This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published May 16, 2012 on The American Spectator website.
Obama has already succeeded in fundamentally transforming America, from a prosperous nation that draws people the world over, voting with their feet, to a rapidly declining former superpower on the fast track to a third-world status similar to Argentina or Venezuela. That is effectively what is argued by the new book Debacle: Obama’s War on Jobs and Growth and What We Can Do Now to Regain our Future, by leading taxpayer activist Grover Norquist and economist John Lott.
The Worst Economic Recovery Since the Great Depression
Central to the debacle Obama has created is that he has imposed on America the worst economic recovery since the Great Depression. Yes, the country was in recession when Obama was elected. But it was Obama’s policies that turned it into the Great Recession and prevented the American economy from recovering — just like his icon Franklin Roosevelt turned the 1929 stock market collapse into the Great Depression, and prevented America from recovering for more than a decade. As Norquist and Lott explain:
While this recession no doubt has been one of the worst since the Great Depression, the supposed recovery that followed it has clearly been the worst. Unemployment and job growth have been abysmal. As of October, 2011, the unemployment rate was stuck at least at 9.0 percent for 27 out of 29 months. Astoundingly, the unemployment rate during the 29 months of recovery averages three full percentage points higher than the average unemployment rate during the recession. There is no comparable recovery on record since the prolonged period of stagnation during the Great Depression in the 1930s. The Reagan recovery, starting in late 1982, hit a higher unemployment rate, but after the recovery started, it did not take more than nine months for the unemployment rate to dip below 9 percent.
This latest recession started in December, 2007. The National Bureau of Economic Research, the recognized timekeeper of when recessions start and end, declared this one over in June, 2009, which would make it the longest recession since the Great Depression 75 years ago. But the historical precedent in America is that the deeper the recession, the stronger the recovery. Based on that precedent, we should be in the third year of a raging economic recovery boom by now. But instead we have experienced no real recovery at all.
As Norquist and Lott explain the Obama non-recovery:
The recession was painful enough. Between when the recession started in December 2007 and ended in June, 2009, 6.3 million jobs were lost. After the recession ended and this book was written in October, 2011, only 324,000 additional jobs were created—an average of just 11,000 a month over those 29 months. With the working age population growing by 160,000 a month, this meager job growth failed to make a dent in getting the jobs back, let alone find jobs for the ever-growing population.
Unemployment actually rose after the recession supposedly ended in June, 2009, and did not fall back down below that level until 18 months later in December, 2010. Norquist and Lott add, “In the first 29 months during the Reagan recovery, the number of jobs grew by 8 percent. In contrast, over the same time, the number of jobs under Obama has grown by just 0.25 percent.”
“But things in America are a lot worse than the simple employment and unemployment numbers indicate,” Norquist and Lott continue, “because many people have given up looking for work and have completely left the labor force, and the government no longer counts people as unemployed after they give up looking for a job. Obviously, lowering the unemployment rate through disillusioned job seekers giving up looking is not a good thing.”
But that is exactly what the Obama administration is celebrating as the achievement of its economic policies — working people giving up and dropping out of the labor force. That is the only way the unemployment rate has been falling at all. Norquist and Lott explain further, “People are supposed to start looking for work during recoveries. It is during recessions that Americans give up looking for work. Unfortunately, under the Obama Administration, the reverse has happened…. It was only during the Obama recovery that Americans started dropping out of the labor force in droves. In total, 4.7 million people quit looking for work.” Today, it is 7.7 million who have dropped out of the work force under Obama.
Again, the Reagan recovery is the measure. “The contrast with the Reagan recovery is striking,” Norquist and Lott write. “After the Reagan recovery started, millions more people wanted to work than even before the recession started. The sharp drop in the unemployment rate during the Reagan recovery is therefore even more impressive…. Despite all those new people looking for work, the unemployment rate fell from 10.8 percent at the end of 1982 to 7.2 percent by the presidential election in 1984.”
The Obama non-recovery debacle continues to this day. Last month, while 115,000 new jobs were supposedly created, the labor force shrank by another 342,000 workers, which is the only reason the unemployment rate reportedly declined from 8.2 to 8.1 percent. Without the decline in the labor force, unemployment would have risen last month to 8.3 percent. The labor force is actually 365,000 workers smaller today than it was in June, 2009, when the recession supposedly ended.
As Investor’s Business Daily reported on May 7, “That’s in stark contrast to every other post-World War II expansion, which saw the labor force climb by the millions at this point in their recoveries, even as unemployment rates were driven down.” Indeed, if the labor force participation had stayed the same as it was when the recession supposedly ended in June, 2009, without the millions fleeing Obama’s economy since then, the unemployment rate would be 11 percent, Investor’s Business Daily calculated.
Moreover, as the Wall Street Journal reported in its weekend edition of May 5-6, “Even as employers added jobs last month, full time employment actually fell by 812,000.” The Bureau of Labor Statistics reports that for last month the number of involuntary part-time workers totaled nearly 8 million. The BLS says, “These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.”
The BLS reported that in April, 52 months after the recession started, the total unemployment rate counting the unemployed and involuntarily underemployed was still 14.5 percent. That’s already persistent depression level unemployment. But the Shadow Government Statistics website, which includes the long-term discouraged workers the government doesn’t count at all anymore since 1994, reports the total unemployment rate at 22.3 percent. That’s what the total unemployment rate would be today if it were calculated the same way it was before 1994. Happy days are here again, under Obamanomics.
Reaganomics v. Obamanomics
In a Wall Street Journal article in February, 2009, I noted that the emerging Obamanomics followed the exact opposite of every policy of Reaganomics in great detail. I predicted that it would consequently get the exact opposite results. That is what has happened.
The Reagan recovery blossomed into a 25-year economic boom, from 1982 to 2007, which Art Laffer and Stephen Moore called in their book The End of Prosperity, “the greatest period of wealth creation in the history of the planet.” In the first 7 years alone, 20 million new jobs were created, which grew into 50 million new jobs over the entire boom.
In contrast, as
the Wall Street Journal reported on May 5-6, “Nearly three years into the [Obama] recovery, the U.S. still employs five million fewer workers than before the recession.”
When Reagan entered office, the first thing he did was lead Congress to enact the initially much-derided “Reagan budget cuts,” which have now been dumped down the Left’s memory hole. Federal spending was cut by nearly 5 percent. In sharp contrast, the first thing Obama did upon taking office was pass his nearly $1 trillion so-called stimulus bill.
At best, that stimulus did nothing to promote growth, because borrowing a trillion dollars out of the economy to increase government spending by a trillion dollars does nothing to enhance the economy on net. But Norquist and Lott argue that “The Stimulus made things worse.” Indeed, Lott published an article at FoxNews.com on February 3, 2009, predicting, “President Obama and the Democrats’ ‘stimulus’ package will increase the unemployment rate,” contrary to the administration’s prediction that unemployment would stop rising once the stimulus was passed. Lott proved more prescient than the entire administration’s army of hired economists.
Norquist and Lott report, “Business economists and forecasters had consistently been expecting the economy to begin positive growth in the second half of 2009. But passing the Stimulus appeared to dampen the recovery economists were anticipating…. Paul Evans, the editor of the Journal of Money, Credit and Banking and an economics professor at Ohio State University, agrees, and told us: ‘Most likely the economic recovery would have been more rapid at this point without [the Stimulus package].'”
Norquist and Lott note that Wall Street Journal-surveyed forecasters cut their growth expectations in half by May, after the stimulus passed, from January, before the stimulus passed.
Norquist and Lott explain why the stimulus spending was counterproductive: “The resources the government spends have to come out of someone else’s pocket. Spending almost a trillion dollars on various stimulus projects means moving a lot of resources from the private sector, eliminating the jobs many people currently have.” This shift from market-directed employment to government-directed employment causes dislocation, as workers shift from one job to another, which is a net drag on the economy.
On top of that, the government-created jobs are likely to be temporary and fewer than the number of jobs destroyed elsewhere. The simple reason is that many of these new jobs are artificial and will only exist as long as the government continues heavy subsidies…. Obama’s Council of Economic Advisors wrongly assumes that all of the Stimulus jobs are filled by the unemployed. But that is clearly wrong. Indeed, most of those getting the new [stimulus funded] jobs already had a job to begin with…. Whatever jobs might have been created, they did not come cheap….Accepting the Administration’s most optimistic 3.6 million number, it cost $200,000 per job. And if the survey of recipients is right, the cost per job created soars to over a million dollars…. In many cases, the money was just wasted completely. For instance, at Solyndra, the scandal-plagued solar energy company that got $535 million from the federal government, what had originally been counted as long term jobs soon disappeared when the company went bankrupt and took the half billion government loan guarantee with it.
The bottom line is that what drives economic growth and recovery is not government spending, as the Obama administration’s Keynesian throwbacks imagine. What drives economic growth and recovery is incentives for increased production. That is what Reagan proved, first by cutting taxes 25 percent across the board, and then by cutting the top tax rate from 70 percent, where it was when he entered office, to 28 percent, and slashing the rate for middle income earners to just 15 percent. Cuts in tax rates, not just tax cuts, enhance incentives, because producers can then keep more of what they create.
What most people do not know is that, just the opposite, Obama has already led the enactment in current law, for next year, of increases in the top tax rates of virtually every major federal tax. That is because the Obamacare tax increases go into effect, and the Bush tax cuts will expire, as Obama refuses to renew them for the nation’s small businesses, job creators, and investors. This is on top of the U.S. corporate income tax burden, which under Obama is already the highest in the industrialized world at nearly 40 percent on average, counting state corporate taxes. Yet, under Obama there is no relief in sight. Instead, he has spent the past year and a half barnstorming the country calling for still more tax increases.
These pending tax rate increases help explain why so much money is sitting on the sidelines in a capital strike, or fleeing overseas in a capital flight, like in a third-world country. And that missing investment helps explain why there are no jobs.
Obama is also following the exact opposite of Reagan’s policies by vastly expanding rather than reducing regulatory costs, supporting a record amount of easy money at the Fed, and restricting rather than maximizing American energy production. If Obama’s policies are not quickly reversed, the result without a doubt will be another whopping recession next year.
But the decline and fall of America is not inevitable. The economy is poised to boom again, at all-time records of capitalist prosperity, if the American people will only free it this fall from the socialism of Obamanomics.
The Real Obama
John Lott speaks from direct personal experience with the real Obama during the days when they were both junior professors at the University of Chicago. Lott relates these personal interactions in the book, saying,
When I was first introduced to Obama, he said, “Oh, you’re the gun guy.” I responded, “Yes, I guess so.” “I don’t believe that people should be able to own guns,” Obama replied. I then suggested that it might be fun to have lunch and talk about that statement sometime. He simply grimaced and turned away, ending the conversation. That was the way that numerous interactions with Obama went…. It was very clear that Obama disagreed on the gun issue and acted as if he believed that people who he disagreed with were not just wrong, but evil. Unlike other liberal academics who usually enjoyed discussing opposing ideas, Obama simply showed disdain.”
This ideological rigidity and extremism are what people paying attention to Obama as President should have expected.