[Posted by Karl]
Chuck Todd’s summary of Pres. Obama’s speech on the S&P downgrade: “You get the sense, WH knew they had to say something given the news of the weekend but he didn’t have much NEW to say.”
No kidding. Indeed, by sticking with his insistence on only “modest” adjustments to entitlement programs, Pres. Obama likely contributed to yesterday’s market selloff. Obama is the Man Without a Plan to defuse the debt bomb.
It’s even worse than that. As presidential flack Jay Carney recently admitted: “The White House does not create jobs.” Moreover, based on Carney’s non-answers to ABC’s Jake Tapper, the Obama administration has little idea of how to help the private sector create them. Obama is also the Man Without a Plan on the economy.
At TNR, John Judis frets:
In a column in The Washington Post, Ezra Klein said the “right question” to ask about the economy was, “Where will the recovery come from?” He responded that “no one has an answer,” but also asserted that the recovery “won’t come from the United States.” Financial Times columnist Gillian Tett said pretty much the same thing on PBS’s News Hour. “They’re out of ammo,” Tett said of the federal government. “I mean, they have already used all the fiscal measures they could in the last two or three years. And they’re pretty much back to where they can go, as far as they can go in terms of the monetary policy measures.”
Judis, lefty that he is, recommends the “fiscal equivalent of war.” Similarly, David Frum, seemingly having taken Paul Krugman as his economic guru, declares that conservatives do not have much economic blame to hang on Obama, because he really has not done anything.
From a policy perspective, the Keynesian crowd is mistaken. The stimulus failed. Krugman has been wrong about economic policy under Herbert Hoover, wrong about economic policy under FDR, wrong about the economy under the Carter and Reagan administrations, and wrong about the global economy more recently. Over the past decade, particularly after the bursting of the tech bubble, Keynesians advocated the same easy money, big-spending policies all across Europe, to the same wretched results. (Indeed, Krugman half-joked, in accord with Keynesian analysis, that what the economy needed was a housing bubble. How did that work out?) Since then, Krugman has been wrong about the fiscal consolidation in Europe, ignoring the success of the Baltic states. Krugman has been wrong about the UK and ignores Switzerland, which had prudent fiscal policy throughout the economic crisis. Krugman has been wrong about Ireland.
Moreover, Frum’s analysis of Obama’s economic record verges on the bizarre. For example, Frum writes:
Obama’s only tax increases – those contained in the Affordable Care Act – do not go into effect until 2014. Personal income tax rates and corporate tax rates are no higher today than they have been for the past decade. The payroll tax has actually been cut by 2 points. Total federal tax collections have dropped by 4 points of GDP since 2007, from 18+% to 14+%, the lowest rate since the Truman administration.
If so minded, you could describe Barack Obama as the biggest tax cutter in American history.
As a percent of national income, the Kennedy tax cuts and Reagan tax cuts were much larger than the G.W. Bush tax cuts Obama extended (although Obama did not want to extend them and still wants them to expire). Current tax collections are low because the supposed Obama recovery is the worst in post-war history (more here).
Frum also claims:
We have not seen a major surge in federal regulation, at least by the usual rough metrics: the page count of the Federal Register has risen by less than 5% since George W. Bush’s last year in office.
In reality, quality matters as much as quantity:
Over the first two years of his term, the federal government issued 132 economically significant regulations (defined as having impacts of $100 million or more per year). That averages out to 66 major regulations per year, which is dramatically higher than the averages issued by President Clinton (47 per year) or President Bush (48 per year). President Obama’s upcoming Regulatory Agenda, released just last month, does not presage a slow-down in activity. There are 183 more regulations underway now than last year at this time, representing a 5 percent increase in activity. The regulatory road ahead looks even more ambitious when one focuses on the largest regulations. The Agenda reveals a 20 percent increase in economically significant regulations, or 40 more regulations with impacts of over $100 million under development now than at this time last year.
Back to Frum:
Energy prices have surged, but that’s hardly a response to administration policies. Conservatives complain about restrictions on drilling in the Gulf of Mexico, but on a planet that produces 63 million barrels of oil per day, a few thousand more or less from the Gulf will not much budge the price of oil. Rising oil prices are a story about Chinese and Indian consumption and Middle Eastern political instability, not about US drilling or lack thereof.
Of course, energy policy goes well beyond the Gulf. Obama’s energy policies will cause our electricity bills to skyrocket. Frum also ignores natural gas. Frum further ignores drilling in locations like the ANWR. But even limited to the Gulf, a report from energy consultancy IHS-CERA suggests returning oil and gas activity to the pace that it was on before the BP oil spill would result in the creation of 230,000 new jobs in 2012 and add $44 billion to the U.S. economy. That’s because, contra Frum, the deepwater Gulf can produce something like 150 million barrels per year of oil, which is a bit more than a few thousand.
Back to Frum:
Conservatives complain about excess government spending. Fine. But isn’t the evil of excess government spending supposed to be inflation rather than recession? And where’s the inflation?
Can Frum have missed two massive rounds of quantitative easing? Really? The dollar was explicitly inflated to combat a feared deflationary spiral. Other countries, like China, have also been inflating their money supplies. But government (or quasi-government, in the case of the Fed) policy tends to be a blunt tool, difficult to calibrate. As a result, there has been massive inflation, right under our noses. And it’s not just in food and energy; it’s showing up in so-called core inflation as well. Incidentally, economists like Kenneth Rogoff (perhaps the world’s foremost authority on financial crises) will tell you even more inflation will ultimately be necessary to rationalize the economy. Thus, “the cruelest tax” gets imposed on savers for the benefit of debtors, much as Main Street got forced to bail out Wall Street.
Frum’s strongest point is on Obama’s deferred taxes, but I don’t see Obama running on “Higher taxes are coming” any more than I see him running on “Obama has done nothing” or “The White House doesn’t create jobs.”