This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published July 13, 2011 on The American Spectator website.
The extended stagnation of the American economy is starting to look more and more like a depression. Obama is on track to put the Great in that Depression with what he has already enacted into law for 2013, unless the American people reverse course next year.
At no point in the last 70 years, going back to the Great Depression, has the American economy suffered unemployment this high for this long, or such extended stagnation without a rebound or recovery. The American economy simply does not lie flat on its back for years and years like this, except during a time of depression. Even in the 1970s, the economy persistently rebounded after four worsening recession cycles.
According to the historical record in America, deeper downturns yield stronger recoveries. Based on this precedent, America should be in the second year of a booming recovery by now. So what’s the holdup?
The Failure of Keynesian Economics
President Obama had the chance to guide America to at least a typical recovery. But his retrograde Keynesian, neo-socialist policies have prevented any real recovery at all.
Last Friday’s unemployment report showed that 3 ½ years after the last recession started, still virtually no new jobs were being created, and unemployment was persistently rising again. Since the Great Depression, recessions in America have lasted an average of 10 months, with the longest previously being 16 months. But in June, 42 months after the last recession began, unemployment rose again to 9.2%.
The Depression has already arrived for African-Americans, with unemployment at 16.2% persisting for two years now. The same is true for Hispanics, with long-term double-digit unemployment persisting at 11.6%.
A pitiful 18,000 jobs were supposedly created in June, in a nation of 300 million people. But it’s worse than that. 54,000 jobs were supposedly created in May, but then that figure was revised downward to 25,000. Without that revision for May, Friday’s labor report would have shown a decline of 26,000 jobs last month, as reported by John Crudele in the New York Post on July 9. Crudele adds that the June labor report includes an estimated 131,000 jobs that were supposedly created by companies that can’t be identified, which will probably be removed as well in subsequent labor reports.
The total army of the unemployed in June comprised 14.1 million Americans, including 6.3 million who have been unemployed for 27 weeks or more — more than half a year. Not counted as unemployed were another 8.6 million working part time “because their hours had been cut back or because they were unable to find a full time job,” as the Bureau of Labor Statistics (BLS) reports. Also not counted were another 2.7 million deemed “marginally attached to the labor force.” The BLS explains that these individuals “wanted and were available for work, and had looked for a job sometime in the prior 12 months.” But, “They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.”
That makes a total of 25.4 million Americans unemployed or underemployed. Counting them, the real unemployment rate climbed to 16.2% in June, as reported by the BLS. Moreover, the June labor report showed even nominal wages starting to decline, and with the reappearance of even the underreported inflation, that means that the real wages of American workers are decisively falling.
President Obama and the Democrats persist in their wildly confused and erroneous theory that economic growth is created by increased government spending and deficits. If that were true, the American economy would be enjoying its greatest boom in history right now, with a 28% increase in federal spending and more than $4 trillion in deficits since 2008.
Yet, on July 1, the White House released a report that tried to tell us that the nearly $1 trillion “stimulus” bill passed in February 2009 “saved or created” up to 3.8 million jobs. But with more than 25 million Americans unemployed or underemployed, and real wages for the rest of us declining, the undocumented fabrication of supposedly “saved” jobs is dishonorable political propaganda. Jobs remain over 7 million below their peak 3 ½ years ago with almost 2 million lost since the “stimulus” corruption was passed.
Indeed, economist John Lott demonstrated that this White House claim is a fairy tale in the New York Post on July 8. He notes how the economies of both the United States and Canada moved in lockstep during the financial crisis, with unemployment at 6.1% in both countries in August 2008, and rising to around 8 percent in February 2009, when President Obama’s Keynesian trillion dollar stimulus bill was passed. U.S. unemployment then continued to shoot up to over 10%, and stayed above 9.5% for almost another year and a half, lately resuming its upward rise. But in Canada, unemployment peaked at 8.7% in September 2009, and has fallen since to 7.4% today, behaving more like the American economy used to, before Obama’s neo-socialist hope and change.
That is because instead of relying on Keynesian government spending, deficits and debt, Canada adopted instead the Reaganite supply-side economics of cutting tax rates and reducing regulatory cost burdens. While President Obama has maintained America’s corporate tax rate at nearly 40% counting state corporate rates, and gleefully proposes still more tax increases on American business, Canada cut their corporate rate to 16.5% this year, scheduled to fall to 15% next year. Lott reports, “By last year, Canada had the lowest overall tax rate on business investment of any major industrialized country.”
Under Obama’s outdated Keynesian economics, federal debt as a percent of GDP is projected to almost double from 2008 to 2012, from 48% to 81%. Canada’s debt by contrast will rise only from 22.4% to 35.8% due to the downturn, less than half Obama’s. Lott concludes, “Blaming President Bush, as Obama has, just doesn’t explain why our economy got worse relative to other countries — after the current president’s policies were adopted.”
If you don’t believe that Keynesian government spending and deficits are the way to restore economic growth and prosperity, then you should not be supporting, contributing to, or voting for Democrats. Your friends and neighbors should not be either. Spread the word.
Reaganomics is the Answer
The only policies President Obama and the Washington establishment refuse to try in order to restore traditional American economic growth and prosperity are the policies of Reaganomics. Reagan campaigned on four specific planks to restore American recovery from the Keynesian disaster of the 1970s, and then implemented them once elected.
He cut tax rates to maximize incentives for production and job creation. He enacted policies of deregulation to reduce costs for business and consumers. He cut spending to reduce the drain on the private sector, and he restrained monetary policy to end inflation and stabilize the dollar.
As I explain in detail in my new book America’s Ticking Bankruptcy Bomb, this was the most successful economic experiment in world history. In 1982, the economy took off on an historic 25-year economic boom — “the greatest period of wealth creation in the history of the planet,” as Art Laffer and Steve Moore have noted. The stock market tripled during the 1980s, and 20 million jobs were created during the first seven years of Reaganomics alone.
Incredibly, at the same time, the historic inflation that raised prices by 25% over the two years 1979 and 1980 was cut in half by 1982, and cut in half again by 1983, to an annual rate of 3%, never to be heard
from again until recently. During the first seven quarters of the Reagan recovery, real economic growth soared by 7.1%, compared to less than half that during the Obama non-recovery at 2.8%, with last quarter at a miserable 1.8%.
I go on to explain in the book in detail how to apply the lessons of Reaganomics to today. Enact corporate tax reform to close the loopholes that allowed Obama political-machine cronies like GE to pay no taxes, and cut the rate to 15%. Stop the EPA’s cap and trade tax, the disabling regulatory restrictions on energy production, the Obamacare employer mandate that will force employers to buy the most expensive health insurance possible, the Dodd-Frank regulatory tsunami threatening to disable essential credit, and repeal the affordable housing regulatory policies that caused the financial crisis. Restrict the Fed’s monetary policy to follow market prices to establish a stable dollar without inflation.
And, finally, enact fundamental entitlement reforms that will balance the budget over the long run. By modernizing the current, old-fashioned, tax and redistribution entitlements to rely instead on capital, labor and insurance markets, with productive pro-growth incentives, we can achieve all the liberal social goals of these programs far more effectively, actually serving seniors and the poor far better, at just a fraction of the cost of the current programs.
The Coming Crash of 2013
America fell into the financial crisis because by the end of the Bush Administration, under both Democrat and Republican Congresses, we had abandoned each of these four planks of Reaganomics. Then when Obama got behind the steering wheel, he slammed down on the accelerator to take us madly in the opposite direction on all four planks.
And by 2013 when these opposite planks of Reaganomics are fully implemented, we will have the opposite of Reagan’s inflation-free economic boom, as the economy comes crashing down in a new, even more calamitous recession. Most people don’t know that, due to Obamacare and the expiration of the Bush tax cuts (which Obama pledges not to renew for singles making over $200,000 and couples making over $250,000) sharp increases will appear in the top tax rates for virtually every major federal tax.
The top income tax rate will increase by nearly 20%, the capital gains tax rate will increase by nearly 60%, and the tax rate on corporate dividends will triple. The Medicare payroll tax rate for the nation’s small businesses, job creators and investors will also increase by 62%, and the death tax will be restored with a 55% top rate. This will all pile on top of the nearly 40% corporate tax rate. Even Communist China, which is more business-friendly than Obama’s America, has a 25% rate, with even lower average rates in the socialist European Union. By the time Obama’s demands for still further tax increases as part of a debt limit deal come to fruition, the abovementioned regulatory burdens will be building to a crescendo.
Art Laffer predicted the coming crash of 2011 based on the expiration of the Bush tax cuts for upper-income earners alone. What Obama is brewing for 2013 is far worse.