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The failure of "Obamanomics"

Earlier this week, the Wall Street Journal's Allan Meltzer dared to tackle a rather sensitive question: Why Obamanomics Has Failed. The fact that the Democrats did not even bother to attack Mr. Meltzer as a racist for using the "f-word" with respect to the Obama Administration illustrates, I think, how pessimistic they have become regarding their prospects for retaining control of Congress after the November elections.

Meltzer's reasoning is rather straightforward:

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.

Another large part of the stimulus went to relieve state and local governments of their budget deficits. Transferring a deficit from the state to the federal government changes very little. Some teachers and police got an additional year of employment, but their gain is temporary. Any benefits to them must be balanced against the negative effect of the increased public debt and the temporary nature of the transfer.

Democrats can whine about "failed policies of the Bush Administration" until they are blue in the face, but nothing they say can disguise the dire economic straits that their own policies have directly led this country into.

The Stimulus was, of course, a colossal failure. It was little more than an enormous slush fund used to pay for the substantial number of daydream projects that Democrats had been unable to fund during the years of Republican Congressional control, and to dole out pork barrel rewards to loyal Democrats in key voting districts. It also provided short term cash to help state governments plug expanding budget deficits, thereby keeping state workers employed and government-funded projects on track. None of these things contributed in any substantial way to a sustained national economic recovery.

But the real drag on the economy has been the increasing level of uncertainty about the overwhelming costs of President Obama's long-term vision of America: a nation where the government tightly controls and heavily subsidizes (or in some cases completely funds) health care, banking, energy, transportation, housing, and every sector of the economy affected by those industries.

This uncertainty has not only paralyzed private sector spending, but it has deeply affected the banking industry as well. A few weeks ago, Todd Zywicki explained this phenomenon in The Washington Times: "Why Aren't Banks Lending?"

Since President Obama was inaugurated, Congress has launched one of the most ambitious legislative agendas in American history - proposals that would fundamentally transform the economy: from remaking the health care system, to a far-reaching set of taxes and regulations to combat climate change and remake the energy system, to a comprehensive financial overhaul bill that would fundamentally reshape the banking system.

How, one wonders, can borrowers and lenders possibly price the risk associated with the imposition of the massive new cap-and-trade system or other new environmental regulations? How could a start-up or growing company anticipate the costs to be imposed by the health insurance reform legislation? How can a lender make a loan today knowing that a new Bureau of Consumer Financial Protection or state attorney general might later decide the loan is "abusive"? Or what future taxes will have to be levied to fund our unsustainable budget deficits?

They can't.

When the new SBLF [Small Business Lending Fund] was unveiled in February, I testified before the House Financial Services Committee along with several businesspeople and bankers. Their refrain was nearly uniform: Washington's tax-and-regulation orgy was spawning unworkable uncertainty for small businesses and banks, leading to curtailed lending. The SBLF doesn't address that.

Of course there are other reasons why the biggest banks aren't interested in lending or opening new lines of credit. "Too big to fail" banks were given a golden opportunity via TARP and TALF to replenish their cash reserves and restructure toxic assets, thereby magically transforming their financial condition from "broke" to "highly profitable" in only a matter of months. And with the Fed now paying these banks interest on their cash reserves, they have little reason to risk their money in a weak economy. The Credit CARD Act's strict limitations on fees and interest rates have also undoubtedly made banks and retailers more cautious about issuing new credit cards. All of this can be traced directly back to banking policies endorsed by the Obama Administration.

These disincentives for lending, and the overwhelming uncertainty that is currently blanketing consumer spending (and by default, business growth) have combined to produce our current state of economic stagnation. The levels of public doubt, distrust, and fear that have all but trampled the "green shoots" that briefly sprouted at the beginning of the year are now on par with the national mood during the "days of malaise" at the end of Jimmy Carter's presidential term. And the fears of small to medium sized businesses over growing government regulatory interference and taxation reflect the sentiments among business leaders at the height of FDR's massive Federal power grab in 1937. Both of these periods ended in recessions of historic proportions. Can our own "double-dip" recession be close at hand?


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Comments (24)

Here REv Lee Ward Wright le... (Below threshold)
retired military:

Here REv Lee Ward Wright let me save you the trouble.

Republicans had no problem with economic policies that were named after presidents until a black man became president.

Wait a minute -- Carter was... (Below threshold)

Wait a minute -- Carter was black!?

The only thing we have to f... (Below threshold)

The only thing we have to fear from Barry is not fear itself but 2 more years of triple dippin at the public teat.

2012 cannot get here soon enough.

I have invested in foreclos... (Below threshold)

I have invested in foreclosed real estate for a quick sale. This in a community where a large percentage os housing was built before WWII. My of these homes, including mine, have their original electrical wiring and original plumbing.

New EPA regs require that the houses be checked for lead paint and if found, an expensive removal process is required. Now, new regs coming into effect would require that the house pass energy efficiency standards before it can be sold. During a period of falling home prices and increasing vacancy rate for rental properties and increasing larger home inventory (housing offered for sale that have not yet sold). Together with tougher lending requirements, buying such properties would be more problematic.

ANd we haven't even talked about higher income taxes and property taxes which get you if you sell or hold the property.

Look for more property being foreclosed for taxes and remaining off the tax rolls because government wants to sell at high prices and then force the buyer to make changes that raise the cost to above market values.

Even if you can buy the property at a very low price, an investor would not know in advance how much it will cost to retrofit the house because of inspectors who are too busy to inspect and when they do arrice, what new requirements will be made that require finding someone to do the work.

"Wait a minute -- Carter wa... (Below threshold)
retired military:

"Wait a minute -- Carter was black!?"

I never heard of Carternomics. Sorry. I have heard it called stagflation, inflation, depression, and malise but never carternomics.

I have to agree with RM tha... (Below threshold)
jim m:

I have to agree with RM that I've never heard of Carternomics in general usage. However a quick search on Bing rendered references going back to 1993 using the term. Clearly a take off from Reaganomics.

"Wait a minute -- Carter... (Below threshold)

"Wait a minute -- Carter was black!?"

Carter was an ineffectual, inoffensive, rather spineless wimp. His foreign policy offensives were timid, his domestic energy and economic policies weren't particularly bold or well planned out.

And he's gonna look like an absolute paragon of effectiveness and rationality before Obama gets finished...

The "dire economic straits"... (Below threshold)

The "dire economic straits" into which this nation has been plunged are the result of DELIBERATELY destructive actions. Hussein and Co. know their policies will create havoc, unemployment and financial/economic disaster throughout the country. And that is their GOAL. These things have been done on purpose. The reason...only if literal panic is created can Hussein declare the "state of emergency" necessary to permit the utter trampling of the Constitution. This is step one in the takeover-by-force of the United States by the Marxist, would-be dictator in the White House.

The answer is sooooo obviou... (Below threshold)

The answer is sooooo obvious. We need to spend MORE money that we haven't got!

1. Posted by retired milita... (Below threshold)

1. Posted by retired military |

That always makes me chuckle because it's so true.
Happy 4th everybody.

Did it fail or did it do wh... (Below threshold)
Don L:

Did it fail or did it do what it was designed to do; take capitalism down?

Just waiting for the Racist... (Below threshold)

Just waiting for the Racist Lee Ward to chime in how he wishes Obamanomics should continue so as to enslave even more generations to pay for the totally irresponsible and corrupt spending of Hussein's administration and his corrupt congrASS.

Thus it behooves those in t... (Below threshold)
gary gulrud:

Thus it behooves those in the Obama administration whose only sin is to have participated in group incompetence to skedaddle.

This will save them a smooth transition to their next career as the old boss is tied up in court, saddled with legal costs, ignored by his former partners and laughed at by former peers.


Don L. (#11)Did it f... (Below threshold)

Don L. (#11)
Did it fail or did it do what it was designed to do; take capitalism down?

Correct assessment. So many pundits, (who are paid to write), bloggers and commentators speak of the totus-potus as if his programs, while ill-conceived, are honest attempts to solve our problems. Not so. This half/white, half/wit is doing the bidding of his own predilections as well as of those who pull his strings and who bought (lied) his way into office. He is given a pass and/or enabled by the blinded left, the useful idiots, the lame-stream-media, academe, foreign anti-Americans and the rest of the self-serving public and political class. Treason confronts us but too many are afraid to call it by its name and call the liar-in-chief out.

From the dem perspective ob... (Below threshold)
jim m:

From the dem perspective obama's policies are not a failure in any respect.

One has to ask "What is the purpose, to what end do these policies lead us?" The answer is that all of these policies lead to a crippling of the market based economy and creating a dependence upon the state.

Measure by measure obama has restricted the functioning of the marketplace and has created powerful disincentives for the market to fix the economic problems we face. Bailing out companies that ought to fail and have their assets divided amongst other players in the market that can better leverage those assets for economic growth and creation of jobs. Restricting private lending and making individuals dependent upon government largess to business capital or secure a mortgage or provide college loans.

Obama's policies are magnificent successes. But only if you want a command economy run by the government for the benefit of the government and those who are powerful enough to be able to influence the federal government through campaign donations or other bribes (see Rahm (Roehm?) Emanuel's free apartment for an example of such bribes).

For how many years now have... (Below threshold)
Upset Old Guy:

For how many years now have I heard the words, "It's for the children?" Well, they're right, the children are going to be paying this debt off for the next 30-40 years.

Jim M Let me try again.</p... (Below threshold)
retired military:

Jim M Let me try again.

here Rev Lee Ward Wright let me save you the trouble.

"Republicans had no problem with economic policies that were named after presidents Feb 1981 until a black man became president."

I try to be factual unlike Rev Lee ward Wright.

No I think your original fo... (Below threshold)
jim m:

No I think your original formulation still works. Lee would still say that there was no problem until there was a black president.

Lee's ignorance of history pre-obama makes his accusations of racism a pretty easy thing. He even has forgotten his own racist rants.

Jim MThe trouble i... (Below threshold)
retired military:

Jim M

The trouble is I had a lot of issues with Carter's policies and since his were named Carternomics I would prefer to change my statement to be factually accurate. Rev Lee ward Wright doesnt bother with being accurate, he just spews.

From the standpoint of Obam... (Below threshold)
Caesar Augustus:

From the standpoint of Obama's twisted and Marxist perspectives his administration's policies actually have succeeded.

FWIW, I remember seeing (in... (Below threshold)

FWIW, I remember seeing (in a book) a "Doonesbury" cartoon from the 1972 campaign referring disparagingly to "Nixonomics." So I'd have to say the "-nomics" thing was certainly out there during Carter's malpresidency.

As for my previous comment,... (Below threshold)

As for my previous comment, I was of course making fun of Wee Lard's tendency, as Jim M points out, to ignore the facts -- in the spirit of, and not intending to contradict, RM's comment at #1.

malpresidency...Ho... (Below threshold)
jim m:


How apt.

UrbanDictionary has just in... (Below threshold)

UrbanDictionary has just informed me they have accepted the word malpresidency for publication.






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