For a man famed for his rhetoric the tweet was simplicity itself: “Four more years”. Indeed, I thought, four more years of high unemployment and economic stagnation.
For the second time Barack Obama had beaten an opponent who understood more about economics than he did. In 2008 John McCain admitted he didn’t “really understand economics” yet in June that year he said,
“We are borrowing from foreign lenders to buy oil from foreign producers. In the world’s capital markets, often we are even borrowing Saudi money for Saudi oil. For them, the happy result is that they are both supplier and creditor to the most productive economy on earth. For us, the result is both dependency and debt. Over time, in interest payments, we lose trillions of dollars that could have been better invested in American enterprises. And we lose value in the dollar itself, as our debt portfolio undermines confidence in the American economy”
Intuitively, McCain had grasped that America could not keep swapping devalued dollars for foreign goods and services.
Obama, meanwhile, gave a speech saying
“I’m not talking about a budget deficit. I’m not talking about a trade deficit. I’m not talking about a deficit of good ideas or new plans. I’m talking about a moral deficit. I’m talking about an empathy deficit”
So Obama had named five deficits, only three of which were real, and he was going to talk about the two that weren’t. This was typical of the sort of overripe guff soaring rhetoric which enraptures Obama’s supporters. It makes you feel good as long as you don’t try to figure out what it means.
And again, this year, Mitt Romney gave a speech saying
“I met with (former head of Goldman Sachs and the New York Federal Reserve John Whitehead), and he said as soon as the Fed stops buying all the debt that we’re issuing—which they’ve been doing, the Fed’s buying like three-quarters of the debt that America issues. He said, once that’s over, he said we’re going to have a failed Treasury auction, interest rates are going to have to go up. We’re living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who’s loaning us the trillion? The Chinese aren’t loaning us anymore. The Russians aren’t loaning it to us anymore. So who’s giving us the trillion? And the answer is we’re just making it up. The Federal Reserve is just taking it and saying, “Here, we’re giving it.” It’s just made up money, and this does not augur well for our economic future.”
Romney was dead right about the parlous state of US finances but, in the same speech, he made his remark about ‘the 47 percent’ and this was drowned out.
Obama, meanwhile, released an ad saying
“Now Governor Romney believes that with even bigger tax cuts for the wealthy, and fewer regulations on Wall Street, all of us will prosper. In other words, he’d double down on the same trickle-down policies that led to the crisis in the first place”
Obama thinks this despite the fact that Bush’s deficits were driven by spending increases and not tax rises. There is no mention of loose Federal Reserve monetary policy. There is no mention of political action which pushed banks to lend to marginal borrowers.
Obama’s faulty prognosis follows from his faulty diagnosis. America, he believes, can tax and spend its way back to prosperity.
Well, he tried the spending. In February 2009 the $831 billion American Recovery and Reinvestment Act came before Congress. If the ARRA was passed, President Obama promised, unemployment would peak at 8 percent in late 2009 and would fall to a little over 5.1 percent by October 2012. He painted a doomsday scenario if the ARRA wasn’t passed; unemployment would peak at 9 percent in 2009 and by October 2012 would still be at 5.5 percent.
The act was passed. Unemployment peaked at 10 percent in October 2009 and in October 2012 was 7.9 percent. In other words, even with Obama’s $831 billion package, unemployment peaked later, peaked higher, and remains higher than in the doomsday scenario he said would befall America if the ARRA wasn’t passed. Unemployment was wedged above 8 percent for 43 consecutive months, the longest period since the Great Depression. The American economy underperformed even Obama’s own worst case scenario.
But even these dreadful figures might not tell us the whole story. America’s unemployment figures are notorious for their unreliability. Those who just stop looking for work are not counted as unemployed. So many Americans lost hope of finding a job in Obama’s America that in September 2012 the Labor Force Participation Rate fell to its lowest since 1981. If the LFPR was the same as when Obama took office unemployment would be a staggering 10.6 percent.
And even this might understate matters. If unemployment was measured now the same way it was in the 1930s, today’s level would be higher than in any single year of the Great Depression. That is why Obama didn’t run on his record; it’s awful. Instead his pitch was ‘Give a guy a second chance’ like some desperate ex-boyfriend.
And now he’s going to try taxing. But here’s the problem: last year the Federal government’s unfunded liabilities, which includes Social Security, Medicare, and Medicaid, all programs Obama has no plans to reform, increased by $11 trillion to $222 trillion. To put this in context, the entire American economy is just $15 trillion. If you expropriated the entire wealth of the richest 400 Americans and left them on food stamps you would take $1.7 trillion – it wouldn’t make a dent. All Americans will face huge tax rises.
F. Scott Fitzgerald said that there are no second acts in American lives. Obama must hope he was wrong. As Jay Leno put it, “Economists say we’re heading for a fiscal cliff and we elected a guy whose campaign slogan is ‘Forward!’” Barack Obama: the Thelma and Louise President.
This article originally appeared at The Commentator