You would think $1 trillion in spending stimulus and $2.5 trillion of Fed pump-priming would produce an economy a whole lot stronger than 1.9 percent GDP, which was the revised first-quarter number. And you’d think all that government spending would deliver a whole lot more jobs than 69,000 in May.
But it hasn’t happened.
The Keynesian government-spending model has proven a complete failure. It’s the Obama model. And it has produced such an anemic recovery that frankly, at 2 percent growth, we’re back on the front end of a potential recession. If anything goes wrong — like another blow-up in Europe — there’s no safety margin to stop a new recession.
And that brings us to the grim May employment report, which generated only 69,000 nonfarm payrolls. It’s the third consecutive subpar tally, replete with downward revisions for the two prior months. It’s a devastating number for the American economy, and a catastrophic number for Obama’s reelection hopes. All momentum on jobs and the economy has evaporated.
Barack Obama doesn’t get this, but businesses create jobs. And firms have to be profitable in order to hire. Yet the president is on the campaign trail criticizing Mitt Romney by degrading the importance of profits. Huh?
Without profits businesses can’t expand. And if they don’t expand, they can’t hire. And if they don’t have profitable rates of return, they’re not going to attract new capital for investment.
The Fed may yet launch a new quantitative easing to stop commodity deflation and accommodate the gigantic worldwide dollar demand. But the merits of this move are dubious. On the other hand, an extension of the Bush tax cuts right now would stop the economic and job slide and reestablish certainty. In fact, all the countries around the world should move to the supply side with lower tax rates to spur economic-growth incentives. Europe, China, and Latin America ought to go back and read Ronald Reagan’s speeches and examine his actions when he faced a similar crisis 30 years ago. It would be an hour or two well spent.
Last summer, I had lunch with some business folks at a company perceived as being pro-Obama. Big global company. The executives all felt as if Obama has sold them a false bill of goods. They thought they were getting Bill Clinton 2.0. Indeed, Obama surrounded himself with plenty of centrist, Clintonian advisers: Larry Summers, Austan Goolsbee, Jason Furman.
But the chief economist of the Obama administration is Obama.
And whereas Clinton mostly built upon the “neoliberal” ideas of the Reagan Revolution — pro-markets, pro-trade, pro-growth, pro-profit, pro-wealth creation, pro-private sector — Obama wants to lay a new foundation based on greater income equality, government intervention, regulation, and redistribution. (Surprise, surprise, Clinton this week praised Mitt Romney’s private-equity record.)
Again, I think this anecdote about the book The Escape Artists: How Obama’s Team Fumbled the Recovery is telling:
Energy was a particular obsession of the president-elect’s, and therefore a particular source of frustration. Week after week, [White House economic adviser Christina] Romer would march in with an estimate of the jobs all the investments in clean energy would produce; week after week, Obama would send her back to check the numbers. “I don’t get it,” he’d say. “We make these large-scale investments in infrastructure. What do you mean, there are no jobs?” But the numbers rarely budged.
“I don’t get it?” Tell me about it.
Unfortunately, Kudlow doesn’t really get it either. Yes, businesses create jobs and they need cash (usually in the form of profits) to do so. But they won’t do so if they lack the confidence that they will make a positive return on their investment. Businesses have profits. They have cash. What they lack is confidence.
And I’m disappointed that Kudlow would think “… $1 trillion in spending stimulus and $2.5 trillion of Fed pump-priming would produce an economy a whole lot stronger…”. He wouldn’t think so if he understood the psychology of the economy. The financial shock in 2008 caused people and businesses to pull back on their spending and investment…. not so much because of what happened, but because they were worried about what might still happen. A properly constructed stimulus would have filled in the gap until people gathered their wits and resumed spending and investing. The problem: the worries never went away. The things we were worried about in 2008 we are still worried about today. Obama never addressed the underlying reasons for the panic… and in fact, he’s made us more worried. The deficit is higher than it was. Overall debt is a lot higher than it was. He is no less anti-business than he was. We don’t believe Wall Street firms are any more solid now than they were. He’s no closer to restoring stability to the housing market than he was the day he took office. He is no more likely to help address the things we are scared about globally (Iran, Europe’s lousy economy, etc.). It doesn’t matter how much money Obama and Bernanke have thrown at the problem, their refusal to address the fundamental problems has logically resulted in companies sitting on the sidelines, refusing to expand…. and consumers, at least those with disposable funds, refusing to pick up the pace at which they spend.
I don’t think Kudlow is saying he thinks all that cashed should of worked. He is just putting out the point that keynesian economics has been proven a failure, again…. It reads more like a rebuke of Obamanomics and not an article of Larry being dumbfounded why the presidents policies failed to produce any tangible results.
Obama’s goal is to expand government in order to make as many people as possible dependent on government, like they are in Europe. Eurosclerosis is the result, and eventual national bankruptcy. Obama would like jobs so he can get re-elected, but he and the Democrats will always vote for maxi-government. The assumption that they are working to create a strong private economy is false and misleading. And, like Europe, they will continue to fly the plane into the ground, because big government is their goal, not true economic health. Just like a big, failing liberal network or newspaper, they would rather destroy the business than give up the liberal mission.
The current definition of a recession is two quarters of negative growth. This is way to generous to government. The definition should be two quarters of negative growth adjusted for the increase in population able to work.
More people producing the same goods as last year is negative growth, but it is not now accepted as such.
Businesses have profits and increasing their profits doesn’t guarantee more jobs. It more than likely only guarantees more cash in the pockets of the executives. Greed is the entire problem. We have seen companies become more productive with LESS workers, making record profits. The top tier compensation gets higher & higher & those below them only get more work. If greed wasn’t an issue, these theories may work, but since it is an issue, government must intervene. To me, Republicans are the party of Greed.