WASHINGTON, April 28, 2016 — Recently released figures indicate that U.S. economic growth in the first quarter of 2016 was only 0.5 percent. The three previous quarters had growth of 3.9, 2 and 1.4 percent respectively. After almost seven years of President Obama’s non-existent recovery, it now appears that the economy is grinding to a halt.
Even though growth would solve virtually all our economic problems, President Obama has never made growth a priority. Instead, his economic policies are geared to cure perceived social injustices, like raising the minimum wage and reducing income inequality by raising taxes on the highest income earners and handing out things like free health care, increased foods stamps and more welfare to the lowest income earners.
President Obama’s policies have actually made income inequality worse. In fact, Obama will be the first President in recorded history to serve an entire term in office without having at least one year where economic growth exceeded 3 percent. His best year was 2.5 percent annual growth.
His policy actions have actually slowed economic growth. Had the President done absolutely nothing with economic policy, the economy would be in better shape than it is today. His stimulus package was a gigantic waste of almost a trillion dollars while doing little to stimulate growth, and his actions resulted in the annual deficit ballooning to more than $1.2 trillion. He takes credit for reducing the deficit to less than half that amount today.
The reality is that the annual deficit when he entered office was under $500 billion, which is about where it is today. His thousands of new regulations added cost to business and tended to reduce growth. The Affordable Care Act (ACA) helped about 5 percent of Americans by raising the percent of Americans with health insurance coverage from 85 percent of the population to almost 90 percent.
But the ACA added costs to business to hire workers, meaning less are hired and economic growth is dampened. He raised the capital gains tax from 15 percent to 23.8 percent, which reduced capital creation. With less capital available the economy had trouble growing. He also raised income tax rates for the highest income earners by 10 percent, which further reduced capital formation and slowed growth.
He raised the minimum wage for Federal workers from $7.25 per hour to $10.10. This made government contracts more costly for potential bidders who looked for ways to replace unskilled workers with a machine. This kept the unemployment rate for these workers over 20 percent, further slowing economic growth.
Obama encouraged the states and many cities to pay a minimum “livable wage” of $15 per hour. Some states like California and New York, as well as cities like Seattle, did raise the minimum to $15 per hour. In Seattle, where it has been fully implemented, large layoffs are occurring in minimum wage sensitive industries like fast food and discount retailing. This slows economic growth.
Obama also encouraged Congress to pass the Dodd-Frank bill to eliminate predatory lending. The problem with the bill is that it significantly reduced all lending, which minimizes the growth effects of the Federal Reserve’s monetary policy.
How slow will economic growth be in the future?
The consensus view is that growth will rebound to the 2 to 2 ½ percent range for the last three-quarters of this year. And, based on recent past history, the GDP growth number for the first quarter is likely to be revised upward.
Yet there is another view that says the economic slowdown over the past four quarters could continue and the economy could slide into recession by year-end. As noted in previous columns in December and January, a recession is a distinct possibility this year. The current “recovery” is almost seven years old, which far exceeds the average time between recessions since the 1940s.
Economic growth should be the top priority for policy makers. With growth comes additional employment opportunities as well as an increase in the demand for labor which results in rising wages. The increased employment reduces the need for food stamps, welfare and free health care, which helps reduce the deficit.
As more Americans find jobs and at higher pay, the poverty rate will fall and income inequality will narrow. This “growth” approach to reducing income inequality results in the lowest income earners being pulled up instead of Obama’s approach which attempts to reduce income inequality by pushing the top income earners down.
What we need today, is economic policy that stimulates economic growth instead of policy geared to cure perceived social injustices, which has only served to reduce economic growth.