Five years into the Age of Obama, and the economy continues in the doldrums. The unemployment rate supposedly has come down from its peak of 10% in 2009 to 7% in the latest report, but over that same period the labor force participation rate has fallen from almost 66% to just 63%. Those two more or less offset each other. The bottom line: It’s a bad time to be looking for a job, and particularly to be a young person trying to start a career.
It seemed in the past like the economy always rebounded rather rapidly from these dips. Why not this time? Actually, the economy has not always rebounded rapidly. There was one other time when it did not, and that was the Great Depression, when the slump dragged on for a decade. That was the time when the government thought it was a good idea to force all industry into cartels (NIRA), when it systematically destroyed crops to force food prices up, when the Wagner Act led to waves of strikes in the auto and other industries, when income taxes shot up, and when Roosevelt railed against “malefactors of great wealth.” In short, the government conducted a War Against The Economy, and predictably, the economy retreated.
And now we have the new War Against The Economy, with the similar results. You probably aren’t following all the many fronts in the war, so I’ll put it together for you.
Energy. With the energy sector accounting for about 8%+ of GDP, Obama has loaded up the EPA with zealots who think they are going to “save the planet” by driving up the cost of energy, making it scarce and unavailable, and impoverishing the American people. Proposed regulations from the EPA effectively make new coal power plants illegal. Separately EPA has declared the life-giving gas CO2 to be a “dangerous pollutant” and has announced that it intends to require anyone building a major emitting source (e.g., factory, oil refinery) to beg for a permit. Thousands of coal miners have been thrown out of work. Shall we build the Keystone pipeline to bring cheap Canadian hydrocarbons into the country? Forget about it. Meanwhile over at the Department of Energy they waste billions on uneconomic, wealth-destroying “green” energy projects. The list of bankrupt recipients of federal loan guarantees is long (Solyndra, Abound Solar, Beacon Power, Fisker, etc.), but the bigger scandal is endless tax benefits to crony capitalist wind and solar energy producers.
Obamacare. Healthcare is close to 16% of GDP. Government micromanagement of one-sixth of the economy cannot help but suppress economic activity. This law is riddled with perverse incentives. Keep a worker’s hours under 30 per week and you can avoid the “employer mandate” as to him. Keep your total number of employees under 50 and you can avoid the employer mandate altogether. Consensual transactions for healthy people to purchase inexpensive insurance are now illegal. Doctors are subject to numerous restraints.
Government overspending and debt accumulation. Our President has completely fallen for the fallacy that government spending adds to GDP dollar for dollar without any offsetting costs. Actually additional government spending replaces productive economic activity with unproductive and wasteful economic activity. In Obama’s first year of 2009 government spending shot up by over $500 billion, most supposedly as a one-time “stimulus,” but then the spending never went back down, even as the foreign wars wound down. The cash-basis accumulated debt is now around $17 trillion, but the accrual-basis accumulated deficit is more like $100 trillion, and hangs like a sword of Damocles over the economy. The Administration makes no efforts at all to deal with the long term entitlements problem.
Finance. Dodd-Frank is a Frankenstein monster of endless new regulations imposing massive new costs for no possible benefit. Armies of regulators (can anyone actually give a complete list of all the federal agencies now overseeing the financial industry?) fervently believe that they are so all-knowing as to be able to foresee and prevent the next bubble and crash. Meanwhile they have no comprehension at all of the economic benefits of risk allocation through financial markets. Various financial derivatives are outlawed; InTrade is shut down; the Volcker Rule goes way over the top; and Fan and Fred continue merrily in business lowering credit standards just like they did the last time and using the federal infinite credit card to blow up the next big bubble. Today’s Wall Street Journal reports that the feds are busy behind the scenes readying to apply bank-type regulation to asset managers, so get ready for your mutual fund fees to soar. And the prosecutions of the big banks over nothing go to ridiculous ends, the most recent being the criminal probe of JP Morgan for failing to uncover and stop Madoff, said to be nearing a $2 billion settlement. Oh, plus of course a federal monitor to impose huge new additional costs, undoubtedly to be paid by the tooth fairy. So is there a criminal probe of the SEC for failing to catch Madoff, despite having subpoena power and having sent people multiple times to inspect his books and records? Actually, nobody there was so much as fired.
Taxes. And add a round of tax increases for good measure. You may think tax increases are a good idea, but I don’t know of anyone who doesn’t recognize that they suppress economic activity at least a little.
These are not little issues. With government intentionally attacking economic activity in so many major areas, is it any wonder that the economy languishes? Funny thing is, I don’t think that Obama or anyone in his administration has any idea that there is a relationship between government prevention and suppression of economic activity on the one hand and poor economic performance on the other. When a new administration finally eases up on the economic suppression and the economy takes off, these guys will forever maintain the narrative that the economy was actually “rescued” by their overspending. And some will believe it.