September 7, 2010

WSJ Nails It in ‘The Obama Economy’

Filed under: Economy,Taxes & Government — Tom @ 8:03 am

stimulus-vs-unemployment-june2010-dotssmallWell, the Journal’s editorialists nailed everything except the title, because it’s really the POR (Pelosi-Obama-Reid) Economy. The President couldn’t have done this on his own without the economic vandalism inherent in the legislation passed by Nancy Pelosi’s House and Harry Reid’s Senate.

Otherwise, it dissects, slices, and dices, as only the Journal can.

Read the whole thing. Here are some excerpts (bolds and internal links are mine):

The Obama Economy
How trillions in fiscal and monetary stimulus produced a 1.6% recovery.

… So two months before an election, and 19 months after the mother of all spending programs, President Obama said yesterday he’s rolling out one more plan to stimulate the economy. We’ll discuss the details when they’re released, but the effort itself is a tacit admission that his earlier proposals have flopped.

never before has government spent so much and intervened so directly in credit allocation to spur growth, yet the results have been mediocre at best. In return for adding nearly $3 trillion in federal debt in two years, we still have 14.9 million unemployed. What happened?

… The explanations from the White House and liberal economists boil down to three: The stimulus was too small, Republicans blocked better policies, and this recession is different because it began in a financial meltdown. …

… On a too-small stimulus, this isn’t what Democrats or most Keynesian economists told us at the time. Even Paul Krugman, who now denies intellectual paternity for this economy, wrote on November 14, 2008 that “My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.” The White House raised him by 33% two months later, but now we’re told that wasn’t enough.

Given that the stimulus program was so poorly structured and so overtly politicized, how do we know that, say, $500 billion more would have made a difference even on Keynesian terms? The money for government spending has to come from somewhere, which means from the private economy. Our guess is that by ensuring even higher debt and implying higher taxes, a bigger spending stimulus would have done even more harm.

As for blaming the Republicans, with only 40 and then 41 Senators they couldn’t stop so much as a swinging door. The GOP couldn’t even block the recent $10 billion teachers union bailout. The only major Obama priorities that haven’t passed—cap and tax and union card check—were blocked by a handful of Democrats who finally said “no mas.” No Administration since LBJ’s in 1965 has passed so much of its agenda in one Congress—which is precisely the problem.

… the real roots of Mr. Obama’s economic problems are intellectual and political. The Administration rejected marginal-rate tax cuts that worked in the 1960s and 1980s because they would have helped the rich, in favor of a Keynesian spending binge that has stimulated little except government. More broadly, Democrats purposely used the recession as a political opening to redistribute income, reverse the free-market reforms of the Reagan era, and put government at the commanding heights of economic decision-making.

Mr. Obama and the Democratic Congress have succeeded in doing all of this despite the growing opposition of the American people, who are now enduring the results. The only path back to robust growth and prosperity is to stop this agenda dead in its tracks, and then by stages to reverse it. These are the economic stakes in November.

In the case of ObamaCare, the real answer has nothing to do with stages, and everything to do with outright repeal.

As to the unique element of the recession beginning in “a financial meltdown,” it’s important to note four things:

  • The jury is out, but there is strong evidence that the crisis atmosphere of September 2008 was contrived.
  • Democratic crony companies Fannie Mae and Freddie Mac directly caused said meltdown over a 15-year period.
  • Ben Bernanke’s “quantitative easing” is what has kept its effects from becoming more serious — so far.
  • Administration efforts to fend off foreclosures and soften the housing market’s landing have only extended and spread its pain.

The Journal also rips Obama and his administration for “trashing business and bankers as greedy profiteers,” and “spread(ing) fear and … uncertainty.” If Team Obama doesn’t let go of that, very little else of what it does or tries to do will matter. Businesses, entrepreneurs, and investors will continue what has substantively become a two-plus-year slow-motion exercise in “Going Galt.”

(Graphic source: Innocent Bystanders)

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1 Comment

  1. Let’s put those numbers in context:

    $3,000,000,000,000

    divided by

    14,900,000 people

    $201,342 per person over 2 years

    $100,671 per person per year

    At $100k per year, this is in effect a massive wage increase for most of the unemployed. Is anyone seriously going to claim most of the people who lost their jobs were making more than $100k?

    Now if the economy were truly driven by consumption then how come we are having such an anemic GDP response at these kind of spending levels? The answer, we have literally nothing to show (increase) for the money spent, no houses, no cars, nothing manufactured, zip… This is the difference between just printing money OR borrowing it versus wealth creation via capitalism. Socialism treads water going nowhere while Capitalism swims to somewhere.

    Here’s another thought, what would have been the effect IF instead of having the government micromanage the decision on the $100k via various programs versus just giving the money directly to the unemployed? It’s a trick question and I’ll let you all think about that and figure out why. Hint, I’ve spoken on this before, IF you were listening…

    Comment by dscott — September 8, 2010 @ 10:56 am

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