The Orthodox Left Looks at the Economy and Obama's Performance

Writing in the New Republic, Noam Schreiber has this to say about the current state of the economy and president Obama's performance:

There are two fair conclusions to draw from the recent run of middling economic data, culminating with today’s disappointing GDP number. First, contra Mitt Romney, this is not an administration with a failed economic record, at least not as we sit here today. In almost every way—job growth, housing, GDP—Obama has presided over a vast improvement in the economic situation he inherited. Second, having said that, the administration clearly undershot in a variety of ways, and that undershooting has left the economy dismayingly vulnerable three years after the recession officially ended.

In a nutshell, these four sentences summarize the unreal distortions in the way that the left looks at the economy. I was originally going to write "the way the left understands the economy", but I cannot. Clearly, the left does not understand the economy at all.

Schreiber tells us that Obama has not failed because things are better in a variety of ways than when he took office. Really? Every student of economics learns about a concept called "the business cycle." It is not a particularly difficult concept. In short, the business cycle is the series of ups and downs in a normal free market economy. Periodically, one or another part of the economy will get out of whack and there will be an economic contraction called a recession. While steps can be taken to minimize recessions or to postpone them, they are an unavoidable part of a free economy. We were in the midst of a recession when Obama took office.

Another key part of the business cycle is the "recovery". In other words, after the recession has persisted for a while, there is unsatisfied demand from folks who did not make purchases during the recession either because they had lost their jobs or feared such an outcome. Two good examples of this are housing and cars. During a recession, consumers hold off buying homes or cars, but one the recovery starts, these folks come out and make the necessary purchases. People still need a place to live or a car to drive. This extra demand works to speed up economic growth, so the recovery is a time of an increased growth rate, a mini-boom that pulls the economy back on its long term trajectory.

Obama's economic policy has failed not because he continued the recession. It failed because he strangled the recovery. We have not really had a recovery since Obama took office. Indeed, Schreiber seems to have noticed this when he points out the the economy is still "dismayingly vulnerable three years after the recession officially ended". Dismayingly vulnerable is an understatement. Since the Second World War, the USA has never had a recession after which total employment had not recovered to pre-recession levels by four years after the start of the recession. The extra demand of the recovery period has always pushed growth strongly enough to get back all of the lost jobs and more by now. In the current recession, the USA still has about 3.8% fewer jobs than were in place at the start of the recession that began about four and a quarter years ago. While 3.8% may sound like a small number, remember that this means there are about five million fewer jobs today than there were prior to the start of the recession. That means five million folks without work as a result, even ignoring all the additional people who joined the labor force over the last four years. It is a human disaster, a cliff over which millions of the very people about whom Obama claims to care have been pushed by his policies.

Obama has managed to strangle the recovery by injecting fear into the economy, by tamping down the new businesses that might sprout up to help create new economic growth, by actually talking down and, indeed, attacking those who would bring us faster growth. Fear comes from huge increases in federal spending with the accompanying deficit spending. People may not spend their days reviewing the federal budget, but they understand that spending five trillion dollars that one does not have is not a good thing. It will have to be paid back. That means higher and higher taxes as well as increasing interest rates at some point. In other words, it means a future of lowered expectations and a decline in the willingness of folks to take a chance on prosperity. Businesses which struggle year after year with increasing health care costs understand that a federal take over of the health care field (like Obamacare) will not reduce costs. Nothing that the federal government does ever reduces costs compared to private industry. Businesses also understand that new financial regulations like Dodd-Frank which prevent small banks from competing with big ones and which prevent small businesses from getting loans from any banks will mean that the likelihood of success for a new venture has been reduced. In other words, many businesses just do not get started due to fear, and the jobs that they would have created are lost.

And for the businesses that actually do get started, what did Obama do? Well, if you were a company that wanted to produce energy from domestic sources in the USA, you were hit with all sorts of attacks from the EPA. Obama told us in 2008 that he would make it so that anyone starting a coal fired power plant would necessarily go bankrupt. He has been working hard to carry out that plan. Obama has also let the EPA attack natural gas producers non-stop on the basis of the dangers of fracking. Fracking, of course, is the method that has allowed the USA to find enormous deposits of natural gas, enough to fuel the entire country for a century. But Obama's troops in the bureaucracy have been too busy crucifying natural gas companies for no reason at all to see that their efforts are reducing economic growth.

Let's not forget the Obama attack on those who are successful in business. If you gain your wealth in movies and contribute to the Obama campaign, you get invited to the White House. On the other hand, if you make money by being successful in business, then you get attack for not doing your fair share. Starting a business, working seventy hours a week for decades and giving employment to tens, hundreds or even thousands of other Americans is evil in the Obama world view. Imagine, some folks who pay every penny of tax which they owe are evil capitalists who avoid contributing to society; and why -- because they only pay what the law requires. You see, when Obama himself pays tax at a lower rate than his secretary (which is the case) it is a coincidence. When some CEO pays tax a rate less than his secretary, he is evil incarnate.

Here is a simple truth: when the president of the United States consistently attacks an activity, we get less of it. So when Obama spends day after day attacking business, the country gets less of it. Given a choice to locate a new facility in the USA or in another country that welcomes the business, the investor makes the obvious choice, and the recovery is thwarted.

The good news is that the pent up demand for goods is still there under the surface of the American economy. The bad news is that so long as Obama continues his policies, that demand will stay under the surface.