Aug 05 2009

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Bearing False Witness

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From the officials who spent the first six months of their governance blaming George W. Bush’s for the nation’s ills, comes word now that a less dreadful-than-anticipated economic report is the result of the Administration’s economic policies, specifically the Stimulus bill.

Caveat Emptor.

Consider that if the Democrat’s Stimulus bill were to take form instead of words, it would certainly have to be Silly Puddy. What else could accommodate the contortions that have accompanied the bill’s birthing and its many conflicting justifications over the last seven months?

Let’s remember what was promised in the $787 billion behemoth.

According to President Obama, the bill would prevent crisis from becoming catastrophe.  Before a joint session of Congress, he said that the bill would put people back to work, promising 3.5 million new or “saved” jobs; 90% of them in the private sector. Moreover, the failure to act would worsen our long term deficit.

In the months since the bill’s passage, the Administration has been a study in unnerving denial. While the economy has unquestionably worsened since February, the Administration has continued to insist that the Stimulus is working as promised.

Yet, facts can be stubborn things.

The White House said that the Stimulus would keep unemployment from rising above 8%; it now stands at 9.5% and rising. Despite town hall meetings highlighting small groups of “saved” public service jobs, 2.2 million private sector jobs have been lost since February.1

Team Obama promised that the Stimulus was necessary to prevent a worsening in our long term debt.

Here the horror divides into two parts. Beyond the near orgy of spending in Washington since January comes figures just released and reported by the Associated Press that show that the economy is on track to finish 2009 (the fiscal year ends in September) with federal tax receipts dropping 18%. Individual tax receipts will drop 22% and corporate tax receipts will fall a whopping 57%; all reflecting the still weak economy.

The result is a deficit that was eye-popping alone based on increased spending, but that has only grown worse as government action has failed to revive the economy. It is not hard to conclude that a Stimulus bill that was supposed to slow the red ink has in fact been a key contributor to it, all the while without stimulating the underlying private sector, which is the sustaining engine of the economy.

The result? A federal deficit of near $2 trillion in 2009; five times larger than the last Bush deficit and the largest deficit in American history. Unfortunately, according to budget predictions, it is only the beginning.

But amid this cauldron of negative news comes a “green shoot”; word that the economy did not drop as precipitously in the second quarter as economists had predicted. According to the Bureau of Economic Analysis, GDP dropped 1% in the second quarter. This is in contrast to a much larger first quarter drop of 6.4%.2

For this, Team Obama is taking credit. And again, our Silly Puddy Stimulus is credited as part of the cause. But my fellow citizens, beware. The underlying numbers are sobering and telling.

Within the report, exports were down 7%. Durable goods sales were off 7.1%. Non-durable goods down 2.1%. Equipment and software were off 9%. Fixed investment real estate was off 29%.  Personal income, what people make, was down 1.3%, in June, the biggest monthly drop in four years.3 This is the private sector. This is what the Stimulus has done nothing to help.

The only sector of the economy to grow was the government sector, which was up 10%. I imagine that to the extent that the Stimulus contributed to the 10% increase in government outlays – which in turn made the overall drop in GDP less dramatic than it otherwise would have been- the Democrats are entitled to credit, but this is ephemeral at best.

The “real” economy is contracting and Obama public sector spending is doing little to stop or cushion that hemorrhaging. It is clear that it will ultimately be left to the “business cycle” to find the bottom of the recession and begin the tentative steps toward recovery.

But it is within this economic fiasco that Team Obama’s credit-taking becomes insidious.

The denizens of our finest universities that staff the White House were slow to understand or recognize that economic recovery was the benchmark that the American people would use in judging the stewardship of the Administration as it proposed it’s other massive expansions and intrusions.   A Harvard man might understand intuitively how complex health insurance reform and Can N’ Trade are essential elements to economic recovery, but that may not be as clear to everyone else.

The rest of us expect results.

To that end, let’s not forget that the Stimulus was sold as a “solve-all” government expansion that would keep a bad situation from getting worse.

The catch is, it didn’t work.  In fact, it has compounded the problem of debt.

So now Team Obama has a weak economy, a full legislative agenda awaiting action and a building credibility problem.

How do voters square comforting Presidential rhetoric on truly unprecedented new spending on an unfathomably complex and untested health care reform effort, when promises for the economy go unmet? How do you judge the competence of government officials to tackle other consequential challenges to our nation when their prescriptions for economic recovery have been illusory?

And suddenly with multiple government expansions on tap and weak revenue forecasts a reality, cost has become consequential. Obama and the Democrats, who won in 2008 in part of on the prolific Republican Congress make Bush and the GOP look like pikers by comparison in only six months.  Amid the oceans of red ink approved and pending, there are legitimate questions about who is going to pay for all of this spending, lest we intend to run the debt of a “banana republic.”

The answers are not reassuring.

Back for a moment to that alarming drop in federal revenues.

Start with the anticipated 22% drop in individual income taxes. First, recognize that the bottom 50% of US taxpayers pay 3% or less of total income taxes; that the top 10% pay 71%.4  By volume, this top 10% is inordinately represented in the 22% drop in overall tax receipts, demonstrating that these “capital generators” have been hurt by the recession. But guess who Team Obama wants to tax to pay for their various government expansions?

Not only will the expiration of the Bush tax cuts in 2011 hit this group exclusively, but the Democrats have designed various surcharges to hit the top 1% of earners to fund various government expansions.  That 1% already pays 40% of all US income taxes. Taxing a diminishing resource is supposed to raise revenues?  What happens to any kind of private sector economic recovery when you place that kind of burden on economic generators and investors?

The same applies to corporations.

According to the OECD, the US has the second highest corporate tax rate in the world, making US corporations less globally competitive.  But instead of a plan to ease the burden on corporations and make them more competitive and profitable, Team Obama has proposed raising the tax rate for corporate profits made off of foreign revenues; representing the simplistic and convoluted logic of the AFL-CIO that if you tax foreign profits, businesses will manufacture at home.

Thus the Administration seeks to punitively punish corporations through tax increases that will both trample American competitive advantage abroad and burden a depleted pool of private capital that would otherwise incentivize corporations to innovate, expand and hire, and thus generate greater federal revenue.  By way of contrast, the Bush corporate tax cut of 2003 led to a doubling of corporate tax revenue to the Treasury; a lesson lost on Team Obama.

It is thus the inescapable conclusion that Obamaism is at its core, an unachievable contradiction. The vast program of government expansion, mandates, intrusion and taxes that it envisions effectively undermines the ability of the economy to recover and grow in a manner that can support it.

What is left are oceans of red ink, lost economic potential and dislocation, and increasing double-talk bordering on the surreal from both ends of Pennsylvania Avenue to explain an emerging morass that has not played out its end-game.

By focusing on the abstract of President Obama’s impatience to get everything done at once, instead of focusing exclusively on the real life concerns of voters for whom bread and butter issues were  frighteningly real, the entire Democratic agenda is suddenly in danger.

More consequential, now that the Stimulus bill has failed to meet any of the promises made in its defense in February, it is hard not to question Democratic competence to understand let alone solve economic issues, which raises competency issues across the board on other consequential matters.

As the President’s rhetoric and Democratic defense of the Stimulus ultimately is proved false, so voters are now looking with a keen eye regarding rosy rhetoric on health care reform that seems disquietingly similar today.

Fool me once, shame on you.  Fool me twice, shame on me.

1. Bureau of Labor Statistics, Department of  Labor

2. Bureau of Economic Analysis, Department of Commerce

3. Ibid

4. IRS Data


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