WASHINGTON, June 21, 2015 — Most of America’s economic problems can be directly traced to President Obama’s policies, which have directly resulted in a prolonged period of virtual economic stagnation characterized by economic growth rates barely above normal population growth rates. This is the stark reality of Obama’s “lack of opportunity” economy.
When Obama was sworn into office as president, the economy was in the midst of a deep recession. Economists have strong ideas about how to minimize both the depth and the length of recessions, although they often disagree about specifics. They will agree, though, that it is essential for policy makers to set economic growth as the nation’s top policy priority.
Because Obama’s primary concerns were to provide benefits to the bottom 15 percent of the population, correct perceived social injustices, and to fix some environmental problems, in the last 6 ½ years he has done little to stimulate economic growth, resulting in our current lack of opportunity economy.
Economists had advised him that to minimize both the depth and length of the recession, all actions taken in the short term should be geared toward economic growth. For their part, the Federal Reserve vastly increased the money supply and dramatically reduced interest rates. This should have created a large increase in demand, which would have stimulated growth.
But Obama insisted that Congress correct a perceived social injustice by passing laws to reduce predatory lending. Unfortunately, the resulting Dodd-Frank bill reduced all lending. Because monetary expansion depends on banks lending money, the Fed’s move to increase the money supply provided little economic stimulation, little growth and little opportunity as a result.
Economists advised Obama that he could also stimulate demand by cutting taxes, increasing government spending, or both. But Obama believed that Federal taxes were already too low, so he held the income tax rate constant except for top income earners: those who contribute the most to economic growth. He raised their marginal tax rate by 10 percent.
Further, since his top priority was to provide benefits to the poorest 15 percent of the population, he then raised a taxes on everyone else to help fund his health care bill.
Lost on Obama was this simple fact: raising taxes has the opposite economic effect as cutting them. It reduces demand.
Obama liked the idea of increasing government spending to stimulate demand. He increased benefits to the bottom 15 percent by providing hundreds of billions of dollars for extended unemployment benefits, food stamps, welfare payments and health care. These spending increases did little to stimulate demand.
Obama spent government money on projects he deemed of social benefit, like solar panel companies and alternative energy startups. Unfortunately, few Americans wanted or could even afford those products. A number of such taxpayer-subsidized companies folded without making a single contribution to to the nation’s economic growth and without creating the new opportunities Obama had promised.
Making matters worse, Obama created conditions that made it difficult for business to respond to increases in demand, essentially nullifying the multiplying effect that demand growth should have on overall economic growth. He did this by imposing burdensome and costly regulations on numerous industries without regard to cost or to their effect on a company’s bottom line. His single-minded focus on the environment, rather than on economic growth in the short term, severely restricted businesses’ ability to expand and provide jobs.
Under his new healthcare law, Obama required virtually all businesses to provide health insurance for all of their full-time employees or eventually pay a fine of $3,000 per employee per year. His healthcare law also stated that a full-time employee was any worker who worked at least 30 hours per week, even though the national industry standard has long been 40 hours per week.
Businesses responded by substituting part-time workers (less than 30 hours per week) and capital for full-time workers. They began to hire a historically disproportionate number of part-time workers who worked less than 30 hours per week. This destroyed opportunity for many hard-working American workers who needed genuinely full-time jobs to make ends meet.
Expanding by using capital goods instead of workers also became difficult for businesses, since businesses’ supply of capital was reduced. Obama had raised businesses’ marginal tax rate to almost 40 percent. He also increased the marginal tax rate on capital gains from 15 to 23.8 percent. This created a capital shortage for small business, which historically have created the majority of new U.S. jobs.
Obama’s little-growth economy has wiped out opportunity, causing most of our economic problems, exacerbating many of our social problems, and causing a general feeling of helplessness and despair for many Americans. Instead of these current trends, this country need opportunity from an economy that should supply good, full-time jobs and higher wages.
But instead, Obama continues to concentrate on correcting perceived social injustices, solving alleged environmental problems by issuing additional growth-slowing executive orders and providing free benefits to the bottom 15 percent of the population, causing them to become dependent on the government for individual lifetimes and even generations to come.
It’s high time to turn “lack of opportunity” back into the “land of opportunity.”