidies for home weatherization, he said:

And that's why I've been fighting, in addition to everything else we have done, for additional steps to speed up this recovery and keep the economy growing. We want an extension of unemployment benefits for workers who lost their job through no fault of their own. We want to help small business owners get the loans they need to keep their doors open and hire more workers. We want relief for struggling states so they don't have to lay off thousands of teachers and firefighters and police officers. 

The only thing standing in the way of all this government spending salvation is those mean, nasty Republicans. Obama explains:

[L]ately we've been having to wrangle around what used to be pretty noncontroversial things -- providing loans for small businesses, extending unemployment insurance when 8 million people lost their jobs during the recession. But lately there's a minority of Senators from the other party who've had a different idea. As we speak, they are using their power to stop this relief from going to the American people. And they won't even let these measures come up for a vote. They block it through all kinds of procedural maneuvering in the Senate.

On February 13, 2010, in celebrating the signing of a Pay-As-You-Go budget rule into law, the President was saying something quite different:

But what also made these large deficits possible was the end of a common sense rule called "pay-as-you-go." It's pretty simple. It says to Congress, you have to pay as you go. You can't spend a dollar unless you cut a dollar elsewhere. This is how a responsible family or business manages a budget. And it is how a responsible government manages a budget, as well…. Last night, I signed the "pay-as-you-go" rule into law. Now, Congress will have to pay for what it spends, just like everybody else.

But this "PayGo" charade was all about playing the voters for fools. Whenever the Democrats bring up more spending they want, they include a provision to exempt it from this PayGo rule. When the Republicans insist on enforcing the PayGo rules, President Obama and Congressional Democrats lambaste them for opposing essential spending "relief," as Obama did in Racine. Democrat party controlled media outlets then dutifully echo these charges with disapproval for those nasty Republicans.

President Obama also made clear in Racine that the thinks that cutting tax rates causes recessions and economic crisis. He said about the Republicans:

They think we should keep doing what we did for most of the last decade leading up to the recession. So their prescription for every challenge is pretty much the same… basically cut taxes for the wealthy…. nearly a decade of tax breaks for millionaires and billionaires…. We've already tried these ideas. Remember we tried them for eight years. We tried them for a good part of the last decade. We know where they led us.

This explains the so predictable failure of Obamanomics. The President thinks federal spending is what causes economic recovery and growth. It was cutting tax rates that caused the recession and the financial crisis. This is what President Obama is saying in these and other passages of his Racine speech. If you try to explain to him that cutting tax rates creates essential, highly effective incentives for producing more by allowing producers to keep more of what they produce, his inner, neo-Marxist replies:

So I just want everybody to remember, we've tried the other sides' theories. We know what their ideas are. We know where they led us. So now we've got a choice. We can return to what we know did not work, or we can build a stronger future. We can go backwards, or we can go forward. And I don't know about you, but I want to move this country forward."

Professor Meltzer, grounded in reality, said something quite different in the Wall Street Journal that same day, "The Obama economic team ignored past history. The two most successful fiscal stimulus programs since World War II -- under Kennedy-Johnson and Reagan -- took the form of permanent reductions in corporate and marginal tax rates."

But President Obama is not interested in history since World War II. The future he is taking us to is the 1930s, enacting the same economic policies of that era, which will only produce the same results. To see our Obama future, look to Greece. For if we fall into a double dip recession, what will that do to his $1.6 trillion deficit?

A Democrat Problem

But the problem isn't only President Obama. The problem is endemic to the entire Democrat arty, which is today, heart and soul, a neo-Marxist party. Witness Hillary Clinton, another self-styled "progressive," who in recently speaking at the Brookings Institution in Washington, said, "The rich are not paying their fair share in any nation that is facing the kind of employment issues (as the United States) -- whether it's individual, corporate, or whatever the taxation forms are." Look at Brazil, she suggested. "Brazil has the highest tax-to-GDP ratio in the Western Hemisphere, and guess what -- they're growing like crazy."

So let's take a look at Brazil. The highest income tax rate there is 27.5%, 21% less than our top income tax rate of 35%, soon to shoot up under Obamanomics to nearly 43%, 56% higher than Brazil's. Brazil's 27.5% rate is even lower than President Reagan's 28% top rate. The top corporate tax rate in Brazil is 34%, compared to the combined federal and state corporate tax rate of 39.1% in the U.S., now highest in the industrialized world given that Japan has recently come to its senses (unlike the rapidly declining U.S.).

The top 1% of income earners in the U.S. pay more in income taxes than the bottom 95% combined. That is official IRS data, as accurately reported by the Tax Foundation. Look it up. But Hillary Clinton continues to mindlessly repeat the brain dead, neo-Marxist, Democrat party mantra that "the rich are not paying their fair share." What would a fair share look like?

The Midnight Ride of Paul Revere

In a recent appearance filling in for Rush Limbaugh, Herman Cain said in this hour of crisis many Americans have appropriately turned for inspiration to the Founding Fathers. But what he was wondering was, where are the "Defending Fathers"? By that he meant where are those who will step forward today to challenge politically the neo-Marxist takeover of America, and the ultimate decline and fall of our country, that Barack Obama is leading.

The message we need to hear today was written by Henry Wadsworth Longfellow on April 19, 1860, in "The Midnight Ride of Paul Revere." Longfellow wrote of that night, "On the eighteenth of April, in Seventy-Five":

And yet, through the gloom and the light,
The fate of a nation was riding that night;
And the spark struck out by that steed, in his flight,
Kindled the land into flame with it's heat….

"So through the night rode Paul Revere;
And so through the night went his cry of alarm
To every Middlesex village and farm,
A cry of defiance, and not of fear,
A voice in the darkness, a knock at the door,
And a word that shall echo for evermore!
For, borne on the night-wind of the Past,
Through all our history, to the last,
In the hour of darkness and peril and need,
The people will waken and listen to hear
The hurrying hoof-beats of that steed,
And the midnight message of Paul Revere.

This is July already, and if you are not already deeply involved in a campaign for the candidate of your choice, then you are not getting the message. If the Democrats lose 25 house seats this fall, no one will be scared. Even if they lose 40, and the Republicans gain control of the House, no one in Washington will really be shaken.

But if the Democrats lose 60 seats, all bets are off. For then, growing numbers of surviving Democrats will begin to vote with the right, even to override Obama vetoes. But that is not going to happen, unless Americans appalled at what's happened to their country get out, and get their friends, relatives and neighbors to get out, now, to make it happen.

Otherwise, they will be like the farmer who heard Paul Revere crying out that night, "The British are coming," and turned over and went back to sleep because he had to put the corn in the next morning.

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About the Author
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.