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Obamanomics: Too Clever by Half?

September 2, 2009

MichaelSSmithII

By Michael S. Smith II, SCHotline Contributing Editor
Mr. Smith is executive editor of The Ethical Standard, a publication produced by The Free Enterprise Foundation (FEF), a nonprofit think tank housed in Charleston, S.C. at The Citadel. The piece was originally published by FEF on September 2, Link:  http://www.free-enterprise-foundation.org/obamanomics.html

In what has paralleled the history of Ronald Reagan’s first months in office, the Obama administration inherited the sort of economic environment that inevitably would consume much of the president’s political capital early on. For Mr. Obama, the scenario confronting him on Inauguration Day has become one from which failure to “fix” this election-making issue forebodes little hope of his winning a second term.

Driven by usually transparent, albeit frequently self-benefiting intentions, many financial analysts are pointing to recent gains won on Wall Street as “positive indicators.” They believe these gains signify a soon-to-be-realized recovery from the recession that began in December 2007 is, in fact, underway. On the other side of the coin, some economists believe the United States’ economy is just beginning to enter the eye of a storm which, due to categorization standards at the National Bureau for Economic Research, did not officially land on the public’s radar until December 2008. For the latter group of these observers, there is still room for things to get much worse.

Siding with the analysts mentioned above, many pundits have prematurely jumped on a bandwagon steered by political spin doctors who are loudly lauding the Obama administration for how it has responded to the tsunami of financial turmoil that is, of course, all Bush’s fault.

With a receptive ear to the forecasts put forth by the camp of “dismal scientists” mentioned above, I submit that before anyone claims the Obama administration’s economic philosophies reflect much wisdom on the part of the president’s advisers they ought to consider the following:

“The Congress might well consider whether the higher rates of income and profits tax can in peacetime be effectively productive of revenue, and whether they may not, on the contrary, be destructive of business activity and productive of waste and inefficiency. There is a point at which in peace times high rates of income and profits taxes destroy energy, remove the incentive to new enterprise, encourage extravagant expenditures and produce industrial stagnation with consequent unemployment and other attendant evils.”

—United States President Woodrow Wilson (Democrat)
A message to Congress, 1919

“Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenue to balance our budget just as it will never produce enough jobs or enough profits. Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions, and any new recession would break all deficit records.

“In short, it is a paradoxical truth that rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now. The experience of a number of European countries and Japan have borne this out. This country’s own experience with tax reduction in 1954 has borne this out. And the reason is that only full employment can balance the budget, and tax reduction can pave the way to that employment. The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”

—United States President John F. Kennedy (Democrat)
Remarks made at the Economic Club of New York, 1962

While reflecting on the above words of wisdom please read the following excerpts from an August 3 Associated Press report titled “Obama officials: Taxes may rise to pay health care”:

“Two of President Barack Obama’s economic heavyweights said middle-class taxes might have to go up to pare budget deficits or to pay for the proposed overhaul of the nation’s health care system. …

“Geithner and Summers both sidestepped questions on Obama’s intentions about taxes. Geithner said the White House was not ready to rule out a tax hike to reduce the federal deficit; Summers said Obama’s proposed health care overhaul needs funding from somewhere. …

“During his presidential campaign, Obama repeatedly pledged ‘you will not see any of your taxes increase one single dime.’ But the simple reality remains that his ambitious overhaul of how Americans receive health care — promised without increasing the federal deficit — must be paid for.” **

When it comes to the administration’s efforts to remedy America’s economic conundrum — while dually endeavoring to implement new and sustain old expensive social programs — President Obama’s economic team is clearly dismissing as the stuff of NeoCon voodoo any of the benefits that could be yielded by “supply-side” economic policies. Unfortunately, the administration also appears to be completely uneducated about such basic Keynesian economic concepts as the “multiplier effect” (i.e. Every dollar sent to the private economy through a tax cut stimulates several dollars’ worth of consumption).

It’s clear the president’s top economic advisers are even demonstrating tremendous disdain for the insights on such matters provided by notable Democrats who preceded Mr. Obama as presidents of the United States.

Despite what some may regard to be a prevailing dearth of sound wisdom inherent in the Obama economic team’s prognostications to date, one must give its members credit for their creativity, endurance, and their optimism. But with cautious optimism about the administration’s capabilities, increasingly, many Americans cannot help but ask: Will their policy prescriptions prove too clever by half?

I too am an optimist. As an optimist I believe things can always get much worse. So I would not be surprised if the engine propelling the Obama administration’s economic plans turns out to be just the sort of thing the administration wants to keep off the road — a clunker.

These days “Hope” is fast becoming a “four-letter-word,” figuratively speaking that is. Then again, perhaps the term “three-word-phrase” is a more appropriate moniker (See “War on Terror”). In either case, Obama’s presidency seems to be on a crash course for a conclusion that will parallel that of Jimmy Carter’s demise.

Until then:  God save America.

_____________________

* See pages 76-77 in The Age of Reagan:  The Conservative Counterrevolution, 1980 – 1989 by Steven F. Hayward (Crown, August 2009).

** Report accessible online via http://news.yahoo.com/s/ap/20090803/ap_on_go_pr_wh/us_economy_13

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