Economic Recovery Slowed by Presidential Ineptness

Right From the Start

“You can’t just march in and make that argument and then have him [President Barack Obama] making a decision because he doesn’t know what he’s deciding.” 

“We are Home Alone. There’s no adult in charge. Clinton would never have made these mistakes.”

 

Peter R. Orzag, Bloomberg View columnist quoting Larry Summers, former Treasury Secretary under President Bill Clinton and Chairman of the White House National Economic Council under President Barack Obama (Confidence Men by Ron Suskind)

[Bracketed words inserted]

This isn’t about Syria or other international affairs which, based on five years of mistakes and misadventures, the world has pretty much concluded that President Barack Obama is in way over his head.  So much so that his failings are likely to spill over on to Hillary Clinton’s anticipated candidacy for the presidency when someone finally asks her what, besides traveling further than any preceding Secretary of State, did you and Mr. Obama accomplish during his presidency.

No, this is about the economy.  It’s always been about the economy and the inability of Mr. Obama, after four and one-half years to move the needle on the economic recovery.  And it is precisely what Mr. Summers was talking about in his interview with Mr. Orzag.  I don’t care how smart you think you are if you have no experience or educational background with regard to the economy you simply will not understand what you are being told and you will be led around by the nose by those who do.  And Confidence Men describe the beginnings of Mr. Obama’s administration and its attempts to deal with the economic crises facing the nation.  It is a period of time in which the president is indecisive and his staff routinely overrules his decisions.  Even when he demands a particular action, his staff simply ignores him and proceeds as they wish.

But the real disappointment is the realization that Mr. Obama has failed to learn anything from either his mistakes or the criticisms from those advisors who had the temerity to disagree or disavow his actions.

Let’s step back a minute.  Recessions are a regular part of a free market.  They are the natural consequences of a market that expands and contracts.  In macro terms they are caused by an oversupply.  Left alone a market in recession will recover as the excess is eventually absorbed.   A recession can be made worse by government acting in contravention to market forces.  That is the case in the last recession due in large part to Congressional demands that home loans (mortgages) be given to people who could not or would not repay them.  It artificially inflated demand for homes and subsequently caused the oversupply of those homes when those mortgages defaulted and the repossessed homes flooded the market.

A recession can be made worse when government fails to act when one side possesses superior power with regard to a market and uses that superior power to manipulate the market.  That was the case when neither the administration of President George W. Bush nor the Congress acted to regulate the securitization of consumer debt (including those ill-fated mortgages) and the subsequent serial leveraging of that debt.  Hundreds of billions of dollars were lost when the underlying debt defaulted and the effects of leveraging compounded the impact.  Even in the aftermath, Mr. Obama’s administration allowed executives of the most guilty parties to pay themselves handsome bonuses while the American taxpayer bailed them out.

While a free market will naturally recover from a recession, the actions of government can also retard that recovery.  Virtually every credible economist acknowledges that the actions of President Franklin D. Roosevelt prolonged the Great Depression by retarding economic recovery.  Japan experienced a “lost decade” because of governmental interference in the recovery process of its recession in the 1990’s – a massive asset value collapse after years of speculative inflation followed by a series of economic decisions reminiscent of America’s Great Depression.

Mr. Obama failed to learn anything from those past mistakes electing instead to go on a massive spending spree – $1Trillion – in stimulus funds.  While most of Mr. Roosevelt’s spending was guided towards public works projects, Mr. Obama’s spending was directed to the public employee unions and other entities that had supported Mr. Obama in the election.  Instead of taking the opportunity to trim an already bloated body of public employees, Mr. Obama spent stimulus monies to increase the numbers, compensation and benefits of public employees at the local, state and federal level – mostly at the behest of Mr. Obama’s single biggest supporter, the public employee unions.  In doing so he not only missed an opportunity to trim a manageable expense, but he unnecessarily increased a recurring expense for all levels of government.

The American economy has proven over time that it can incorporate the effects of increasing regulation.  In an ever more complex society an increase in regulation is to be expected and, done gradually and correctly, is beneficial.  But the last place you want to impose massive new regulations, few of which have a direct benefit for the majority of society, is in the depths of, and nascent recovery from, a massive recession.  And yet Mr. Obama has imposed not only the staggering costs and paper blizzard from Obamacare but thousands of pages of new regulations each month on everything from soup to nuts.

The results are obvious, while Mr. Obama’s friends and supporters on Wall Street have fully recovered from any losses and are back to engaging in the same high risk strategies that were part of the Bush/Obama collapse, the average Joe is still struggling to make it back to neutral.  Mr. Obama likes to tout the declining unemployment numbers but as we all know they are the least relevant numbers on economic health since they reflect only the number of people receiving welfare benefits under the unemployment insurance.  As benefits run out and people become discourage and give up looking for a job, the unemployment numbers fall.  The numbers that actually reflect economic health are the total number of people employed and the percentage of the labor pool actually working.  Both numbers reflect abject failure on the part of Mr. Obama.

According to the Bureau of Labor Statistics, from the beginning of 2008 through the end of 2009, there were 8.669 Million jobs lost.  Since then to the present date – nearly four years later – only 6.760 Million jobs have been recovered.  During that same period of time the total population grew by 9 Million people or about 6.7 Million working age people. (Estimates from the Bureau of Labor statistics indicate that about three-quarters of the population are of working age.)  Job recovery under Mr. Obama has not even kept pace with working age population growth.

Not surprisingly, the workforce participation rate fell significantly during the initial phases of the Bush/Obama recession.  During the period from the beginning of 2008 through the end of 2009, while 8.669 million jobs were being lost, the workforce participation rate fell from 66.2 percent to 64.6 percent.  What is remarkable is that even as the tepid job recovery began, the workforce participation rate continued to fall – even until today where it has reached 63.2 percent, its lowest point in over three decades.

As I was growing up in Eastern Montana, summer meant the start of Little League baseball.  Everybody played – even those of us who can only generously be described as athletically challenged.  When I was in the second or third grade, a kid transferred into the school from South Dakota.  He was a big kid, bigger than most of us.  And he was a big talker.  He would go on and on about his feats (sports, hunting, fishing, whatever) but the real kicker was a story he told of being the All-Star Pitcher the summer before in a game in which he pitched a no-hitter but his team lost 0-9.  (For those of you forced to endure a teacher’s union directed education in the Portland Public Schools, that meant that the pitcher was perfect from start to finish but the other people on the team made so many mistakes that the opponents scored nine runs.)  Nobody called BS on the story – remember he was a big kid – but come summer, guess who didn’t show up for Little League baseball?  Like most big talkers, when it was time to perform he was no where to be found.

Mr. Obama is not the brilliant leader championed by his adoring press.  His repeated mistakes have demonstrated that he certainly is not the smartest person in the room.  Mr. Obama is a big talker.  He will tell you anything that he thinks you want to hear and can get away with.  But, when the chips are down seldom shows up and when he does blames everybody else for his problems.

Mr. Obama will forever be marginalized by his own erroneous sense of omnipotence.  And we are the worse for his arrogance.