Robert J. Samuelson writes in the Washington Post that President Obama’s reelection prospects depend on whether Americans will credit him for preventing a depression or blame him for hampering recovery. Samuelson credits and blames simultaneously. While praising the President’s self-assurance and decisiveness in trying to stimulate the economy, re-instate trust in the banking system, and bail-out car companies, he also blames these very same qualities for President Obama’s decreasing approval ratings as his ambitious legislative and regulatory agenda hamper job creation and reduce business confidence. In Samuelson’s own words:
Obama helped stabilize the economy – and psychology. Both what he did and how he did it mattered. He acted with self-assurance and decisiveness. The roughly $800 billion “stimulus” put money in consumers’ pockets and certainly saved jobs; it signaled that government would not allow the economy to fall into an abyss. The “stress test” of banks showed that they were stronger than had been thought. If General Motors and Chrysler hadn’t been rescued, joblessness would have increased by hundreds of thousands.
The trouble is that Obama, having stabilized the economy, weakened the recovery. What’s missing from Summers’s valedictory is any sense of contradiction between the administration’s ambitious social and regulatory agenda and the business confidence necessary for hiring and investing. Of course, the connections existed. The health-care law raises hiring costs by requiring in 2014 that all firms with more than 50 employees provide health insurance or be fined. The law brims with complexities and uncertainties that make it hard to estimate the ultimate costs. Will firms with, say, 47 workers eagerly expand beyond 50 if that imposes all the extra costs? It seems doubtful.
The same qualities that initially served Obama well (poise, confidence, aggressiveness) became an arrogant disdain for obvious inconsistencies. Neither he nor Summers showed much understanding of, or sympathy for, the practical problems of firms deciding to hire. Obama proclaimed that he was encouraging job creation while pushing measures that discouraged job creation – health-care “reform,” action against global warming, restrictions (after the BP blowout) on off-shore drilling, among others. It was not that every proposal was wrong so much as a highly partisan, complicated agenda was bound to sow ill will, create uncertainty and retard recovery. How much is open to question; the direction is not.
I happen to be much more skeptical of the necessity and effectiveness of the so-called recovery and reinvestment projects stimulated by taxpayer dollars. True, perpetuated lack of confidence in the banking system at the onset of the Great Depression contributed significantly to the duration and extent of that terrible crisis. However the circumstances of the recent financial crises aren’t the same as America faced then and the crisis didn’t warrant those very same policies that many claim could have prevented the worst of the crisis in the 1930s. At least the existence of FCIC insurance prevented the distrust and resulting bank runs we saw in the 30s.
In fact, the centrally-directed injection of taxpayer money into the economy to restore confidence and safe jobs, did much to injure business confidence and many more jobs were likely lost than the stimulus promised to save. Additionally, much of the stimulus money wasn’t even being spent, as the supposed “shovel-ready” projects didn’t exist.
Worse, the results of these policies will be long-felt as the stimulus and bail-outs took money out of the private sector through direct and deferred taxation (by increasing the government debt) to allocate resources by central direction throughout the economy. This so-called stimulus wasted taxpayer money by directing resources in uneconomic ways. Governments are far inferior to markets to determining the best uses of resources. Central economic planning has failed scandalously several times in the past and despite politicians hopeful claims that they are able to steer the economy, they simply lack the knowledge and capability to do so effectively.
Politicians would be well served by studying Robert Higg’s paper on “Regime Uncertainty” which explains why policies which meddle in markets reduce business confidence and investment and thus hamper, not stimulate, recovery.