The Obama Boom? More Like the Bush Boom

From Slate Magazine: The Obama Boom

President Obama
Should Republicans congratulate President Obama on a job well done and leave it at that?

Photo by Brendan Smialowski/AFP/Getty Images

Having come of age in the late 1990s, when the American economy was the envy of the world, the past half-decade has been a dispiriting slog. So, while I’ve learned to temper my enthusiasm about even the best economic news, I’ll admit that even I’m getting a little pepped up.

I hate to be the bearer of good news, but America, for all its flaws and whining from the left, is still the envy of the world. Its fastest-growing, most innovative tech companies and its most prestigious institutions of higher learning, such as the Ivy League, Caltech and MIT, are inundated with applicants from foreigners. Foreigners also can’t get enough of America’s most expensive real estate, nor can they get enough of America’s low yielding debt. If we really were in a ‘post America’ era as the left insists we are, none of this would be happening.

The US economy has hardly been in a slog, especially compared to the rest of the world. The last quarter of GDP was revised to 5% – the fastest growth since 2003.

Exports, consumer spending, consumer credit, profits & earnings, and stock prices are all at historic highs. With the exemption of the low labor force participation and stagnant wages, it would hardly seem evident America is in a slog – more like a boom. GDP isn’t as important as low interest rates; it would actually be ideal for GPD to fall back to 2% and for unemployment to rise to 7% in order to delay any interest rate hikes.

While the Great Recession has technically been over since the summer of 2009, a weak labor market and stagnant wages for all but a few have meant that most Americans have barely noticed.

The ‘un-participatory‘ economic boom is the best one of all. When too many people feel optimistic, that’s when rates go up and the stock market typically plunges. It’s better to have prolonged public pessimism with steadily rising asset pries than public jubilation followed by a nasty bear market. Also blame the liberal media for spreading doom and gloom about things like Ebola and wealth inequality, in order to scare people from spending. It’s hard to feel good when the left is constantly saying that crisis is eminent.

Going forward, plummeting oil prices will benefit almost all Americans, with the possible exception of those who’ve poured a lot of effort and time into accessing shale oil deposits here at home. John H. Makin of the American Enterprise Institute estimates that if the fall in oil prices sticks—it’s down from an average of $110 a barrel to about $70 a barrel—the economic impact will be much like that of a $160 billion tax cut. Exports are also rising, despite the fact that the U.S. dollar remains strong. All in all, it’s looking like a fairly merry Christmas, at least by the dismal standards of recent years. And if we’re lucky, next year might be better still.

Our weak kneed, shortsighted President is hurting long-term relationships with Saudi Arabia and Russia in exchange for approval at home in the form of lower gas prices. Reagan and Bush helped build these diplomatic ties with OPEC, and Obama is trying to undermine this progress, which will have ill consequences down the road when oil does, in fact, rise to $100 again. With America’s alternative energy infrastructure damaged from low energy prices, the Saudis will have America over a barrel once prices go back up, and the damaged foreign relations will only makes things worse. I would rather have more expensive oil and gas than tarnished diplomacy and a stimulus that will prove fleeting.

Thank the tireless US consumer for consuming despite, according to the liberal media, being ‘maxed out’. The consumer, along with web 2.0 and the fed, are the heroes of this unending post-2008 economic boom, not the wealth spreader in chief.

So now, with my fingers crossed in the hope that I won’t jinx anything, I’ve started to wonder what a stronger economy might mean for American politics. Throughout the Obama years, Republicans have failed to offer a compelling economic agenda, choosing instead to point to the fact that the economy was not so hot, that unemployment levels were high, and that the federal deficit was eye-poppingly huge. It’s easy to see why the GOP decided to go this route. Americans, like the citizens of most market democracies, believe elected officials have magical powers when it comes to things like GDP growth, unemployment, and inflation. When things go wrong, the president gets the blame. When things go right, he gets the credit. This is despite the fact that the American economy is a complex beast that even our most sophisticated technocrats scarcely understand and the fact that Saudi sheikhs who decide to let the oil flow can have about as big an impact on how much U.S. households spend on Chinese-made tchotchkes this holiday season as a Congress that decides to slash payroll taxes. I’m exaggerating but only slightly.

It’s easy to see why the GOP decided to go this route…because it’s true, obviously. But as I wrote many times in 2011 & 2012, none of those things were a big deal economically, though, which is why stocks stocks kept rallying. The debt is big, but inflation is non-existent. High unemployment doesn’t seem to hurt consumer spending or web 2.0, and higher unemployment means interest rates stay lower longer.

Should Republicans congratulate President Obama on a job well done and leave it at that? Well, no. They need to do what they’ve failed to do for the past half-decade and explain why they can do a better job than the Democrats of steering the American economy.

The GOP should read the A road map for 2016: Restoring Optimism to the GOP. To win, the GOP must champion the same policies that worked wonders for getting Bush and Reagan elected: pro-growth policy of low rates, free markets, low taxes, and low regulation. In invoking Reagan, the GOP needs to emphasize that they, not the Democrats, are the party of optimism and hope.

Second, let’s hope there is a super-spike in unemployment before the election in order to doom the prospects for the dems. The stock market would actually surge under such circumstances because the economic benefits (lower taxes, free trade, raising the H-1B visa cap, no more debt ceiling standoffs, deregulation) of having Jeb Bush or Romney as president would exceed the negatives of higher unemployment.

But getting to this point will be very difficult. To state the obvious, the fact that the United States experienced the worst financial crisis in the living memory of all but a handful of nonagenarians while George W. Bush was in the White House has been hard for Republicans to overcome. One of Mitt Romney’s greatest failures in his 2012 campaign was his almost shocking inability to explain how he’d govern differently from Bush and why Republican economic policies wouldn’t lead to disaster. Romney, like most Republicans in the Obama era, fixated on shrinking the budget deficit. While he talked a big game about reviving economic growth, he did an awful job of explaining why growth was so sluggish and what he intended to do about it in the near term, tax cuts and deregulation aside.

Wrong again. Romney was a great candidate who invigorated the base and had a lot of good ideas such as raising the H-1B visa cap for skilled tech workers. Romney mentioned the deficit because it was an easy entry of attack. Similar to Dole in 1996, with enough people still brainwashed by Obama there was really nothing Romney could have done to win. With the left losing the culture wars, and with the smartest generation beginning to seriously question welfare liberalism, a GOP candidate that articulates a pro-growth economic agenda stands a good shot a winning.

What might Republicans have done differently? According to Texas State University economist David Beckworth and National Review’s Ramesh Ponnuru, the chief problem with the Republican worldview in the post-crisis years is that it has coupled calls for rapidly shrinking the federal deficit with fervent opposition to monetary stimulus, which the GOP has warned will lead to an inflationary spiral. Instead, Beckworth and Ponnuru insist that the Federal Reserve ought to have done more. They argue that the Fed ought to have announced that it would buy assets until nominal spending, or NGDP, reached a target level and that it intended to keep nominal spending growth on a predictable path. Had the Fed charted such a course, Beckworth and Ponnuru believe, the goal of fiscal consolidation would have been much easier to achieve, as higher nominal incomes would have kept more workers employed and more homeowners afloat, thus reducing the pressure to increase transfers. Many argue that NGDP targeting of the kind championed by Beckworth and Ponnuru is much easier said than done and that it is no panacea. That might be true. What is also true is that successful fiscal retrenchment efforts in countries like Canada and Sweden were accompanied by the same kind of accommodative monetary policy that American conservatives tend to oppose.

The fed, along with the free market and the consumer, saved the economy. This is still the Bush economic boom; Obama deserves no credit for it. Looking at the data, supply side economics, along with monetarism, has triumphed over Keynesian and is the reason for America’s strong stock market and economy, specially compared to the rest of the world. TARP was a success; the Obama stimulus was a failure. The left predicted, incorrectly, that the sequester and other entitlement spending cuts would push the economy into a recession.

Liberals think they can grow an economy by spreading the wealth from the most productive/useful members of society to the least. The sciences, including economics, tends to be a bastion of sanity against welfare liberalism.

Republican economic prescriptions have often seemed timeless in the Obama era, in a bad way. By emphasizing tax cuts, deregulation, and balanced budgets—the same policies they favored in better times—the GOP ignored the particularities that made deficit spending a less pressing problem than mass unemployment, and they allowed chimerical fears of hyperinflation to outweigh the very real threat of deflation. Embracing monetary stimulus would have given the right a coherent way to favor fiscal consolidation while also acknowledging that the weakness of the post-crisis economy demanded a response. Calling for monetary expansion and, say, a much deeper temporary payroll tax cut, like the one proposed by Stanford University economist Michael Boskin, would have put the GOP in a much better position both substantively and politically. Instead, Republicans struggled to connect with the voters most directly affected by the dismal state of the labor market.

Tax cuts and deregulation win elections and is good economic policy. Supply-side economics is not about trying to directly reduce unemployment with costly, useless stimulus spending, but by creating economic conditions conducive to the creation of wealth so that the best and the brightest can thrive in a meritocracy. The post-2008 Silicon Valley/Web 2.0 boom is a supply-side success story.

What should Republicans do now? They could do worse than to build on the work of Utah Sen. Mike Lee, Florida Sen. Marco Rubio, and Wisconsin Rep. Paul Ryan, all of whom have been thinking hard about the barriers to upward mobility in modern America. Good economic news today won’t change the fact that one in six American adults lacks the basic skills of literacy and numeracy, or that high-quality educational opportunities are beyond the reach of most American kids raised in low- and middle-income families. Nor will it change the fact that while Obamacare has expanded access to subsidized medical care, our health system remains a dysfunctional mess that limits our economic potential. Even though the worst of the housing bust is behind us, rigid regulations have made some of our most productive cities unaffordable, which in turn has driven millions of Americans to regions with cheap homes but also low wages.

The main problems with healthcare is costly end-of-life-care and the uninsured, both of which suck considerable resources. We need some form of refusal of healthcare for the uninsured. 1/6 Americans score less than 85 on an IQ test, which explains why full literacy will never be possible. Many of society’s most intractable social problems (poverty, crime, illiteracy) have biological etiologies that no amount of wasteful government spending and ‘feel good’ homilies will ever be able to ameliorate. Low wages are not the problem, because many low wage jobs create economic value, and higher wages leads to inflation. The problem is, once again, liberalism.

Overall, this is still the Bush economic boom, with the help of Bernanke, Paulson, and even Geithner. Had Bush gotten two extra terms the Dow would be higher, especially without the economic draining policies and partisan strife characteristic of the Obama administration, such as the debt-ceiling standoffs, Obamacare, Dodd-Frank, defense cuts, and the 2013 tax hike. A GOP presidency, along with a super-majority in the house & senate, would eliminate those problems. The GOP should not let the libs take credit for the economic boom that the Bush administration, along with the US consumer, created.