Debating the Economic Performance of President Obama
Monday, February 20, 2012 at 1:43PM
Every couple of weeks the Skeleton Standard's resident liberal, Roy Atwood, will debate resident Republitarian Stephen Leech on a political issue facing the nation.
Stephen: What is your issue with the Republican Attacks on President Obama’s Economic Record?
Roy: My problem with Republican attacks on Obama's economic record is that I don't understand what more they wanted the President to do. He entered the White House when the economy was in a free fall and turned it around in less than a year. In the most extensive non-partisan analysis I could find, the authors project that Obama's fiscal stimulus lowered unemployment by 1.5% and added 2.7 million jobs. Additionally, the Treasury Department and Federal Reserve actions that Obama oversaw, along with TARP, added another 5.8 million jobs. Based on these successes, Obama has proposed more fiscal stimulus to build infrastructure; refurbish schools; and retain teachers, firefighters, and police officers. I think it's a great idea to ensure that the recovery keeps progressing in ways that will make our country better in the long run.
On top of that, I don't quite understand how Republicans plan to help the economy without pursuing stimulating policies. I know they want to lower taxes and eliminate regulations, but I don't see either of these tactics as particularly helpful. According to Moody's chief economist, every proposed tax cut is less effective at helping the economy than any proposed spending increase. I do think eliminating regulations is a good idea, but I worry about the societal costs. We should protect workers and the environment, and regulations that do so should not be eliminated.
As I understand it, the consensus among economists is that the economic policies of the Obama administration successfully prevented a second Great Depression. I don't quite believe Republicans when they say we should demand better.
Stephen: While the Keynesian analysis presented above does appear to show that Obama somehow saved the economy, the unfortunate reality is both the authors (Mark Zandi and Alan Binder) have been wrong about pretty much every major economic event since that study, using the same Keynesian models. They predicted the economy would grow by 3.6% last year and 5.6% this year. If only! The real answer was 1.8% for last year and between 2 and 3 for this year. Furthermore, a quick search on Google suggested they originally titled their paper, "How WE Ended the Great Recession" (emphasis on WE added) so they might not be as non-partisan as you think...
Furthermore, the claim that most economists believe that spending is more powerful than tax cuts, and that fiscal stimulus is necessary to stimulate the economy was largely the creation of Obama himself as this demonstrates.
The simple truth is that in the cases where taxes have been cut and people have been allowed to keep more of their income, the recoveries out of recessions have been faster, stronger, and made the economy better off long term. The roaring 20's were spurred by tax cuts. JFK Cut taxes and produced the prosperity of the 1960's. Ronald Reagan had the economy growing at 7% during his fourth year in office (I wish Obama the best of luck getting above 3%). Want to know the recessions that have lasted? The Great Depression with attempted stimulation through 1930's. Jimmy Carter's attempts to revive the economy in the 1970's. And so far Barack Obama's efforts have gone the same way....
The problem with Keynesian models is they simply don't work in practice. It turns out when you borrow money in the future and take it into the present, you just create a lot of debt that needs to be paid (with interest), and end up with no growth.
To wrap up my lengthy response, we have 80,000+ pages of Federal regulations pre-ObamaCare. In 2010, the Small business Administration reported the total cost of US regulations was 1.75 trillion dollars. And that is Pre-healthcare law... A trillion here, and a trillion there and pretty soon you have some real value to the US Economy (and without increasing the debt too!).
Roy: Certainly, the debate between the Keynesian and Austrian schools of economics is a contentious one and cannot be settled here. However, I do take issue with your examples of recovery speed. The most recent recession and the Great Depression are the two deepest recessions in the past 100 years. It is naïve to expect the recovery from these downturns to be as speedy as others throughout the century.
I don’t quite understand why you think tax cuts help the economy but spending increases don’t. The economy contracts when people spend less money and grows when people spend more. Both tax cuts and spending increases give people more money, thus increasing the amount they will spend. I certainly don’t determine how to spend my money based on its source. Therefore, both tax cuts and spending increases should stimulate the economy. I argued earlier that spending increases were more effective than tax cuts, because they are more likely to target low- and middle-income families and small businesses. These groups will spend any money they receive in greater quantities and at faster speeds than their counterparts, which will provide a more immediate economic impact.
With regard to regulations, it seems that you're arguing against regulations in general, which I know can't be true. Because if you're against regulations, then you're against child labor laws, fire exits, maternity leave, and desegregation. So let’s not play the game where you talk about how all regulations are terrible, because it’s not true. Everyone supports regulations. We just disagree on whether or not the societal benefits of a specific regulation outweigh the economic costs. If you’d like to debate the merits of a specific regulation, that’s a different issue.
Stephen: While it is true that the battle for theoretical economic supremacy continues to this day, (even inspiring an impressive rap battle) is it really a coincidence that all of the countries that have adopted unfettered capitalism have achieved spectacular wealth for themselves (America pre-1930, Eastern Europe post Soviet Empire, along with Singapore), while the countries that have used Keynesian economics exclusively recently continue to flounder? (Japan, Western Europe).
Furthermore, it is simply not true that the recession Obama faced was worse than the one Reagan faced. Inflation adjusted, stocks lost 66% of their value over 17 years, before he entered office. Obama lost a little bit over 50%. Not easy, but easier than trying to cure 17% inflation. Reagan faced higher unemployment, a worse stock market, and higher inflation, and had better results using supply-side economics. But if history doesn't count, then I guess Keynesian economics is still in the picture.
As far as taxes, reducing tax rates stimulates the economy because more money goes to individuals who can create value for all of society. Furthermore, while spending money can increase the amount of money in the economy, it does not allocate money to economically beneficial activities as much as politically expedient activities. If you don't believe me you can ponder why 2x as much money has gone to Democratic House districts than to Republican House districts, and there is no correlation between unemployment and where Obama's stimulus money was spent. Having said that, asking the executives from Solyndra might be more informative as to Obama's placing of political favoritism over American economic growth.
Furthermore, government spending using borrowed money has to be paid back at a later date with interest, thus making future taxes higher. So in reality, government stimulus is the act of taking money from one pocket and placing it in the other. It is extremely hard to get rich that way...
Moving on to regulations, I said I was against having 80,000+ pages of rules that cost 1.75 trillion dollars. Making incandescent light bulbs illegal (Obama), mandating that school workers cannot give kids more then a cup of potatoes a week (Obama), making it utterly impossible to figure out how much you owe in taxes, and making it impossible for employers to hire anyone because of the unknown costs of Obama Care were the types of damaging, dumb regulations I was speaking about.
One final note: The Government Accountability Office tried to count the number of regulations from 1996 to 1999. They found that 15,286 new rules were put into effect just in that span. I will cede to you the 4 regulations above mentioned. But that is tantamount to defending a person eating 100,000 calories a day because they are taking a vitamin. Just because de-segregation (actually a economic benefit) is a good idea, probably doesn't justify taking $5,000 ish from every single American yearly so regulators can have something to do while Obama's economic policies continue to fail America.
Reader Comments (1)
"Because if you're against regulations, then you're against child labor laws, fire exits, maternity leave, and desegregation." I object to Mr. Leech, supposedly a libertarian, ceding these regulations to his opponent. The gentleman and his opponent both fail to mention that government-mandated segregation is a violation of the Constitution, and repealing it was merely properly enforcing the Constitution. Moreover, the federal bureaucracy was segregated during the extremely active executive tenure of progressive Woodrow Wilson, who used expansive government power the way it always is used-to further his own personal agenda. Child labor laws are outdated, as they were instituted (to mixed results) to prevent children from suffering mishaps in dangerous industrial environments, and now prevent teens from harmless jobs in offices. Moreover, child labor raised the standard of living and lowered child mortality rates by giving children in poor families (or without families) to earn a living. All in all, however, Mr. Leech did an excellent job in defending free markets and limited government.