President Obama Is Perplexed. Why Are His Economic Policies Not Turning The Economy Round?

Samuel Marshall writes from Washington: The latest economic data has sparked a row between the Democrats and Republicans. It was the main theme of speeches by both candidates in Iowa and New Hampshire. The Republicans sense that this topic is the key one and they are determined to drive home the message that the average American is not better off than four years ago.

96,000 jobs were created in the US economy in August. It brought the level of unemployment down to 8.1 per cent. ‘Good news but we must do better’, the President says. ‘No’, counters Romney. Why? Because the President omitted to mention that 358,000 left the labour market in the same month. This number, of course, includes those who reached retirement age. Some married women also gave up their jobs. However most simply gave up the unequal struggle to find employment. The number of able bodied males in employment is almost 70 per cent. This is the lowest number since 1948. The rate of monthly job creation now is lower than last year. US GDP is now greater than in 2007. However there are now 4.5 million fewer Americans in work than in 2007. Is there no end to the depressing economic data? The President’s acceptance speech in Charlotte contained no ideas about how to stimulate the economy and create jobs. Does this mean that Obama has conceded that he has no policies to solve the dire situation the US finds itself in at present? No. He has strongly held views about how the economy should develop. What are they and why have they not worked so far?

There are two main approaches to creating national wealth: the communitarian or collective and the individual. The former is based on the assumption that government is the best agent for promoting growth. It has another goal which is just as important: redistributing wealth from the well off to the less well off. Hence taxation is an important tool. Companies and individuals earning over $250,000 annually have to pay more. So there is a basic contradiction at the core of this policy. If the aim was only to expand the economy, the state might be reasonably successful.

The other view is based on the belief that the individual is the most effective engine for promoting growth. Release the creative potential of each person and prosperity will result. This approach leads to the view that those who are successful in amassing wealth should be able to keep most of it. After all they earned it in the first place. The function of government – always called small government – is to create the most propitious conditions for the pursuit of increasing one’s income. Taxes should only be used to ensure that the institutions of state function. In this way stability and security are ensured and  greater investment is promoted.

These two approaches are epitomised by Obama and Romney. The President, if he wins in November, will continue with his present policies. A new fiscal stimulus – in other words, printing money – is inevitable. He believes that more government is necessary to solve the nation’s problems. He speaks for blue collar workers. He has no faith in businessmen creating wealth. Given the opportunity, they will sack workers in order to increase profits. So there is a great philosophical divide between him and the Republicans. His approach is ideological. It is socialist. It is collectivist. So far it has not been effective. Will it ever be effective? He is perplexed that it has not worked. Is he capable of conceding that his concept of government is flawed? Or will he insist that the policies are correct but they have not been really implemented so far? America’s future depends on the answer to this question.

–End–

4 Comments

1. Jane says:

   September 10, 2012 at 4:29 pm

   Indeed he does not have the faintest clue why his economy teeters on the the edge of recession.

   Americans just have to try his failed ideas a little harder,with a fresh infusion of cash, and they’ll suddently start working.

   Obama expects his voters to swallow a very high dosage of absurdity

   Enjoyed your post….Mr.Marshall….”Thank you!”
2. nomanisanicecreamvan says:

   September 10, 2012 at 8:16 pm

   I hope that Obama loses the election because if he wins a 2nd great depression is on the cards
3. Claude Nougat says:

   September 12, 2012 at 5:55 pm

   Thanks for a very interesting post! Really very enlightening. As an economist (Columbia U. trained), I’m always amazed by people’s simple equations: Obama=big government = socialism/collectivism (why not communism while we’re at it?).

   And of course Romney=small government=individual entrepreneurship= happiness the American Way.

   Really? Well I can tell you that the Federal Reserve is now going to do its best to stimulate the economy with “quantitative easing” (a polite word for the printing press) and that it has nothing to do with either Obama or Romney and the above-mentioned equations.

   Indeed, the Feds are neither Democratic nor Republican, they’re realists and they know the American economy’s in trouble. Too much has been spent to save the banks (too big to fail, remember?)

   That started with President Bush’s man from Wall Street, Paulson – he was at Goldman Sachs before he entered the Administration and engineered the “saving” of Wall Street (incidentally preventing the economy from crashing into a Big Depression back in 2008 – no small feat, that!)

   All this to say that no matter who wins in November, expect more of the same, i.e. quantitative easing from the Feds and a rush from the Federal government to stimulate the economy. Oh yes, because I forgot to mention one other important thing: Moody’s is threatening to lower America’s triple A to AA!

   Can Romney afford a collapse in debt and a AA rating or worse? Of course he can’t. So whatever he’ll do will be quite literally a mirror copy of whatever Obama will do…

   I really can’t understand why America is so polarized between the two parties…But then, I’m a damn European, right?
4. Jane says:

   September 12, 2012 at 7:58 pm

   @no man is an ice cream van….No matter who wins there will be no 90s tech bubble…