May God grant that the confession of Pulitzer Prize-winning journalist Jose Antonio Vargas, an illegal immigrant, will awaken the conscience of the nation to the wickedness of immigration restrictions. One of the aspects of the experience of being an illegal immigrant that Vargas writes about is:
But I am still an undocumented immigrant. And that means living a different kind of reality. It means going about my day in fear of being found out. It means rarely trusting people, even those closest to me, with who I really am. It means keeping my family photos in a shoebox rather than displaying them on shelves in my home, so friends don’t ask about them. It means reluctantly, even painfully, doing things I know are wrong and unlawful. And it has meant relying on a sort of 21st-century underground railroad of supporters, people who took an interest in my future and took risks for me.
The things he says he did that were "wrong and unlawful" are of two kinds. First, he worked using a fake Social Security number:
The “uncle” who brought me here turned out to be a coyote, not a relative, my grandfather later explained. Lolo scraped together enough money — I eventually learned it was $4,500, a huge sum for him — to pay him to smuggle me here under a fake name and fake passport. (I never saw the passport again after the flight and have always assumed that the coyote kept it.) After I arrived in America, Lolo obtained a new fake Filipino passport, in my real name this time, adorned with a fake student visa, in addition to the fraudulent green card.
Using the fake passport, we went to the local Social Security Administration office and applied for a Social Security number and card. It was, I remember, a quick visit. When the card came in the mail, it had my full, real name, but it also clearly stated: “Valid for work only with I.N.S. authorization.”
When I began looking for work, a short time after the D.M.V. incident, my grandfather and I took the Social Security card to Kinko’s, where he covered the “I.N.S. authorization” text with a sliver of white tape. We then made photocopies of the card. At a glance, at least, the copies would look like copies of a regular, unrestricted Social Security card...
For more than a decade of getting part-time and full-time jobs, employers have rarely asked to check my original Social Security card. When they did, I showed the photocopied version, which they accepted. Over time, I also began checking the citizenship box on my federal I-9 employment eligibility forms. (Claiming full citizenship was actually easier than declaring permanent resident “green card” status, which would have required me to provide an alien registration number.)
This deceit never got easier. The more I did it, the more I felt like an impostor, the more guilt I carried — and the more I worried that I would get caught. But I kept doing it. I needed to live and survive on my own, and I decided this was the way.
Second, he told lies to various friends and other people about himself:
After a choir rehearsal during my junior year, Jill Denny, the choir director, told me she was considering a Japan trip for our singing group. I told her I couldn’t afford it, but she said we’d figure out a way. I hesitated, and then decided to tell her the truth. “It’s not really the money,” I remember saying. “I don’t have the right passport.” When she assured me we’d get the proper documents, I finally told her. “I can’t get the right passport,” I said. “I’m not supposed to be here.”...
But the real reason was, after so many years of trying to be a part of the system, of focusing all my energy on my professional life, I learned that no amount of professional success would solve my problem or ease the sense of loss and displacement I felt. I lied to a friend about why I couldn’t take a weekend trip to Mexico. Another time I concocted an excuse for why I couldn’t go on an all-expenses-paid trip to Switzerland.
Now, I certainly wouldn't judge any illegal immigrant who lies to personal friends when the stakes are this high. Still, if the question is posed in a general, abstract way, I would say that the standard to live by is never to tell any lies at all. I could be wrong and particular situations-- what if a life is the only way to save Anne Frank from the Gestapo?-- are so hard that I'd just refuse to answer, or say, "let's hope that doesn't happen." But I would not consent to formulating a set of exceptions to the no-lying principle, though I have, alas, told quite a few lies myself. (I don't remember any specific ones off the top of my head but I remember having done it.)
However, I think using a fake Social Security card is fine. Lying to a machine, or to an impersonal bureaucracy, is different than lying to a human being. I was applying for insurance the other day and one of the company's agents advise me to put false information so that I could get through the form. I constantly order something, and there will be a box that says "I have read the terms and conditions of the agreement," or something like that, and I haven't done so, but I still check the box. I don't feel guilty, and I don't intend to stop doing it; there's just nothing wrong with it. Maybe it would be better if pointless legalese didn't trap people into signing so many things they don't have time to read and couldn't understand anyway, but you can't live without doing that, and it isn't really lying. Systems can get detached from the human content of language. Likewise with Social Security cards. I don't think Vargas needs to feel guilty about that one.
Indeed, using a fake Social Security card means paying taxes without thereby becoming qualified for benefits. If anything, it's a generous action.
I've always kind of wondered this... Why doesn't anyone suggest that instead of providing universal health care, the government should simply lend individuals the money to cover health coverage if they're uninsured and can't, or don't want to, pay cash? It would then get the money back from them over many years. It could suspend payment if people are poor and there could be debt forgiveness in special cases. It avoids a lot of the adverse selection problems of insurance markets, and creates incentives for people to engage in their own cost control, and for that matter to get insured. Of course, it would mean putting some people in a sort of debt servitude to the government, or losing their homes to pay for a surgery, but if things keep going as they are now it looks like the fate of the entire population looks to be a bit like servitude to pay the government's debts. I've been in a sort of debt servitude for years, since borrowing $90,000 to go to Harvard. It's not fun, but it's not all that inhumane, and it does help to get the incentives right.
The White House is mulling a temporary cut in the payroll taxes businesses pay on wages. White House advisors figure this may appeal to Republican lawmakers who have been discussing the same idea. It would, in essence, match the 2 percent reduction in employee contributions to payroll taxes this year, enacted as part of the deal to extend the Bush tax cuts.
Other ideas under consideration at the White House include a corporate tax cut, accompanied by the closing of some corporate tax loopholes.
Can we get real for a moment? Businesses don't need more financial incentives. They're already sitting on a vast cash horde [sic] estimated to be upwards of $1.6 trillion. Besides, large and middle-sized companies are having no difficulty getting loans at bargain-basement rates, courtesy of the Fed.
In consequence, businesses are already spending as much as they can justify economically. Almost two-thirds of the measly growth in the economy so far this year has come from businesses rebuilding their inventories. But without more consumer spending, there's they won't spend more. A robust economy can't be built on inventory replacements.
What Robert Reich seems never to have imagined is that the market has an ability to adjust naturally. Even when demand is not growing for the time being, there is still an immense amount of it out there. If companies have so much cash, they could use it to invest and compete for market share, and earn a better return on capital than the zero or less that they get on cash. This would boost demand and create jobs. If this is not happening-- if companies prefer hoarding their cash to investing it-- we can infer that there's something that makes businesses doubtful about whether they will enjoy the returns on their investment. What this might be is not far to seek. We're running deficits of 10% of GDP. The government has no plan to bring this under control. There seems to be a bipartisan refusal to contemplate raising taxes on the middle class. Instead, two big tax hikes on the rich-- for ObamaCare, and the expiration of the Bush tax cuts-- are already scheduled. Meanwhile, ObamaCare is leading to a sort of breakdown in the rule of law as Obama keeps issuing exemptions to favored states and companies in order to mitigate the damage done by the law, and also in the form of bailouts and other forms of intervention. This creates new methods of de facto confiscation by the government: not just taxes and regulation, but political favors to competitors. Where is all this heading? Until that picture becomes clearer, it's best to keep one's money is as liquid a form as possible.
Supply-side economics doesn't work. It's been tried for thirty years, to no avail. And now, when our continuing economic crisis is so palpably being driven by inadequate demand, it's more bogus than ever.
What on earth is Reich talking about? The past thirty years (before 2009) have been widely lauded as the "Great Moderation," during which we enjoyed consistently stable prices and low unemployment. They may not have been paradise, they may not have been the best we can do, but they were certainly far better than what we have now. We need to get back to that. If Reich is writing off the last thirty years as "to no avail," what does he want, and why does he think it's possible? Even Keynesians are supposed to understand that their prescriptions apply only in the short run. Do Keynesians denounce such parodies of their doctrines?
The insidious thing about long-term unemployment is that it builds on itself - the longer you are without a job, the harder it is to get one. The Bureau of Labor Statistics finds that the chance of someone unemployed for less than five weeks finding a job in the next month is about 30 percent. For someone unemployed 27 weeks or more, it's just 10 percent.
This seems like a nonsequitur. It's probably not so much that a longer unemployment spell makes one less employable, as that the less employable suffer longer unemployment spells. That's not to deny that one picks up human capital on the job, but I think an unemployed person would be mistaken to think that these statistics are indicative of how much his employability erodes for each week he's unemployed.
Last month, the CBO released a little-noted document, which I first encountered via Bruce Bartlett, breaking down the debt this country has accumulated since 2001. The grand total of debt is $11.8 trillion. Of that, more than half, or $6.2 trillion, was added because of lost revenue, while $5.6 trillion was added because of spending. Now you may look at those numbers and say, well, spending is almost half. And yes, it is. But what’s interesting in this chart is that the lost revenue figure matches exactly the actual current deficit.
For those who reside in the world of fact, it’s beyond question that the decrease in tax revenue because of the Bush tax cuts and the economic meltdown that resulted from conservative deregulatory policies has done more than spending to create the crisis.
Now, according to the evidence Tomasky himself cites, spending has gone up a lot, and revenue has gone down a lot, and we have a higher deficit. Of course, the decline in revenue doesn't mean a decline in revenue, it means a decline in revenue relative to a counter-factual in which revenue rose a lot, but never mind. By Tomasky's own evidence, yes there might not be a deficit without the Bush tax cuts, but there also wouldn't be a deficit without all the extra spending. So surely, the rules of a basic, honorable discourse, interpreting the words of other side with the minimal charity that is demanded by justice, one would have to say that "spending caused the deficit" and "tax cuts caused the deficit" are both true, and about equally true, and the difference between the two statements being merely semantic, either side can without dishonesty use either formulation for rhetorical purposes. Right?
But no, Tomasky calls Pawlenty a liar. If he wants to make such charges, it's a strategic mistake to cite evidence in his articles.
Half of Americans say they couldn't come up with $2,000 in 30 days without selling some of their possessions. Meanwhile, companies are flush: American firms generated $1.68 trillion in profit in the last quarter of 2010 alone. But many firms would think twice before putting their next factory or R&D center in the U.S. when they could put it in Brazil, China or India. These emerging-market nations are churning out 70 million new middle-class workers and consumers every year. That's one reason unemployment is high and wages are constrained here at home. This was true well before the recession and even before Obama arrived in office. From 2000 to 2007, the U.S. saw its weakest period of job creation since the Great Depression.
Nobel laureate Michael Spence, author of The Next Convergence, has looked at which American companies created jobs at home from 1990 to 2008, a period of extreme globalization. The results are startling. The companies that did business in global markets, including manufacturers, banks, exporters, energy firms and financial services, contributed almost nothing to overall American job growth. The firms that did contribute were those operating mostly in the U.S. market, immune to global competition — health care companies, government agencies, retailers and hotels. Sadly, jobs in these sectors are lower paid and lower skilled than those that were outsourced. "When I first looked at the data, I was kind of stunned," says Spence, who now advocates a German-style industrial policy to keep jobs in some high-value sectors at home. Clearly, it's a myth that businesses are simply waiting for more economic and regulatory "certainty" to invest back home.
The last sentence is exactly correct except for the "it's a myth that" part. In 1990-2008, companies may have been outsourcing a lot, but US unemployment was quite low. In the first half of that period, productivity growth accelerated and we were enjoying the best economic times in a generation. In the last eight years of it, incomes were stagnant and gains in household net worth proved temporary, but we kept unemployment low while carrying the burden of two big foreign wars. The job dearth is a new phenomenon, and the main reason is probably the increased political risk since 2008.
Pundits on the right are converging on a story. Here's John Podhoretz:
By now it is clear to everyone that the Obama administration bungled the 2009 stimulus package. The dispute now is over the reasons for its failure. The conventional wisdom is coalescing around a view crystallized in a column by Mr. Conventional Wisdom himself, Charlie Cook of the National Journal: “The administration’s initial response, the much-maligned economic-stimulus package, was far too modest and unfocused.”
Cook is a rational analyst, so it is striking that he is able to advance an argument that is, on its face, nothing short of demented. The idea that the 2009 stimulus, which cost $840 billion, could have been less “modest” and more “focused” does violence to the facts of very recent American history and to the arugments made for the stimulus by its advocates at the time.
Even at its “far too modest” size, the stimulus was, by leagues, the costliest such effort in American history. Its astounding price tag was justified during the debate over its passage by the fact that there was a genuine economic emergency that had to be addressed. And the mere fact of addressing it with enormous public resources was, we were told, enough to do the trick almost on its own. The central point of taking emergency measures, we were told, was precisely not to focus them but to cause them to wash over the economy as a whole.
How many times during that emergency were we reminded of the supposed wisdom of John Maynard Keynes, who wrote in 1930 that it was enough to employ a man to perform any task at hand to create the conditions for macroeconomic growth? Simply “to dig holes in the ground,” Keynes wrote, “paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services.” This is the famous “multiplier effect” we also heard so much about, according to which $1 in government spending would blossom into $3 of value for the entire economy. In effect, we were told by the most enthusiastic believers in the magic of the multiplier effect, that for $840 billion in spending, we’d get more than $2 trillion in economic activity.
It’s also important to remember that the stimulus wasn’t the first bite at the apple... The notion that Congress could have passed a stimulus bill twice the size of the one that did—Paul Krugman’s idea—was then and is now preposterous. Obama’s stimulus was as large as it could possibly have been, and the parlous results indicate it was vastly larger than it should have been.
The growing consensus is that Obama’s economic policies have failed, and precisely in the ways that those skeptical of the stimulus predicted.
The policies of the Obama administration have led to the weak condition of the American economy. Growth during the coming year will be subpar at best, leaving high or rising levels of unemployment and underemployment.
The drop in GDP growth to just 1.8% in the first quarter of 2011, from 3.1% in the final quarter of last year, understates the extent of the decline. Two-thirds of that 1.8% went into business inventories rather than sales to consumers or other final buyers. This means that final sales growth was at an annual rate of just 0.6% and the actual quarterly increase was just 0.15%—dangerously close to no rise at all. A sustained expansion cannot be built on inventory investment. It takes final sales to induce businesses to hire and to invest.
The picture is even gloomier if we look in more detail...
How has the Obama administration contributed to this failure to achieve a robust and sustainable recovery?
The administration's most obvious failure was its misguided fiscal policies: the cash-for-clunkers subsidy for car buyers, the tax credit for first-time home buyers, and the $830 billion "stimulus" package. Cash-for-clunkers gave a temporary boost to motor-vehicle production but had no lasting impact on the economy. The home-buyer credit stimulated the demand for homes only temporarily.
As for the "stimulus" package, both its size and structure were inadequate to offset the enormous decline in aggregate demand. The fall in household wealth by the end of 2008 reduced the annual level of consumer spending by more than $500 billion. The drop in home building subtracted another $200 billion from GDP. The total GDP shortfall was therefore more than $700 billion. The Obama stimulus package that started at less than $300 billion in 2009 and reached a maximum of $400 billion in 2010 wouldn't have been big enough to fill the $700 billion annual GDP gap even if every dollar of the stimulus raised GDP by a dollar.
In fact, each dollar of extra deficit added much less than a dollar to GDP. Experience shows that the most cost-effective form of temporary fiscal stimulus is direct government spending. The most obvious way to achieve that in 2009 was to repair and replace the military equipment used in Iraq and Afghanistan that would otherwise have to be done in the future. But the Obama stimulus had nothing for the Defense Department. Instead, President Obama allowed the Democratic leadership in Congress to design a hodgepodge package of transfers to state and local governments, increased transfers to individuals, temporary tax cuts for lower-income taxpayers, etc. So we got a bigger deficit without economic growth.
A second cause of the continued economic weakness is the president's emphasis on increasing tax rates. Although Mr. Obama grudgingly agreed to continue the Bush tax cuts for 2011 and 2012, his budget this year repeated his call for higher tax rates on upper-income individuals and multinational corporations. With that higher-tax cloud hanging over them, it is not surprising that individuals and businesses do not make the entrepreneurial investments and business expansions that would cause a solid recovery.
A third problem stems from the administration's lack of an explicit plan to deal with future budget deficits and with the exploding national debt. This creates uncertainty about future tax increases and interest rates that impedes spending by households and investment by businesses. The national debt has jumped to 69% of GDP this year, from 40% in 2008. It is projected by the Congressional Budget Office to reach more than 85% by the end of the decade, and to keep rising after that. The reality is even worse since ObamaCare alone will cost more than $1 trillion in its first 10 years. The president's boast that his health legislation would not "add a dime" to the national debt was possible only by combining that increased spending with proposed new taxes and with projected cuts in Medicare spending that will never occur...
The economy will continue to suffer until there is a coherent and favorable economic policy. That means bringing long-term deficits under control without raising marginal tax rates—by cutting government outlays and by limiting the tax expenditures that substitute for direct government spending. It means lower tax rates on businesses and individuals to spur entrepreneurship and investment. And it means reforming Social Security and Medicare to protect the living standards of future retirees while limiting the cost to future taxpayers.
Martin Feldstein seems to have more faith in stimulus in general than Podhoretz, but thinks the "multiplier" is less than one (or less than zero, depending on how you define it). Which also looks bad for Keynesian theory. And Jonah Goldberg piles on:
"Now, my administration has a job to do as well, and that job is to get this economy back on its feet," President Barack Obama declared on July 14, 2009, in Warren, Mich. "That's my job, and it's a job I gladly accept. I love these folks who helped get us in this mess and then suddenly say, well, this is Obama's economy. That's fine. Give it to me."
OK. It's yours.
The unemployment rate then was 9.5 percent. It's now 9.1 percent, well above the 8 percent cap that the administration advisers projected under the stimulus bill. But that's not the amazing part. According to a White House report written by economic advisers Jared Bernstein and Christina Romer in January 2009 in support of the bill, if we had passed no stimulus package at all, the unemployment rate would have topped out at around 8.8 percent in the last quarter of 2010.
Instead, we got Obama's vital "investments." Since his speech in Warren, we've spent another $2.8 trillion in borrowed money. Presumably, we could have cut the unemployment rate by four-tenths of a percentage point more cheaply than that?
Meanwhile, we've accrued a total of $3.7 trillion in debt on Obama's watch, while losing 2.8 million jobs. That doesn't sound ideal either.
But what do I know?
The more salient point is that Obama acts like he knows everything. From Day One, this White House has been cocksure about how to get us out of the economic ditch. In every major relevant speech, Obama has stuck with a consistent message: We know what to do and the Republicans don't. "I will not sacrifice the core investments we need to grow and create jobs," Obama insisted yet again in his April budget speech...
No president "runs" the U.S. economy, but this president talks like he does more than any I can remember. And yet, none of his economic promises or predictions has panned out.
Obama deserves all this for his failure to deal with the long-term budget deficit if nothing else. But Keynesian theory also deserves it. In particular, the "multiplier" idea needs to bite the dust. Keynes argued that if the government spends $1, someone will get that $1, save say 10%, spend $0.90, someone else will get that $0.90, save say 10%, spend $0.81, so the total spending will be a lot more more than the original $1. Wrong. (a) Savings don't just disappear, in a healthy economy they will be invested. (b) Savings rates are endogenous, and if people see that the government is borrowing on an enormous scale, they'll save more to offset the anticipated tax increases. In the short run, since some people are credit-constrained, more government spending may raise total spending, in the short run. But it might leave it constant, or even-- because other people, who are not credit-constrained, anticipate paying more than their fair share of the extra future taxes and raise savings by more than the government raises spending-- reduce it. In any event it is not likely to raise it by much. And in the long run it just distorts the economy and makes us poorer. If there are ways to spend that raise long-run GDP, fair enough. It might be a good idea to concentrate that spending in bad times. But generally, fiscal stimulus just doesn't work. We shouldn't really have expected it to.
The constant references to sentiment don't seem to include links to actual surveys, but rather to people the author talks to. The counterfactual asseverations don't seem to come with any actual support. Krugman et al. can (and do) claim that the stimulus was much smaller than it should have been according to their calculations, and that seems to be a plausible and natural defense of the mismatch between claims of benefit and results. There's a significant chance that the defense is wrong, but it's not special pleading.
Now, I think this is quite wrong, and let me see if I can explain why. For conservative critics of Obama's economic policy, the counter-factual is some kind of mean reversion. The idea is that the economy has a sort of equilibrium state or equilibrium trend, and that when the economy deviates from trend, it tends to move back to it, if policy does nothing. If policy seeks to prevent deviations from trend, and deviations from trend do not occur, that suggests that maybe policy is preventing them, that is, policy is helping to smooth the business cycle, to make the economy more stable. That might have seemed true, say, in the 1990s. If, on the other hand, the economy stays a long way below trend for a long time, the counter-factual is that the economy would be on or returning to the trend, and the first hypothesis to consider for why it is not doing so is government policy. So the main basis for the counter-factual presumptions is simply the historical trend, though other evidence is nice, too, if it is available.
By contrast, it's difficult to express the kinds of assumptions that must underlie Krugman's argument for a bigger stimulus without undermine its plausibility. Thus, you might say that if there had been no stimulus, we would have been even slower to get out of the recession. To claim that, one must either deny that the economy has any inherent tendency to revert to trend, or claim that something has suddenly made that tendency inoperative. That claim is destitute of the kind of historical induction which underlies the conservative position. If one does accept that there would be a natural reversion to trend, then the counter-factual presumption has to be that the economy would have been recovering if government policy did nothing, and it's not recovery but the feebleness of the recovery that must be regarded as the result of the stimulus policy. If this is granted, one might still argue that the effects of stimulus are non-linear, that a relatively small (though still quite large!) stimulus had a negative result, but a larger stimulus would have had a positive result. But if the effects of stimulus are non-linear, it seems more likely that the effects of stimulus get worse at the margin, that the "low-hanging fruit" are picked first, and more spending means less valuable public-sector prrojects and more displacement of private sector activity. So I think Nato is quite to think that the critics of Obama's policies are more to blame for unsupported counter-factual asseverations than Krugman, it's the other way around. All Krugman has to support his claims that a bigger stimulus would have worked are deductions from a Keynesian theory that has not fared well theoretically or empirically in recent decades, and which the apparent failure of a smaller Keynesian stimulus further undermines.
However, what prompted this post is the following:
I have not yet encountered any that weren't based on assumed counterfactuals and dubious claims of sentiment. I have sometimes argued with these, and sometimes not, but it seems each time I've challenged them, the writer either retrenches somewhat or doubles down on the 'sentiment' point without offering additional evidence.
When I responded to this with a link to a survey showing pessimistic sentiment among households, Nato objected that it was "household sentiment about the economy, not businesspeople about the government." Well, but businesspeople are householders too, no? Still, it got me thinking about what the ideal instrument would be to test the hypothesis that businesses' reluctance to hire reflects heightened political risk.
First, what you'd really want to do would be to write a questionnaire and then go back in time and ask people the same questions in 2007, then ask them in 2011, and compare answers. If you just have the answers today, they would be hard to interpret. Suppose 95% of businesspeople say they are worried about higher taxes. Well, maybe businesspeople always know there's a chance taxes will rise, and always try to be ready for it. If, on the other hand, 25% of businesspeople say they're worried now, but only 10% did in 2007, that would provide strong support for the political risk hypothesis. Unfortunately, you can't do that, and it's very likely that many of the questions you would want to ask now, no one would have thought of asking in 2007, because the politico-economic environment has changed in such unanticipated ways. For example, we might now want to ask: "Do you sometimes take into account the possibility of future government bailouts when you make business decisions? How?" Who would have imagined in 2007 that that could be an important question to ask businesspeople?
Second, what is your sample, and how do you weight it? If your sample is of "firms," represented by, say, CEOs, a big problem is that firms vary hugely in size and are not of anything like equal importance. So, do you interview the bosses of Fortune 500 companies, or mom-n-pop stores, or something in between? If you interview firms of different sizes, do you give firms of greater size greater weight? Once you do that, though, your statistics start to become strange. What are you actually reporting? You can't say "55% of bosses said that..." Your number might accurately be stated as "55% of firm value is represented by bosses who said that..." Worse, there will be so many different weird schemes you could adopt to deal with the problem that people could suspect you of manipulating the results, and someone else using the same data but adopting a different, and equally defensible, weighting procedure, might find a different result. And yet, if 95% of bosses don't think at all about government bailouts, but 5% have switched from productivity-maximization to rent-seeking in the past five years, and especially if those 5% are highly placed, that might explain much of the deterioration of the economy.
Or is it businesspeople you want to interview at all? Maybe the businesspeople are as confident as ever, but they can't get credit to expand because the people with the money are worried about political risk. How would you find that out? You'd need a sample of bankers or investors. Also, remember that the sample of businesspeople is endogenous. Some people might be businesspeople now because they got thrown out of jobs by the recession and so tried self-employment instead-- or because they are politically well-connected and found that a more useful asset in a more interventionist time. Others may have been businesspeople two years ago and aren't now because their businesses went bust in the recession. More subtly, some people would have been businesspeople but for the recession, that is, they had business ideas but didn't pursue them because the environment seemed unfavorable. Or conversely, they might have planned to abandoned self-employment, then decided to stick with it because the times were unfavorable to looking for a salaried job. In short, if businesspeople are your sample, the sample is endogenous. How do you deal with that? (Some of these people might not even be in the country: immigrants who went home, or didn't come, because of the bad economy.)
There might be clever ways to deal with these statistical problems. But I think the demand for "evidence" in the form of polls or surveys might be a little hasty. There's merit in just grabbing stylized facts and thinking about them. The economy's performing way below trend. Why? Obamacare and the removal of the Bush tax cuts are going to cause substantial tax hikes for the rich, and Obama still seems to think there's room for more. How does that affect the incentives of entrepreneurs and investors today? No one seems to understand Obamacare, what obligations it places on employers and individuals, how it's going to affect prices. How is that going to affect hiring decisions? Corporations have been making big profits in the past couple of years, and P/E ratios are low. If capital's earning a lot, why don't people want to make more of it by investing? Political risk makes a lot of puzzle pieces fit together.
Last month, a CNN poll found that while 80% think the economy is bad, only 33% blame Obama for it. I think they're mistaken. Even in 2009, I think it's likely that the shadow that the victory of Obama and the Democrats cast over the future-- higher expected taxes, regulation, and spending-- deepened the downturn. But two-and-a-half years in, the "it's not Obama's fault" argument is getting obsolete. Fred Barnes makes the case ("The Obama Economy," Weekly Standard):
The Obama administration is 0-for-3 in meeting economic expectations. In 2009, President Obama and his advisers believed the bountiful stimulus package would give the economy a strong jolt. It didn’t, and still hasn’t. In 2010, Obama declared Recovery Summer and predicted a surge in employment. The economy lost 283,000 jobs over the summer. This year, Obama expected a significant ratcheting up of jobs and growth. There’s been a ratcheting down.
The White House always has an excuse. Obama’s economic policies are never at fault. The problem in 2009, according to Obama? The economy was in worse shape than he’d feared when he took office. In 2010, economic adviser Christina Romer said the dip in jobs was unexpected. No doubt it was, but that’s a lame explanation. And Obama stubbornly refused to express regret for having proclaimed Recovery Summer in the first place.
Now, two years after the recession officially ended, the excuses for economic stagnation and puny job growth are stale and implausible. Obama didn’t offer any in an economic speech in Toledo a few hours after bad job numbers for May were released last week. Romer’s replacement, Austan Goolsbee, dismissed the 9.1 percent jobless rate as a bump “along the road to recovery.” House Democratic whip Steny Hoyer blamed the Bush administration—really, he did.
Yet Obama labors on as if his policies are working, only a bit more slowly than he’d anticipated... Rather than a midterm course correction, Obama wants more of the same, lots more.
And he’s not reticent about saying so. Obama’s desire to raise taxes is undiminished. He’s obsessed with the notion that more tax revenues can be wrung from rich people with money to spare. In Obamacare, he’s already got a hike in the Medicare tax. Last week he told House Democrats he won’t tolerate another extension of the current tax rates for high earners (more than $250,000 a year). If he had his way, the top rate on individual income would be 45 percent. Oblivious to economic history, he doesn’t see a rising tax burden as a disincentive to entrepreneurship, investment in job-creating enterprises, and a booming economy.
It’s not just Obama. Treasury Secretary Tim Geithner spoke last week to Republican House freshmen. One Republican summarized his message as “revenues, revenues, revenues.” Obama, by the way, told Democrats he’ll insist on a tax increase as part of any deal on raising the debt limit.
Obama’s economic panacea is government spending. If you thought the meager results from the stimulus would change his mind, you’re wrong. He told House Republicans that he favors “investing” in the economy. Republicans drew the reasonable conclusion he was talking about more spending by Washington.
Obama was clear about this in his April budget speech. “I will not sacrifice the core investments we need to grow and create jobs,” he said. “We’ll invest in medical research. We will invest in clean energy technology. We’ll invest in new roads and airports and broadband access. We’ll invest in education. We will invest in job training. We will do what we need to do to compete, and we will win the future.”
The president wasn’t referring to the private sector. He once told a group of money managers that incentives for private investment were old hat. His administration’s massive spending on clean energy, environmental technology, and green jobs, he said, would attract a wave of private investment sufficient to spur growth. So relax, prosperity is on the way.
Whether by design or happenstance, President Obama is the greatest proponent of crony capitalism since FDR proposed cartels under the National Recovery Act. He does big favors for corporate supplicants and recipients of government subsidies while largely ignoring small business...
Obama is a regulatory zealot, even as the administration is supposedly weeding out damaging regulations...
Even where Obama seemed to agree with Republicans, he didn’t really. The president is a master of lip service. When Republicans mentioned free trade agreements, medical liability reform, and cutting the corporate tax rate, the president said amen. He’s with them. But there’s always some reason he can’t act. On trade, for instance, Obama is waiting for Congress to pass assistance to alleged victims of foreign competition before pushing to ratify deals with Panama, Colombia, and South Korea. It’s a sop to unions, nothing more.
And all this is a big reason for businesses to avoid hiring.