WASHINGTON, May 6, 2016 — Tax and spend, here we go again. After a weak jobs report this week, President Obama gave a press conference noting that the economy needs to grow. Unfortunately, contrary to what he has claimed over the past 7 ½ years, his persistent belief that his tax and spend policies will lead to economic growth is pure delusion.
To stimulate growth, he asserted, the federal government should spend billions of dollars repairing our run-down infrastructure. While he is correct that we are in need of infrastructure repairs, increasing government spending at a time when the annual budget deficit is over $500 billion will not add to economic growth. Further, his last nearly $1 trillion stimulus package similarly did little to stimulate growth.
While he claims Republican members of Congress have blocked his spending plans, the reason is that in the last election in 2014, the voters overwhelmingly voted for members of Congress and Senators who vowed to reduce government spending, reduce the deficit and stabilize the public debt.
The Republicans didn’t block his tax and spend policies. The voters did.
He also said he wants to raise the minimum wage. and Republicans in Congress are blocking that. It’s a good thing they are, because while the minimum wage helps some unskilled workers, it creates unemployment and lack of opportunity for millions. The current unemployment rate for unskilled workers exceeds 20 percent. Raising the minimum wage to $12 or $15 would raise that rate to over 30 percent.
Obama is incorrect in believing that raising the minimum wage will stimulate the economy. While the wage increase will increase spending for those who have a job, the increase must come from somewhere. Although the effect on overall inflation would be minimal, for every additional dollar of wage increase, there is an additional dollar increase in prices, which reduces spending by other consumers. The net effect is zero and is actually less than zero when you consider that the additional wages are subject to social security taxes.
Obama said he wanted to change the tax code, so that high achievers and large corporations pay their fair share, although he has never defined what fair share means. He says Congress will block his efforts. They will, and that’s a good thing.
If growth is truly the goal, as he claimed in the beginning of his speech, then he should support a tax policy that encourages capital formation, instead of concentrating on curing perceived social injustices that he believes are caused by the tax code. In 1996, President Clinton, working with an extremely conservative Congress led by Speaker Newt Gingrich, passed tax reducing, capital creating policies that led to the economy growing at more than a 4 percent annual rate for the next four years.
It’s about time that President Obama spoke of taking action to grow the economy since Obama will be the first President in recorded history who served an entire term without at least one year where economic growth exceeded 3 percent. Obama has had growth of less than 2.5 percent every year. That’s really the cause of almost all our economic problems.
Obama believes the economy is growing. He started the press conference by noting that the economy added 160,000 jobs last month making it the 74 consecutive month of job growth, bringing the total number of jobs created since the recession ended to more than 14 million and keeping the unemployment rate at 5 percent.
What he neglected to mention was that while there has been job growth, there were large job losses of about 11 million just after he took office so that the net increase in jobs from January 2009 to today is actually less than 4 million.
The stated unemployment rate is artificially low because so many people have dropped out of the labor force that a mere 62.8 percent of working age adults participate in our current economy. In the 1990s, this rate was 67 percent. Adding in the discouraged workers and part-time workers would yield an unemployment rate in excess of 9 percent.
The President finished his talk by noting that the voters have a clear choice in the upcoming presidential election. His policies and those of Hillary Clinton and Bernie Sanders are very clear. They favor raising the minimum wage, providing free health care to those who can’t afford it, providing additional free worker benefits like maternity leave and raising taxes on the highest achievers and corporations (which are mostly owned by individuals who have investments, particularly for retirement purposes).
These are the exact policies that the President has pushed for the last 7 ½ years, all of which have led to the “Great Obama Stagnation” which is built almost entirely on this president’s economic delusions.
He is right though. The voters do have a clear choice come November.