President Barack Obama exulted that the November unemployment report “was the best since 2007.” The report showed double-digit unemployment and still further job losses. Apparently, President Obama considers that a major achievement. Rest assured the American people will not.
The army of the unemployed now totals 15.4 million Americans. Another 9.2 million were working part-time “because their hours had been cut back or because they were unable to find a full-time job,” according to the Bureau of Labor Statistics. Another 2.3 million “wanted and were available for work.” That totals almost 27 million unemployed or underemployed, which would amount to a total effective unemployment rate of 17.5%.
Unemployment among African-Americans is at Depression-era levels at 15.6%. Unemployment among teenagers is at 26.7% because of reckless increases in the minimum wage. The number of long-term unemployed (out of work for more than half a year) smashed records, rising by almost 300,000 to nearly 6 million.
President Obama’s Chairman of the Council of Economic Advisors, Christina Romer, displayed just how out of touch the Administration is with this real world in the Wall Street Journal on December 2. She claimed credit for the President’s economic policies in stopping “the economic free fall and stabilizing financial markets” and for “restoring confidence and begin[ning] the process of financial market repair.” “Restoring confidence” is not what comes to mind when evaluating the impact of the President’s policies of record-shattering deficits, explosive government spending, and unprecedented federal debt.
Yet, the President continued high in orbit completely out of touch in his redundant jobs speech yesterday, where he said to reduce the deficit we need to spend more money. Go look it up. But don’t be surprised. That is his Keynesian economic policy, where the more the government spends the richer we get.
But the President was both for and against deficits yesterday, blaming Republicans for the federal deficit. His wasted and failed $787 billion stimulus supposedly had little to do with the record shattering $1.4 trillion 2009 federal deficit. Apparently neither did the additional $400 billion in the Omnibus spending bill passed right after the stimulus, and the one-third increase in federal welfare spending, from $522 billion to nearly $700 billion, that he and Congressional Democrats have already adopted.
Back on earth, the numbers show that the deficit for Bush’s last year in office was $458.6 billion, only a third of Obama’s 2009 deficit. And the deficit for the last budget adopted by the Republicans when they held Congressional majorities was $160.7 billion, only about 10% of this year’s Obama/Congressional Democrat deficit. President Obama is now trying to claim success in generating recovery with his $1.4 trillion Keynesian deficit, at the same time he is blaming George Bush and the Republicans for that same deficit. If President Obama did not want a $1.4 trillion deficit, he should have adopted policies to change it when he came into office. Instead, he embraced it as part of his Keynesian economic policy, and as a result it is his deficit, not George Bush’s.
Romer, in fact, tries to claim success for the Keynesian deficit and stimulus in her Wall Street Journal article, saying the stimulus “increased employment between 600,000 and 1.6 million.” But the ugly reality is that since January the number employed has declined by 3.6 million, while the unemployed have increased by 3.76 million. The claim that the stimulus increased employment is a complete fairy tale produced by a model that assumed the result. The model used by CBO started by assuming that government spending increases GDP by a multiplier of 1.5 times each dollar spent, as claimed by the Administration. With that assumption, it is a pure mathematical calculation to conclude that the stimulus increased employment as claimed.
But economic growth, jobs, and prosperity are not produced by runaway government spending, record shattering deficits, higher welfare benefits, and exploding federal debt, as assumed in the outdated, retro, Keynesian thinking of the untutored extremists now running Washington. That is why the true number for jobs created and saved by the stimulus is exactly zero.
The Failure of Obamanomics
The economy will move into recovery now into next year, and the recession will be declared to have officially ended some time this fall. Expect a symphony of loud celebrations and congratulations for the Anointed One from what Rush Limbaugh is aptly calling these days “the state-controlled media,” as President Obama claims personal credit for any positive wiggle in the economy. But that recovery will have nothing to do with the utterly failed Obamanomics for the two reasons explained below.
First, the recovery is long overdue. The recession is officially scored by the National Bureau of Economic Research as starting in December, 2007. From the beginning, Washington tried to counter the recession with old-fashioned Keynesian economics, rather than the more modern, wildly successful, supply-side economics. In February 2008, President Bush joined with Speaker Pelosi to push an entirely Keynesian stimulus package through Congress, based on tax rebates, which are economically equivalent to welfare checks, rather than tax rate cuts, which provide supply-side incentives for growth. Senator Barack Obama at the time strongly supported that “stimulus,” which we can see now in retrospect had no positive impact on the economy.
So President Obama, who experience proves does not learn from experience, pushed through another Keynesian “stimulus” bill in February 2009, only wasting 5 times as much money. Still the recession continued, immune to the Keynesian stimulus, and unemployment soared into double digits, even though President Obama promised his stimulus would keep unemployment below 8%. President Obama yesterday claimed again that one-third of his stimulus was “tax cuts.” But those tax cuts were again all tax credits, rather than rate cuts, and so were just more Keynesian spending.
The average recession since World War II, which is 65 years ago by now, has been 10 months. The longest previously was 16 months. We have now suffered through almost 24 months since this recession started. The recession may ultimately be officially scored as ending a couple of months ago. But it will still be the longest recession since World War II by far. Keynesian Obamanomics has already failed to end the recession in a timely manner.
Indeed, the recovery is both too little and too late. Historically, the deeper the recession the stronger the recovery. Based on the severity of this recession, real growth over the next year should be 6% to 8%. Indeed, the major tax increases slated to go into effect in 2011 should cause even more rapid growth over the next year, as income is moved forward as much as possible to avoid the later tax increases. That is the yardstick by which to measure this recovery. So far, it appears to be running well below that.
The second reason why the recovery has nothing to do with Obamanomics is that the economy naturally recovers on its own. We don’t even remember the business cycle anymore, because Reaganomics was so successful in eliminating it, with 25 years of almost uninterrupted economic growth. But the term business cycle, means the economy naturally goes up as well as down. Every morning people get up and try to figure out how to make their business prosper again, or find a new job. Over time, this process will naturally lead to recovery. That is why the average recession since World War II has ended in 10 months. Barack Obama’s Keynesian economics has nothing to do with it. The economy was always naturally going to recover on its own, and should have long before now, if Obama’s neo-socialism hadn’t gotten in the way.
Conservatives should not try to deny the recovery is happening, or predict continued recession. They should explain why the Obama/Democrat policies have made things worse rather than better, through the record, backbreaking debt, collapsing dollar, rising energy prices, and more. They should explain why we can do better, with free market economic policies. In the 1960s, when the liberals were in power exactly like they are today, the economy was booming (thanks to President Kennedy’s supply-side tax rate cuts). But the Democrats were still massacred in the 1966 Congressional elections, and the Republicans still won the White House in 1968, holding the presidency for 20 of the next 24 years. The liberal media was also much more dominant then than it is now.
Gingrich v. Obama
President Obama’s so-called Jobs Summit last week was a political charade meant to provide a public relations foundation for a third stimulus package involving still more of the same, brain-dead, Keynesian snake oil. He wasn’t interested in listening to anything from anybody at the Summit. He already knew what he was going to propose in the package he unveiled yesterday. Those attending the Summit were just props.
For that third stimulus package, President Obama proposed paying people to “weatherize” homes (cash for caulkers), which, again, will not create any new jobs on net. It will just reallocate jobs from the work that would have been done with those funds in the private sector. That will probably result in a net loss of national income, because the private market allocates resources and workers to the most productive and urgent uses. Extending unemployment benefits further, as Obama proposed yet again, just perpetuates unemployment. The infrastructure spending Obama proposed was supposed to be in the last stimulus. Spending still more funds that should go back to taxpayers or to reducing the deficit on that is again not going to increase overall jobs on net.
President Obama proposed federal loans for small business. But the disastrous experience with Fannie Mae and Freddie Mac shows that the government should stay out of the loan business and political allocation of credit. Credit will flow through established markets if the federal government, including the Federal Reserve, adopts strong pro-growth, sound money policies. Obama also wants a tax credit for businesses hiring workers. But true to his practice of recycling old ideas that are proven failures, the federal government for many years maintained a Targeted Jobs Tax Credit that did the same thing. It was abolished based on studies showing that it only paid companies to hire workers they were going to hire anyway. Other narrow, cramped tax breaks Obama proposed will not promote general economic recovery.
In sharp contrast, former House Speaker Newt Gingrich held his own job summits last week, in Cincinnati, Ohio, and Jackson, Mississippi. Based on what he has heard from small business leaders there and across America, Gingrich has proposed his own jobs plan. While Gingrich was Speaker of the House, federal spending growth was at its lowest level since the 1920s. Gingrich says, “We can apply the same principles that worked then to create jobs and four straight balanced budgets through smaller government, less spending, lower interest rates, and less debt.”
The Gingrich Plan provides immediate payroll tax relief by cutting the payroll tax rate by 50% for two years, giving a raise to workers and incentives to small business to create jobs.
Secondly, rather than increase capital gains tax rates by 66% as Obama and the Democrats propose, Gingrich would abolish capital gains taxes altogether, as they just involve double taxation of capital income. That is why this policy has been adopted in 14 out of 30 OECD countries, plus China, Taiwan, Hong Kong, Singapore, and others.
Thirdly, America suffers from the second highest business tax rate in the industrialized world, with a federal rate of 35% and states pushing it close to 40%. By contrast, the average corporate tax rate in the European Union has been slashed from 38% in 1996 to 24% today. Ireland has a corporate tax rate of 12.5%, which has led per capita income to soar from the second lowest in the EU 20 years ago to the second highest today. Our own Treasury Department has said Ireland raises more corporate tax revenue as a percent of GDP than we do with our much higher rates. Corporate tax rates in India and China, our emerging competitors for the future, are lower as well. Gingrich would reduce the federal business tax rate to Ireland’s 12.5%.
Gingrich says quite rightly, “Combined with the zero capital gains rate, America would become the most desirable country in the world in which to invest and start a business. This means new jobs and new prosperity.”
Instead of reinstating the death tax with a 45% rate, as Obama and the Democrats want, Gingrich would abolish the death tax as well. Gingrich says, “Inheritance is the most powerful accumulator of capital. Studies show that eliminating the death tax would create hundreds of thousands of new jobs.” Taxpayers have already paid considerable taxes on any money saved over a lifetime. Taxing it again at death is just abusive, unfair, and arbitrary. Gingrich would also provide for immediate expensing for 100% of new equipment purchases by small businesses, stimulating investment in new, productive technologies.
Exactly the opposite of the regressive Cap and Trade policies of Obama and the Democrats, Gingrich would implement an American Energy Plan that would unleash the private sector to produce low cost, reliable energy supplies from domestic, American, energy sources. This energy development would create millions of new jobs, and generate billions in new revenues for federal and state governments.
Gingrich also favors the same strong dollar monetary policies as Reagan, guaranteeing the dollar remains the world’s reserve currency, and ensuring lower interest rates over the long run and more capital investment. He would also balance the federal budget within 7 years by controlling spending and reforming government, as he did with the Republican Congress in the 1990s. He would also abolish TARP and return the money, end all bailouts, and repeal still unspent “stimulus” funding.
Gingrich also favors following the 50% payroll tax cut with a permanent personal account option for that portion of payroll taxes for younger workers, with the personal accounts substituting for an equivalent portion of future retirement benefits. Given historical capital market returns, workers should get much higher benefits as a result than Social Security even promises today, let alone what it can pay, with a continuing safety net guaranteeing that workers would get at least as much as Social Security currently promises them. This would provide a continuing gusher of new savings for capital investment, resulting in more jobs and higher wages.
These policies would reduce unemployment back to 3-4%, and restore long-term economic growth, maybe even another 25-year boom. The American people recognize the common sense behind this Jobs Plan, and would overwhelmingly support it over President Obama’s neo-socialism. Just think who you would want debating President Obama on the platform in 2012.