President Obama Doesn’t Know the First Thing About Economics
As the Oscar buzz surrounding actress Meryl Streep keeps growing — thanks to her portrayal of Margaret Thatcher, it’s worth remembering one of the real Iron Lady’s most famous observations: that any housewife could manage the British economy.
President Obama should heed that advice, and realize that economy begins at home. Unfortunately, his recent statements on the economy give little reason for hope on that front.
The president’s press conference on Monday epitomized the “do something” nature of his administration. He wants to do something about … well, everything—from getting more kids into college to fighting global warming (although the latter is less evident these days, at least in public). The trouble is that he thinks he needs more and more of our money to do it, so he wants any budget deal to include tax rises.
Let’s take the example of college education grants, which the president suggested should be funded by an increase in taxes on millionaires like himself. The president’s budget request for 2012 contains an allocation of $36 billion for increased Pell grants for students from poor backgrounds to attend college. That’s out of an entire federal budget request of $3.7 trillion, which makes Pell grant expenditure just 1 percent of the total.
Looking at that from the viewpoint of Mrs. Thatcher’s proverbial housewife, we can compare it to the median household income of about $46,000, which, after taxes, is about $3,000 a month.
The size of the problem that President Obama singles out as requiring tax increases is equivalent to a household budget shortfall of $30 a month. A competent economic manager should be able to deal with that sort of problem by tightening his or her belt elsewhere. The president’s seeming incapability to contemplate this demonstrates just how out of control the federal spending machine is.
Potential budget savings abound. The Heritage Foundation has identified about 90 programs that can be reduced or eliminated entirely at a savings of $343 billion annually. If the president were to agree to half of these, he could keep his Pell grant increases and still reduce discretionary spending by about $170 billion, no tax increase needed.
When it comes to his justification for tax increases, the president’s ignorance of basic economics shows through even more.
He has suggested that tax increases would stop him personally from keeping hundreds of thousands of dollars that he doesn’t need. So now we know what the president does with his book money – he throws it on a pile, like Tolkien’s dragon Smaug.
However, that’s not what wealth creators do. They either spend that “excess” money, providing jobs for people who make or import the things they spend it on, or invest it, thereby creating more jobs and more wealth which they can reinvest.
The obstacle in this virtuous circle is government’s intervention, which either makes the investment unviable owing to too much regulation, or takes away the profit through taxation, which is what Obama seems to want more of.
The president’s “do something” government is grossly exacerbating the great jobless recovery he laments. Sixty-four percent of small businesses will not hire any new employees over the next year, while 79 percent state that taxation, regulation, and legislation make it harder for them to hire more employees, according to the U.S. Chamber of Commerce.
This should come as no surprise. As I explain in my new book, “Stealing You Blind,” regulations cost the American economy at least $1.75 trillion a year, and the burden falls harder on smaller businesses than on larger ones, which can afford to hire professionals essentially to work full-time for the government within the firm.
While the president has paid lip service to the idea of reducing regulatory burdens, the savings he has identified to date are orders of magnitude too small to provide any relief to struggling businesses.
For all these reasons, Mr. Obama should do something about the size of the government he heads. To the average housewife, economy means “making savings,” not adding revenues.
Whatever deal is reached on the debt limit and budget deals, if it does not include substantial belt-tightening, it won’t work. I’m sure the real Margaret Thatcher would be happy to tell him that if he asked her.