Well, although every news source will continue to claim that the failure to produce jobs in the new jobs numbers is ‘unexpected’, we all know better.
We expected nothing else.
The ADP report, which forecasts private and public sector hiring, showed only 13,000 jobs created in June. That was well below estimates of up to 60,000 jobs. That is the third straight month of disappointing jobs numbers, as the unemployment report is expected later this week. This sent stocks crumbling, as fears of a double dip recession rise dramatically.
Allen Metlzer of the American Enterprise Institute gives a comprehensive analysis of why Obama’s stimulus has failed. Again, most is common sense, but his points are well made.
The contrast with President Reagan’s antirecession and pro-growth measures in 1981 is striking. Reagan reduced marginal and corporate tax rates and slowed the growth of nondefense spending. Recovery began about a year later. After 18 months, the economy grew more than 9% and it continued to expand above trend rates.
Two overarching reasons explain the failure of Obamanomics. First, administration economists and their outside supporters neglected the longer-term costs and consequences of their actions. Second, the administration and Congress have through their deeds and words heightened uncertainty about the economic future. High uncertainty is the enemy of investment and growth.
I and other conservatives have been making this argument for the past year and a half. The tax increases and useless spending is bad enough. But Obama and his cohorts have time and again increased instability in the economic market place…which only makes it more difficult for employers to consider long term planning, such as…employment.
Of course, the instability was bad…Obama took it to be worse. Metlzer continues:
The Obama economic team ignored past history. The two most successful fiscal stimulus programs since World War II—under Kennedy-Johnson and Reagan—took the form of permanent reductions in corporate and marginal tax rates. Economist Arthur Okun, who had a major role in developing the Kennedy-Johnson program, later analyzed the effect of individual items. He concluded that corporate tax reduction was most effective.
Another defect of Obamanomics was that part of the increased spending authorized by the 2009 stimulus bill was held back. Remember the oft-repeated claim that the spending would go for “shovel ready” projects? That didn’t happen, though spending will flow more rapidly now in an effort to lower unemployment and claim economic success during the fall election campaign.
In other words, there was nothing in the Democrats program to stimulate private sector growth. Well, duh. Again, only liberals fail to understand the difference between government sector spending (which is not, by default, stimulative) and private sector stimulus (which inherently has a trickle down effect).
Meltzer finishes by attacking a common argument from the left…that only large government spending can save us from the abyss:
In 1980, I had the privilege of advising Prime Minister Margaret Thatcher to ignore the demands of 360 British economists who made the outrageous claim that Britain would never (yes, never) recover from her decision to reduce government spending during a severe recession. They wanted more spending. She responded with a speech promising to stay with her tight budget. She kept a sustained focus on long-term problems. Expectations about the economy’s future improved, and the recovery soon began.
That’s what the U.S. needs now. Not major cuts in current spending, but a credible plan showing that authorities will not wait for a fiscal crisis but begin to act prudently and continue until deficits disappear, and the debt is below 60% of GDP. Rep. Paul Ryan (R., Wisc.) offered a plan, but the administration and Congress ignored it.
The country does not need more of the same. Successful leaders give the public reason to believe that they have a long-term program to bring a better tomorrow. Let’s plan our way out of our explosive deficits and our hesitant and jobless recovery by reducing uncertainty and encouraging growth.
In short, the Democrats had a fork in the road, and took the road most often traveled. And that path usually leads to more recession and failure.
Obama has named this the ‘Summer of recovery’. Well, in that time, it appears unemployment will be a whole 2 points higher than he promised at time of his stimulus. The CBO announced that our debt, as a percentage of GDP, has reached its highest levels since World War II. And Obama’s answer is…more spending. This cycle of spending and failure will lead to the eventuality that we all predicted: a long, protracted, double dip recession.
Batten down the hatches. The next two years may get really ugly.