The challenge is growth, not inequality
Either President Obama needs a new speechwriter, or he needs a new set of economic policies. Actually, he needs both.
Can anyone think of a more boring, banal, irrelevant or stale speech than the one he gave this Thursday in D.C.? The speech was allegedly on the economy, but more likely it was to divert attention from the Obamacare catastrophe. Whatever the motive, his idea that the defining challenge of our time is to reduce income inequality is completely wrong. In truth, the defining challenge is to restore more rapid economic growth, create substantially more jobs and significantly reduce unemployment.
This is the worst recovery in the modern era going back to 1947. But Obama is always more interested in income redistribution than growth. He never speaks the language of growth, such as a rising tide would lift all boats. That’s the basic economic truth of the remarkable prosperity of the ’80s and ’90s, a period during which tax, regulatory, trade and monetary barriers were reduced, and the door opened to innovation, entrepreneurship, capital formation and job creation.
Obama comes from a long line of liberals whose guiding star is the equality of result, i.e., income leveling, rather than the equality of opportunity, which is the heart of free market capitalism. But in reverting back to his obsession with income inequality, he repeats his tired mantra of raising the minimum wage, ending so-called tax loopholes, launching shovel-ready infrastructure projects and ending budget caps and the spending-cut sequester.
And none of that has a thing to do with income inequality. And none of it has anything to do with economic growth. It’s just a tired old laundry list from a tired second-term administration that has no new ideas and is fighting its hardest to preserve the worst idea of all: centralized, state-run Obamacare health planning.
The president talks about so-called research that proves inequality and income impoverishment. Well, there are many rebuttals to this. But here’s a good one:
Cornell researcher Richard Burkhauser argues that over the past 30 years or so, Obama’s favorite period of alleged failure, the rich and everyone else got richer. For the 30 years to 2007, if you include Social Security benefits, the earned-income tax credit, employer fringe benefits (like health insurance), Medicare, Medicaid and the net reduction in marginal tax rates, the poorest fifth of the population saw after-tax income grow by 32 percent. After-tax income also expanded by about a third for the middle quintile. Yes, the middle classes have been shrinking. But that’s because they’ve moved to the upper brackets.
So even the suggestion of higher income inequality is a falsehood.
And yes, the rich have grown richer. But they’ve used those resources to enhance the productivity and investment gains of the prospering lower brackets.
Numerous academic studies show that raising the minimum wage, an old leftwing saw, hurts the working poor and raises barriers facing the unemployed. A 30 to 50 percent hike in the minimum wage means lower profits for business. So this isn’t about helping the poor if low-skilled workers lose their jobs as business profits fall.
Long-run infrastructure building? It’s always a good idea. But as former Obama adviser Peter Orszag pointed out years ago, public works are totally impractical for counter-cyclical policy. They require years of planning. Even shovel-ready endeavors cannot be undertaken quickly enough to provide timely stimulus.
And the president wants to close so-called tax loopholes, but he never talks about lowering marginal tax rates in return. He’d penalize success, take the money and spend more on government-stimulus pet projects that have failed time and again to stimulate the economy.
Along with a steadier and more predictable monetary policy, lower tax and regulatory barriers are the keys to economic growth. Hold back the government interference. Give up the obsession with income redistribution and inequality. And go for growth.
For once the president should listen to the nation’s top CEOs. The Business Roundtable just put out a report stating that Obamacare uncertainty is harming the economic rebound. BRT head Jim McNerney, the CEO of Boeing, told members of a conference call the other day that uneven implementation of the health care law has made it tough for businesses to figure out where to allocate capital for new construction or hiring.
“There seems to be an exception every other day on the Affordable Care Act,” said McNerney. “Is your preferred constituency going to get an exception or not? It’s hard to know, so people respond by hedging investment and hedging employment.”
As I said, Obama needs new speechwriters and new policies. He also needs new phone calls to guys like McNerney.
Unfortunately, the president shows absolutely no understanding of the free market process that would in fact create the rising tide of growth that the nation so desperately needs.