Billions in stimulus money have failed to make the economy soar. Douglas Schoen on how Obama has hurt the recovery by flooding America with free cash.
Recent reports from the Federal Reserve, the labour Department , and the Commerce Department clearly and demonstratively show that the Obama Administration’s policies have not succeeded – indeed they have failed in ways that are clear and unambiguous.
The Obama administration’s policies and programs are not producing real, long lasting results, and there has been no real growth.
Put another way, an unprecedented degree of federal government spending and intervention vis-à-vis the $787 billion dollar economic stimulus package, the $81 billion dollar bailouts of GM and Chrysler, and the enactment of health care and financial regulatory and reform bills have done nothing to stimulate our anemic recovery and have fundamentally failed at creating private sector jobs, or generating economic growth necessary for a sustainable, healthy recovery.
Indeed, they have done little more than generate an unsustainable national debt, which now exceeds $13 trillion. The Federal Reserve reported that the pace of recovery in the United States “has slowed in recent months” – with a growth rate of just 2.4 per cent in the second quarter down from 3.7 per cent in the first quarter of 2010, and an annual rate of 5 per cent at the end of 2009.
Exports are down, lending by banks continues to contract, employers are reluctant to hire, and consumer spending is at a historically weak level for a recovery period.
Obama’s $787 billion economic stimulus package has failed to live up to the lofty expectations and predictions of the administration, and has failed to create the amount of jobs necessary to significantly reduce the unemployment rate.
In February 2009, the administration released a report called “The Job Impact of the American Recovery and Reinvestment Plan.” The report, drafted by former Council of Economic Advisers chairwoman Christina Romer, predicted that if Congress passed a stimulus plan, unemployment would plateau below 8 per cent last fall and by this month register at 7 per cent.
But with total nonfarm payroll employment declining by 131,000 in July, and the unemployment rate remaining at 9.5% for the second consecutive month, it is clear that the stimulus package has created few new private sector jobs, and will probably not create any new economic opportunities for them any time soon. The economy lost 8.4 million jobs in 2008 and 2009. This year, private employers have added only 559,000 jobs.
At best, it produced short-term boosts to the economy through subsidization of the public sector, with government stimulus programs like Cash for Clunkers, Home Buyer Tax Credit and construction projects.
To be sure, these programs provided an incentive to buy cars and houses in the short-term. And indeed, there was a big spike in automobile purchases when the Cash for Clunkers program went into effect last July, allowing consumers to trade in their older-model vehicles for $4,500 rebates toward more fuel-efficient new cars between July 1 and November 1, 2009.
But it is still unclear whether it has had any effect on increasing demand in the long-term. Indeed, by the end of 2009, auto sales plunged 35% right back to where they were before the stimulus was enacted. Today, the automotive industry work force is 30 per cent smaller than prerecession, as evidenced in the July jobs report.
And upon thorough examination, it is clear that not only have the Obama administration’s interventions in the auto industry failed to produce the desired long-term results, it is responsible for making the situation worse in the short-term.
Take, for example, the Administration’s auto industry intervention – adding $60 billion to the bailout, and making the government the majority shareholder in GM and the United Auto Workers (UAW) union the majority shareholder in Chrysler. To be sure, the Administration’s actions did help stabilise the auto industry. But the way that they did it added to the overall cost of the bailout, and substantially reduced automotive industry employment.
According to an audit prepared by the inspector general of the Troubled Asset Relief Program, President Obama’s auto Task Force pressed General Motors and Chrysler to close scores of dealerships and accelerated job losses. Indeed, Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program of the Treasury Department, has said that the Administration “made a series of decisions that may have substantially contributed to the accelerated shuttering of thousands of small businesses and thereby potentially adding tens of thousands of workers to the already lengthy unemployment rolls…[B]ased on a theory and without sufficient consideration of the decision’s broader economic impact.”
Meanwhile, “by reaching into virtually every sector of economic life,” argues Verizon CEO Ivan Seidenberg, “government is injecting uncertainty into the marketplace and making it harder to raise capital and create new businesses,” while implementing various programs have discouraged hiring by increasing the cost of labour.
The tax increases and regulations associated with the health care reform and financial regulation bills have exacerbated uncertainty and have effectively discouraged consumer spending.
There is a general uncertainty about the implications of Obamacare and its “bewildering array of new government agencies, regulations and mandates, ” as stated in a report by Republican Sen. Sam Brownback of Kansas, GOP Rep. Kevin Brady of Texas and the minority staff of the Joint Economic Committee.
Indeed, 20 states and the National Federation of Independent Business have filed a lawsuit against the health care overhaul because they face imminent harm from its mandates. Finally, the passage of the financial regulation bill, which was signed into law by President Barack Obama last month, has left our financial system even more vulnerable to abuse than it was before its passage. The big banks are still too big to fail, controlling a larger share of the nation’s deposits than before the crisis, and the bill failed to address reorganising Freddie Mac and Fannie Mae.
Meanwhile, none of the 533 new regulations, 60 studies and 93 reports included in the financial regulatory overhaul provide effective restrictions or controls on mortgage-backed securities and similar financial instruments that permitted giant banks to disguise predatory lending decisions from unknowing investors.
The net result of these failed policies is that consumers are reluctant to spend, entrepreneurs are reluctant to invest, and employers are reluctant to hire to the degree necessary to spur economic growth.
We need a bold new focus from the President and his party.
Put simply, they must abandon their failed policies and adopt a bold new commitment to fiscal discipline and targeted fiscal stimulus of the private sector and entrepreneurship.
They must put forth a set of focused initiatives aimed at reducing the debt and cutting spending, with an emphasis on tax cuts, fiscal stimulus, and a series of initiatives to stimulate and encourage job creation. Specifically, the Administration should:
Extend the Small Business Innovation Research program, and expand lending through the Small Business Administration’s loan program to encourage more start-ups and enable small businesses to hire and train more workers
Declare a payroll tax holiday for new businesses so they can invest in new jobs.
Jumpstart the economy by investing in green technology and create new jobs and make the United States a leader in clean energy manufacturing, especially solar, and expand the innovation and development of renewable energy.
Expand the federal research and development tax credit to businesses that invest in research and development, and increase research grants to small businesses that are developing new technologies.
Close tax loopholes for the rich to provide real tax reduction for middle-class and working families without increasing the deficit.
Create a National Infrastructure Bank as proposed by President Obama in his 2008 campaign. This Bank will take infrastructure decisions out of the hands of politicians and out of the world of pork barrel politics, end the infamous “bridges to nowhere,” and make infrastructure decisions that contribute to growth
Above all, the Obama Administration must accept the fact that ONLY private enterprise can create jobs – more stimulus money is not the answer.
Douglas Schoen is a political strategist and author of the upcoming book “Mad as Hell: How the Tea Party Movement is Fundamentally Remaking Our Two-Party System,” to be published by Harper, an imprint of HarperCollins on September 14. This post originally appeared at the Daily Beast and is republished here with permission.
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