August 23, 2010
The Obama Recovery
By Jeffrey Folks
During the same week in which the president was vacationing in a $50,000-per-night home in Martha's Vineyard, half a million Americans were standing in line, waiting their turn to apply for unemployment benefits. Those benefits are about $400 a week, not enough to put food on the table, pay the mortgage and car payments, and cover medical and other expenses. Not only that, but they run out (or used to) at 26 weeks. Even with Congress's election-year largesse, which has tacked on an additional 73 weeks, unemployment benefits must run out at some point. More and more Americans -- those who have begun calling themselves the 99ers -- are now arriving at that point.
In fact, last week's numbers for new unemployment claims constitute the worst showing in nine months. That is significant because at this point following a recession, one would expect the economy to be doing better -- a lot better. The Reagan recovery that followed the 1981-82 recession set the stage for nearly two decades of robust growth. That recovery was set in motion by the passage of hefty tax cuts that lowered marginal rates by 30% and slashed capital gains taxes. The economy reacted by shifting from near-desperation to rapid growth.
The period from 1983 to 2000 was the longest and most pronounced economic expansion in American history. It ended with the dot-com stock market crash and a severe recession. George W. Bush inherited that recession when he took office, but instead of whining that it was all his predecessor's fault, he secured passage of the largest tax cuts in our history, and the economy responded with 52 straight quarters of expansion -- the longest period of economic expansion ever.
Now America is attempting to recover from the third major recession in the past thirty years, but this time, the recovery is different. Last week's unemployment claims number is only the latest in a string of reports showing that the economy is not recovering as it did in the past. What's missing is the reluctance of businesses to hire new workers.
The president has lashed out at the private sector for failing to add jobs, as if every business decision were an attempt to undermine his administration. What Obama does not understand is that it is his own policies that are blocking job creation. His determination to allow the Bush tax cuts to expire is only one in a series of decisions that have discouraged investment in the private sector. The burdensome mandates of ObamaCare and regulatory activism on the part of the FTC and the EPA are others. Altogether, the effect of new taxes and regulation is to discourage growth.
Obama may be the only president since Woodrow Wilson to believe that tax increases spur economic growth. Certainly, few economists among those surveyed by the Wall Street Journal believe this to be the case. Even Obama's closest economic advisors, with the exception of the ever-malleable Timothy Geithner, have stated that now is "not the time" to hike taxes. The fact is that there is never a good time to raise taxes, but the government economists are correct that this is one of the worst times.
Some have accused the president of lack of leadership. More and more, he is to be found playing golf, lounging on the beach, or shooting hoops. When he is not relaxing, he is speechifying in front of friendly college audiences or liberal interest groups. It has been more than a year since he conducted a news conference with real questioning from the press or since he appeared in an unscripted town-hall with ordinary citizens. The barriers have been thrown up around the White House, and it is unlikely that they will come down any time soon.
Meanwhile, the economy suffers from the vast uncertainty of the situation. No one knows what the Democrats are going to do about the expiring Bush tax cuts, except that it is unlikely they will all be renewed. They will not likely be renewed for small businesses earning more than $200,000 a year -- just the kind of businesses that create over 60% of new jobs. They will not be renewed for physicians and other professionals struggling to stay in business in the face of frivolous lawsuits. They will not be renewed for investors who purchase stocks and bonds issued by companies wishing to expand their operations.
Nor will ObamaCare and new regulations tucked into the financial reform bill of 2010 make it any easier on small business. Contractors are fuming over a provision hidden in the Dodd-Frank legislation that requires them to file 1099s for every purchase over $600. A small homebuilder will spend hundreds of hours maintaining records and filling out forms just to comply with this one provision. There are almost 900 pages of mandates in the reform bill, many of them mandating far more detailed regulations on the part of hundreds of government agencies. This sounds like a good way to drive companies out of business.
Every economic report coming out confirms the failure of Obama's policies. GDP numbers continue to be revised downward. Jobs figures come in worse every month, with millions of workers so discouraged that they are not even seeking employment. The Philadelphia Index of Economic Activity, a bellwether predicting future growth, is trending down. Large corporations are holding onto $2 trillion in earnings, afraid to invest it due to uncertainty over taxes and regulation. Investors are fearful. Americans are filing for bankruptcy at unprecedented rates, despite stricter filing standards.
In every respect, Obama's response to the recession of 2008-2009 has been just the opposite of that of Reagan and Bush to past recessions. Not surprisingly, the effect has also been the opposite: what some economists are calling a "jobless recovery." Others have begun to refer to slow growth and high unemployment as the "new normal." In fact, what we are seeing is not a normal economic response following a recession -- nor is it a recovery, jobless or not.