Does Obama have anyone studying economic history?
It seems the most powerful man in the world could come up with the resources to review history and see what has pulled our economy out of downturns in the past. But, it is obvious that Obama has not taken such a step.
The administration’s stimulus program has failed. Growth is slow and unemployment remains high. The president, his friends and advisers talk endlessly about the circumstances they inherited as a way of avoiding responsibility for the 18 months for which they are responsible.
But they want new stimulus measures—which is convincing evidence that they too recognize that the earlier measures failed. And so the U.S. was odd-man out at the G-20 meeting over the weekend, continuing to call for more government spending in the face of European resistance.
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.
Most of the earlier spending was a very short-term response to long-term problems. One piece financed temporary tax cuts. This was a mistake, and ignores the role of expectations in the economy. Economic theory predicts that temporary tax cuts have little effect on spending. Unless tax cuts are expected to last, consumers save the proceeds and pay down debt. Experience with past temporary tax reductions, as in the Carter and first Bush presidencies, confirms this outcome. – Allan Meltzer – Wall Street Journal – June 30, 2010
Obama’s first stimulus package failed. If it hadn’t, then he would not be seeking more stimulus measures. So it seems someone in the administration would borrow a play from a previous game plan that has worked in the past.
Uncertainty Halts Investment
“Temporary” doesn’t build confidence in anything. Investors need a reason to invest. And they don’t invest for the short term. They need assurance that they can invest money, balance risk and return, and get to keep a major portion of what they earn. And they need that assurance over an extended period of time.
A Challenge to Obama Supporters:
If you had $1 billion, how would you invest it? What kind of return would you expect to get?
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