This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published September 2, 2012 on Forbes.com.
New income data from the Census Bureau reveal what a great job Barack Obama has done for the middle class as President. During his entire tenure in the oval office, median household income has declined by 7.3%.
In January, 2009, the month he entered office, median household income was $54,983. By June, 2012, it had spiraled down to $50,964. That’s a loss of $4,019 per family, the equivalent of losing a little less than one month’s income a year, every year. And on our current course that is only going to get worse, not better.
Obama never tires of telling us that the economy was in one of the worst recessions since the Great Depression when he entered office, as if he was the only President to have suffered a recession early in his term. But nobody expected that he would use the vast powers of the most powerful office in the world to make it worse. But that is what he has done.
Even if you start from when the recession ended in June, 2009, the decline since then has been greater than it was during the recession. Three years into the Obama recovery, median family income had declined nearly 5% by June, 2012 as compared to June, 2009. That is nearly twice the decline of 2.6% that occurred during the recession from December, 2007 until June, 2009. As the Wall Street Journal summarized in its August 25-26 weekend edition, “For household income, in other words, the Obama recovery has been worse than the Bush recession.”
The Journal elaborated, “The President portrays the financial decline of American families on his watch as part of a decades-long trend. He’s wrong. Real income for middle income households rose by roughly 30% from 1983 to 2005, according to the Congressional Budget Office.” And MSNBC hosts, listen up, you might learn something. The Journal further explains, “The political left likes to blame the ebbing of union power. But non-government unionization fell dramatically in the 1980s and 90s, and incomes rose.”
True, income growth lagged from where it should have been during the Bush years. But that only reflected the abandonment of half of Reagan’s economic program during those years. While Bush’s tax rate reductions did promote growth, Bush and the Republican Congress lost control of federal spending during the 2000s. Federal spending as a percent of GDP increased by one-seventh during the Bush years, almost exactly reversing the gains that had been won under Speaker Gingrich’s Republican Congress in the 1990s. (Clinton played a good rhetorical game appearing to fight the spending reductions, but deserves great credit for substantively giving into them in the end.)
But more important by far was that the Bush Fed abandoned the Reagan/Clinton strong dollar monetary policy for a cheap dollar, Keynesian style monetary policy, falling for the dopey Keynesian line that a cheap currency promotes exports. The Bush Treasury Secretaries cheered this debasement of the Fed’s monetary policy, reflecting the dark cloud of reemerging Keynesian influence on national economic policy.
What is overlooked is that a declining dollar may reduce the prices of American exports, but it makes the entire nation poorer in the process, reducing the international purchasing power of every dollar every American worker earns, and reducing the international value of every asset owned by every American investor, business entrepreneur, and property owner.
The problem is that Obama has only greatly accelerated everything Bush did wrong, and reversed everything Bush did right. So Obama’s spending has skyrocketed the federal budget by nearly one-fourth as a percent of GDP in just one term. Moreover, the Obama Fed has abandoned any semblance of control over monetary policy, buying most of the soaring federal debt issued to finance Obama’s record smashing federal deficits with newly printed money (actually created by computer record, a sort of cyberprinting). Of course, the whole point of Obama’s tax policy has been to more than reverse the Bush tax rate cuts, which is now already slated under current law to go into effect on January 1.
That is why it will all only get worse in a second Obama term, as the economy slides back into a double-dip recession in 2013 unless these Obama policies are swiftly reversed. I first began ringing alarm bells about that a year ago with the publication of my Encounter Books Broadside No. 25, Obama and the Crash of 2013. But now even the Washington establishment CBO is pealing the air raid siren as well.
Renewed, double-dip recession would mean unemployment rocketing back into double digits once again, the deficit exploding to over $2 trillion, the highest in world history by far, real wages and incomes declining even more, and poverty soaring further.
Obama has failed the poor as well as the middle class. Last year, the Census Bureau reported more Americans in poverty than ever before in the more than 50 years that Census has been tracking poverty. Now The Huffington Post reports that the poverty rate is on track to rise to the highest level since 1965, before the War on Poverty began. A July 22 story by Hope Yen reports that when the new poverty rates are released in September, “even a 0.1 percentage point increase would put poverty at the highest level since 1965.” But a consensus survey of experts across the political spectrum indicates the poverty rate could soar from the current 15.1% to as high as 15.7%. “Poverty is spreading at record levels across many groups, from underemployed workers and suburban families to the poorest poor,” Hope Yen reports.
This is consistent with the effect of Obamanomics on incomes. “The group that has suffered the most during the Obama Presidency has been black Americans, whose real incomes have fallen by more than 11%,” the Journal also observed in its August 25-26 weekend edition.
There is no secret or magic as to how to turn around these declining incomes. Increased investment in business expansion and start ups increases demand for labor, which drives up wages. That investment buys new tools and capital equipment for workers, making them more productive, which provides the cash flow to increase wages.
Increasing investment results from reducing the tax rates on investment, which enables investors to keep a higher percentage of what they produce, increasing incentives for investment. It also comes from maintaining a stable or rising dollar, which assures investors they will not lose some of their investment returns to a declining dollar or rising inflation, or the boom and bust cycles that dollar manipulation and inflation create.
As the Journal further explained,
“A key driver of higher wages in the 1980s and 1990s was a surge of capital investment in computers, plant and equipment, which made American workers more productive. When Mr. Obama pledges to raise taxes on investment income (capital gains, dividends and small business profits), he is making it costlier to innovate and modernize. That plays out over time into slower gains in productivity and wages.”
A renewed economic boom in jobs and incomes is long overdue, straining within the bonds of Obamanomics to break out. Before this last recession, going back to the Great Depression 75 years ago, recessions in America have lasted an average of 10 months, with the longest previously at 16 months. But here we are 56 months after the recession started in December, 2007, with no real recovery yet in sight.
Yes, the recession technically ended more than 3 years ago. But the point is that what we
are suffering today is the worst economic recovery since the Great Depression. And no, Obama apologists cannot say that the recovery is so bad because the recession was so bad, because the American historical record is the worse the recession the stronger the recovery, as the American economy has always before snapped back to its world leading economic growth trend line. That even happened after the Great Depression (once Roosevelt was gone). Check out for yourself the historical record of American recessions and recoveries at www.nber.org.
Based on this historical record, America should be enjoying its third year of a raging recovery economic boom right now. And it will, after Obama is gone, and his policies are reversed.
The above market process of increased investment, increased demand for labor, increased productivity, and increased wages and incomes is the way that it has worked to increase the wages and incomes of American workers for 300 years. And it is the only way that works. Rising wages, incomes, prosperity, and living standards do not result from increased government spending, increased deficits and government debt, increased Fed money creation, greater income and wealth redistribution, or any other fever swamp of Obamanomics.
If this generation of Americans does not get it, they will not enjoy the world leading living standards, and American Dream, of prior generations of Americans. Moreover, they will not deserve it. There is no law of the universe that says America must be the richest, most prosperous nation in the history of the world. If the American people do not choose the wisest leaders following traditional American, free market, economic policies, but instead choose the hope and change of the economic policies of Argentina and Venezuela, then they will get, and deserve, the prosperity and living standards of Argentina or Venezuela.