The 2012 Economic Report of the President

Forgetting the Reagan Recovery & Missing the Point

Feb 29 2012

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WHEN A TREE FALLS IN A FOREST …

Long after most Members of Congress had cast their final votes before returning home for the President’s Day district work period and after many reporters had already filed their weekend stories, the White House released the 2012 Economic Report of the President (ERP) at 4:00 p.m. on Friday, February 17, 2012.

The timing of the release of this year’s ERP suggests that the White House wasn’t interested in trumpeting the report and its portrayal of the Obama Administration’s economic record. In fact, the timing of the release suggests that the Administration did not want this report to receive the same type of response that the Administration’s budget proposal garnered.

RIGHT WORDS, WRONG POLICY

President Obama opens the 2012 ERP by stating:

“One of the fundamental tenets of the American economy has been that if you work hard, you can do well enough to raise a family, own a home, send your kids to college, and put a little money away for retirement.” (ERP, 3)

In this statement President Obama has captured the essence of what most understood to be the “American Dream.” Unfortunately, what follows this introductory sentence in the ERP’s 266 pages makes clear that the statement is nothing more than a nice platitude that lacks any connection to the policies pursued by this Administration.

In order to be consistent with the Obama Administration’s economic policies and the rest of the report that sentence would have been worded much differently. It might read “everyone, regardless of whether you’ve worked hard, worked a little or haven’t even tried to work, is entitled to own, spend, and save with money taken from hardworking taxpayers.”

JOB CREATION – DENYING HISTORY

The Obama Administration is quick to boast that the current recovery has shown stronger job growth than the two previous recessions of 1990-91 and 2001. Conveniently the ERP ignores the results of the Reagan Recovery following the 1981-82 recession when unemployment rose to 10.8% compared to the recent recession’s 10.0%.

In 31 months since the end of the recent recession in June 2009, payroll employment has increased by 1.5% or 1.9 million nonfarm payroll jobs. Over the same 31 month period following the 1981-82 recession, employment increased by 9.8%.

As the following graphic illustrates, if the Obama Recovery had followed the same path as the Reagan Recovery since the end of the recession there would be another 10.8 million jobs.

Obama Recovery's Job Gap.jpg

This isn’t the only economic metric that the current recovery lags badly on.  Compared to the Reagan recovery from the similarly deep 1981-82 recession, the Obama recovery lags behind in real GDP growth (6.2% to 15.8% for the 10 Quarters after the recession ended); lags in job growth (1.5% to 9.8% over the 31 months after the recession ended); and lags in the decline of the unemployment rate (1.7 percentage points to 3.6 percentage points over the 27 months following peak unemployment). 

 The ERP cherry-picks data as the administration claims its recovery—notwithstanding a record-breaking, persistently high unemployment rate—is in line with the recovery from the 1991 recession and faster than the 2001 recession.  Of course, what the ERP does not mention is that their claim does not factor in the dismal drop in the labor force participation to 63.7%, the lowest level since 1983.  Were they to factor this in, for an apples-to-apples comparison, a more accurate picture would be seen.  The unemployment rate would likely exceed 11.0%.

Unemployment Rate Lack of Labor Force

A FAILURE TO UNDERSTAND FISCAL CONSOLIDATION

In discussion of the current Eurozone fiscal crisis, the Administration attributes their sovereign debt and deficit problems to slow economic growth, rather than government overspending due to unaffordable social welfare programs, high marginal tax rates, and suffocating regulations that discourage entrepreneurship and private job-creating.  This omission indicates a blind spot in the Administration’s thinking and explains why President Obama is totally unwilling to embrace the recommendations of his own deficit-reduction commission or to propose any meaningful reforms to slow the future growth of spending on Social Security, Medicare, and Medicaid.  Instead, the Obama Administration risks a future sovereign debt crisis in the United States.

The ERP sends a very confusing message on federal tax policy.  On the one hand, President Obama uses class warfare language to urge the repeal of pro-growth tax relief on America’s job creators; and on the other the ERP states that the President has called for tax reforms to lower the corporate income tax rate.  Considering how many businesses are incorporated as sole proprietorships, partnerships, or S-corporations, the Obama Administration’s tax policy is confused and incoherent.  The non-partisan Congressional Budget Office, in their “Budget and Economic Outlook: Fiscal Years 2012 to 2022,” even comments that President Obama’s policies, including repeal of the pro-growth tax relief “will raise marginal tax rates on personal income above those of the past decade and thus will modestly reduce people’s incentive to work,” having a negative effect on potential output and economic growth.

ENERGY COSTS

While the ERP claims “the Obama Administration has taken vigorous steps to facilitate and promote” foreign direct investment (FDI) in the United States, especially in “the capability to produce clean energy products within the borders of the United States”; the facts suggest otherwise and again highlight the inconsistencies of the Obama Administration. 

One needs look no further than the Keystone pipeline project, which the Obama Administration rejected in January.  TransCanada indicates that Keystone XL is a $7 billion project that would create more than 20,000 direct jobs and 118,000 spin-off jobs during construction; yet the Obama Administration just rejected this powerful job-creating investment, apparently due to philosophic objections to exploiting oil shale resources specifically, and fossil fuels generally, because there are no substantive reasons to reject this project.

The ERP offers few insights into mitigating the negative impact of high energy prices on Americans.  Instead, the ERP’s account of energy issues is captivated by its own “smart” and “efficient” regulations, and completely sidesteps the Administration’s efforts to direct the economy to the technologies that the Administration would seem to favor for its own reasons.  Ultimately, the chapter tries to create an aura of smart regulation, effective federal support for innovation, and a well-balanced approach by government to safe and healthy economic growth.  Unfortunately, this is completely disconnected from reality where the Administration actively works against the market economy, which is struggling against the Administration’s regulatory headwinds, to create jobs and get Americans back to work.

HOUSING MARKET

The ERP makes clear that the Obama Administration still believes in same interventionist policies that helped wreck the housing market..  While the Obama Administration touts the positive impact its programs have had on the housing market, the statistics point to a different conclusion.  Only 6.6% of the funds authorized under TARP to the several Making Home Affordable programs have been spent, and according to the Inspector General of TARP, the Home Affordable Modification Program has reached just 19% of the 4 million homeowners it was originally intended to support.  Despite these shortcomings, the Administration is still committed to government intervention as a solution to the nation’s housing woes even though the spending is ineffective and a waste of hardworking American’s tax dollars.

 

Read the entire Republican Staff Commentary in pdf format below:

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