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That Confounding Obamanomics

Perhaps it’s because Barack Obama’s genius is so far beyond the comprehension of mere mortals, but even after four years of pondering we’re still having the hardest time understanding his economic theories,
We’ve never quite grasped, for instance, the part about how the economy crashed in 2008 and has never fully recovered because the income tax rates for the top 2 percent of earners were set a few points too low way back in the dark days of the Bush administration. So far as we can tell the president has never attempted to explain this counter-intuitive contention, and instead seems content with the knowing nods that it always gets from his avid admirers, but we’d love to hear him walk us through it some day. We thought the recession had something to with the government’s insistence that the banks make hundreds of billions of dollars in home mortgage loans to people who were never going to be able to pay the money back, but the president has never made any mention of that so there must not be anything to it.

Some people have explained on the president’s behalf that the too-low tax rates for the hated rich caused the deficit to rise, which somehow caused all those people to default on their mortgages, and they seem to truly believe this. When we note that federal revenues actually increased in the years after the tax rates were lowered, and continued to rise until all those bad loans brought the banks down, they always respond with an exasperated sigh that sounds quite convincing. We also note that the deficits have doubled since Obama took office, but apparently this is also Bush’s fault, and we’re assured that deficits are necessary to stimulate the economy.

It makes some tenuous sense, we suppose, that if the too-low tax rates caused the recession then upping them a few points would restore the nation’s economic health, but that leaves us wondering why the president is also insisting on another round of multi-billion dollar stimulus spending. According to one story the spending is needed to offset the economic drag of a tax hike, but if so it would seem much simpler to just skip the tax hike. Adding to the confusion, the proposed spending would add to the deficit that is said to have caused the economy to tank and remain tanked, but maybe it will only add to the good kind of bigger deficit that stimulates the economy.

All those trillions of dollars of deficit spending over the past four years don’t seem to have done much stimulating, not at first glance at the statistics measuring economic growth and job creation, yet the president’s many fans insist that without it everyone in the country would now be rubbing sticks together in caves and shooting each other over the last bushel of grain. There’s no way of proving this, economics being such a dismal science, but neither is there any way of disproving it so we’ll just do the fashionable thing and take the president’s word for it.
We’re also assured that no matter how many trillions of dollars of debt accrue there will none of the negative consequences that have followed in Greece, Spain, Argentina, or any of the other countries that have taken such a profligate path. Why this is so we’re not sure. Something to do with American exceptionalism, probably, although the president only believes in that to the same extent that the Greeks believe in Greek exceptionalism.
Oh well, there’s another four years to figure it all out. We’re sure that happy days will be here again by then, and the genius of it all will be clear.

— Bud Norman

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Bad News in Two Directions

We take a back seat to no one when it comes to gloominess and doomsaying, but the number-crunching folks at the Congressional Budget Office are almost our equal in that regard.

The putatively non-partisan agency released an update to its “Budget and Economic Outlook” this week, and it can be quickly summarized by saying that the outlook is bleak. There are two forecasts included in the report, and both are quite glum, so the CBO’s outlook could actually be said to be doubly bleak.

After starting off with the sobering statistic that the federal budget deficit for the year will total $1.1 trillion, bringing the federal debt held by the public to 73 percent of the nation’s gross domestic product, the CBO assures policy-makers that all of that stimulus has at least ensured that the “economic recovery” will “continue at a modest pace for the remainder of the calendar year 2012.” This modest achievement will doubtless suffice as vindication for Obama’s more stalwart supporters, but after that the CBO sees trouble in either direction it looks.

The CBO has prepared a “baseline projection” based on the assumption that current laws will continue, meaning that in January all of the Bush era tax cuts will expire, the extension of unemployment benefits and the 2 percent reduction in the Social Security payroll tax also disappear, and a number of mandatory budget cuts go into effect. Under this scenario, the CBO expects that the unemployment rate will climb to 9.2 percent, the gross domestic product will shrink by 2.9 percent, and the situation “will probably be considered a recession.” They add the cheery note that the deficit would likely shrink to 4 percent of the gross domestic product, which could delay the day of fiscal reckoning by a few weeks or so, but it is not clear if that is based on assumption that all the tax hikes won’t actually result in less government revenue and more social spending as a result of all the economic carnage.

It is still possible that the government will act to extend all of the Bush era tax cuts — although the president seems ruthlessly determined to raise taxes on the higher earners, and quite confident that the public will blame the Republicans if everyone’s taxes get raised as a result — so the CBO has prepared an “alternative fiscal scenario” that envisions such an action as well as ignoring the mandatory spending cuts. Under this scenario the country goes another $1 trillion in debt for yet another year, but the economy grows by an unimpressive 1.7 percent and the unemployment rates stays stuck at around 8 percent.

All of which leaves one hoping for some possible third scenario. Ideally it would avoid tax increases and the resulting drag on economic activity, allowing the private sector to spend the available capital more productively than the various “czars” has done the past four years, with the ensuing growth and some well-chosen spending cuts whittling down the debt to manageable levels. The CBO does not speculate about such a course, but we suspect it would lead to a happier future.

— Bud Norman