The White House’s ever-optimistic economic cheerleading squad is in shambles. Over the last six weeks, Peter Orszag, Director of the Office of Management & Budget and Christine Romer, Chairman of the Council of Economic Advisor, have now euphemistically “resigned to spend more time with their families”. Both Orszag and Romer were highly credentialed and respected academicians who provided a veneer of elitist credibility to offset the enormous skepticism regarding the lugubrious Larry Summers and the dubious Timothy Geithner. Orszag and Romer had been reduced early on to a level of authority similar to Saturday Night Lives’ iconic Spartan Cheerleaders, Will Ferrell and Cheri Oteri. They trotted out each week dressed for the part to enthusiastically give the “World’s Greatest Cheer”, but they were never actually allowed on the team.
The Obama Administration has fancied itself as the new Camelot of American Politics. Their campaign march to power was capped by a highly choreographed speech near Berlin’s Brandenburg Gate where Presidents Ronald Reagan and John Kennedy rallied the Free World to oppose tyranny with “tear down these walls” and “ich bein Berliner”.
Obama was successful demonstrating the he could match America’s two most photogenic Presidents for good looks and beautiful wives. But his appeasement message of “the walls between the countries with the most and those with the least cannot stand” seemed the antithesis to Reagan’s: “Democracy is worth dying for, because it’s the most deeply honorable form of government ever devised by mAan.”and Kennedy’s: “Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty.”
Presidents Reagan and Kennedy championed supply-side tax cuts and reductions in regulations to support spur the economic triumph for America’s brand of free market democracy, whereas President Obama seems much comfortable with bureaucratic orthodoxy. Both Reagan and Kennedy respected the profit motive and extolled the creative virtues of the capitalism. Reagan stated: “The most terrifying words in the English language are: “I’m from the government and I’m here to help.”
Kennedy stated “Conformity is the jailer of freedom and the enemy of growth”. Obama on the other hand dismissing a career in business as; “Focusing your life solely on making a buck shows a certain poverty of ambition. It asks too little of yourself. Because it’s only when you hitch your wagon to something larger than yourself that you realize your true potential.” For the last two years Summers and Geithner have smugly claimed (1) America has better demographics, (2) China will be happy to continue to fund our government spending and (3) the dominance of the US economy will return as it always has. The Great Recession has been worse than the Administration’s cheerful predictions. Reassurances that unemployment would fall to 7.5% by this November’s election are being replaced with; deficit spending of only $3.5 trillion over two years was not sufficient stimulus and the 9.5% current unemployment may “temporarily” move higher.
The Administration’s signature accomplishment of “Healthcare Reform”, passed in over a weekend as cost containment, is taking some tough hits now that independent analysts have read the 2324 pages of small print. Towers Watson, an employment benefits consultant, now projects it will cost corporations $14 billion a year more to comply. The fear of this new spiraling entitlement has small business frightened. The Heritage Foundation calculates the annual budget deficit when Obamacare is fully implemented in nine years, will be more than double the White House estimate of $ 917 billion.
Christine Romer may still eventually win the Nobel prize for her pioneering economics studies. She convincingly demonstrated the failure of US fiscal stimulation to be effective during the Great Depression, because taxes were raised almost as quickly as government spending increased during the New Deal. Her recent work, with husband David Romer, focussed on the impact of tax policy on government and general economic growth. The historical record of US tax changes from 1945-2007, reveals that a one percent increase in taxes by “one percent of GDP lowers real GDP by roughly three percent.”
Peter Orszag’s economic research determined “higher health care costs coincide with downward pressure on consumer incomes.” As real disposable income growth has been 1% or less for the last eight quarters – the longest period of such slow growth since World War II, Orszag could quickly calculate that pay checks from private payrolls shrank to their smallest share of personal income ever in first quarter. who believe they have zero or negative equity in their homes has risen to over 50%.
The Spartan cheerleaders may be hanging up their pompoms after two years of rooting for policies their own research told them would not work. The fear that higher government spending will lead to higher tax rates has paralyzed business, which is the cause of anemic income growth and high unemployment in the US. President Obama said; “we are the change we were looking for”. He is right! He should change course and adopt the proven supply side policies championed by Presidents Reagan and Kennedy of cutting taxes and supporting business is the change that lead to economic victory. Now that would be the change worthy of; The World’s Greatest Cheer.