Like many people on this blog I voted for Obama. And like many people he’s given me much to be disillusioned about. Speaking for myself, and I imagine others, I had just hoped for more. Arguably a good deal of this has been the barriers put up by the radical right in congress, which has been far more intent at limiting his administration than solving anything.
But even with that I’ve found it hard to ignore those moments where I felt he should have been tougher. The worst for me was when he let the Republicans get the full Bush tax cuts extended for the wealthy, even when the Democrats still controlled both houses of congress! And unfortunately there were more. Nor have results in some key areas like the economy lived up to expectations. Taken together this understandably weighs on the commitment of even his most ardent supporters. It sure weighs on me. But what weighs on me far more is the colossal importance of this election, and it is why I believe it is vital that over the next few weeks we support the President as much as we each can.
Before every election pundits proclaim it’s the most important one ever. This is entirely predictable. But this time they just might be right. This is because we are faced with a critical “fork in the road” in the way we approach our economic survival, and the implications of taking the wrong path could be disastrous. One solution focuses on strengthening the middle class in order to drive demand, hiring and recovery. The other solution focuses on transferring more wealth to businesses in the hope they’ll increase hiring and the economy will recover. These two approaches aren’t just a little bit different, they’re diametrically opposed! As it's unlikely that both can be effective, we’re either going to win big or lose big depending on the outcome of this election. It’s why the outcome is so vital to our future. My position of course is that Obama’s vision will move us in the right direction, and Romney’s reincarnation of the failed Bush policies will be a disaster. Here’s why I think so (references provided).
When President Clinton left office the Government was running a sizable annual surplus (http://bit.ly/...). At the time Bush took office the CBO had projected that the accumulated surplus would amount to $5.6 Trillion for the 2002-2011 fiscal periods (http://1.usa.gov/...). However when Bush left office his administration had increased the federal debt by over $4.0 Trillion (http://1.usa.gov/...). Much of this was due to meaningless tax refunds, an enormous unfunded program, and two wars. So the result is no mystery.
Yet at the first debate Mitt Romney told an enormous lie when he said that Obama had driven up the debt more than all prior presidents combined! That’s pure Voodoo Math. When the Obama Administration took office the total debt, accumulated on the watch of all prior administrations, was just slightly over $10 Trillion (http://1.usa.gov/...). It’s now just over $16 Trillion. This means only $6 Trillion occurred on Obama’s watch. A large number to be sure, driven by all sorts of challenging realities, but clearly far less than $10 Trillion. How Romney math concludes that six is greater than ten is beyond me?
But back to Bush. According to CBO projections at the beginning of the Bush Administration, had the economy continued as projected, and the Financial Crisis been averted or lessened through more responsible regulatory oversight, we might now be close to actually paying the debt off (http://1.usa.gov/...). This is because the projected surpluses that Bush squandered combined with the accumulated deficit he created, as a result of ineffective tax cuts, unfunded expenditures, and irresponsible oversight, would have amounted to nearly $4.0 Trillion MORE than the total federal debt at the end of the Clinton Administration! Even with some likely degree of economic contraction during the years of the Bush Administration we’d still have a far lower debt than we do now, and likely a much stronger economy.
And of the $6.0 Trillion that did occur on Obama’s watch, a major portion of that was due to shifting demographics that nobody has the slightest control over (people getting old) combined with the 2008 Financial Crisis which was exacerbated by the irresponsible regulatory behavior of the Bush administration. Although the sub-prime meltdown was long in the making, and was precipitated by bad actions of people of both major parties, it is quite apparent that the behavior of the most egregious “actors”, the vast majority of who were intimately connected with the Bush administration, allowed the fiasco to spiral out of control (http://amzn.to/...).
However my point of this is not to attach or deflect specific culpability one way or the other. Rather, the key take-away here is that a number of the most damaging policy decisions of the Bush Administration were driven by its warped interpretation of Supply Side Economics. Originally implemented in force by President Reagan, Supply Side Economics is based on the belief that transferring wealth to business entities will cause them to invest that money into the economy, thereby resulting in higher employment and higher consumer demand. The major policy implications of this approach are lower taxes and reduced regulations (a centerpiece of the Bush Administration), both of which are believed to be key facilitators of economic expansion under the Supply Side theory.
However since this ideology gained traction roughly thirty years ago, empirical results have not been promising. For one, the concentration of wealth in the top 1% of the country has exploded and is now the highest it’s been since 1928 (of course we all know what happened after that!). And nearly all the wealth created in that period has gone to the wealthiest individuals, resulting in stagnant incomes for America’s middle class (see Henry Blodget’s excellent presentation of this at http://read.bi/...).
Yet these observations are not about beating up on the rich. The point is that these historically unprecedented levels of unbalanced wealth concentration have adverse and destabilizing effects on the economy. Consider that roughly 2/3 of GDP consists of consumer buying. But consumer demand has been very soft for years now, and for obvious reasons. First, middle class incomes are down because most of the wealth of the past thirty years has gone to the top. Second, much of their wealth has evaporated due to the drop in housing prices. Third, consumers are hugely in debt as they ran up massive consumer credit and mortgages to keep the economy afloat prior to the meltdown, but now they’re finally tapped out. And fourth, they’re scared. Not only is the economy weak, but there’s gridlock in Washington when they most need help. Instead of solutions they see Republicans fighting to reduce the taxes of those people who least need the Government’s support. Is it any wonder they’re curtailing their purchases?
So how does Supply Side, the notion that wealth will somehow magically trickle-down from the rich, fit in? When Bush took office he implemented trickle-down with a vengeance. Unfortunately this time around his version was far worse than the original. His tax cuts made no sense, did little to spur job growth, and turned a large projected surplus into a deficit (http://on.wsj.com/...). He also encouraged an environment of lax, though maybe “egregious” is more appropriate, regulatory oversight that allowed Wall Street to do pretty much anything it wanted. And what it wanted was to make money anyway it could, which meant taking undue risk and cutting corners that culminated in the Financial Meltdown of 2008. Because despite how fervently conservatives evangelize the supposed wonders of completely free markets, the reality is that without regulatory oversight businesses quickly discover that there is more money to be made unfairly than fairly. It is behavior that actually makes markets less efficient! And it is why the government wisely curtailed monopolies a century ago.
So the verdict is in. Supply side has been a bust. The idea that businesses will assume the risk of investing into a weak economy in order to create the economic growth they require to thrive is dubious at best. But the notion that they’ll take these risks in an economic environment of persistently weak consumer demand verges on nonsense.
The problem with trickle-down is that conservatives have cause and effect backwards. Businesses don’t hire because their resources have increased, say through lower taxes or reduced regulatory burden. Businesses hire when consumers buy. So businesses are not the “job creators” the conservatives purport them to be. In fact, it’s just the opposite. It is consumers who send the signals businesses require to initiate hiring. In other words, it you want to see real life “job creators” then visit the mall!
So it is no wonder that much of the money, largely from lower taxes, that has gone to business, notably big business, has not resulted in the creation of jobs. It is because businesses simply haven’t received the right hiring signals, which only occur when people spend more money. It is also why we see much of this money being drained offshore, tied up in money market accounts, or speculated on risky Collateralized Debt Obligations! (For those unfamiliar, CDO’s formed the basis of the financial meltdown)
So what about Obama’s economic policy? Obama believes that the key to economic growth and hiring is a strong middle class that is both able and willing to increase their long-term consumption, in contrast to the failed trickle-down approach of the Bush Administration. The concept behind this model is that increased consumer demand will induce businesses to hire again, resulting in yet more demand as incomes grow, followed in turn by yet more hiring. It is this positive economic cycle which, in my opinion, as well as that of many leading economists, represents the best chance we have for a meaningful recovery. Obama believes, and I strongly agree, that until wealth becomes more economically balanced the economy will remain stagnant. It is why he supports an approach that balances cost reduction with revenue growth, which includes directing more resources to the middle class than the top (which has amassed unprecedented wealth and hardly needs more).
And while the unsettling fact that conservative control of the house is a major barrier to rebuilding the middle class (Obama’s Jobs Bill was DOA when proposed), my fear is that if they are allowed to also gain control of the White House we can expect Romney to simply pick up where Bush left off. To do so would take us in a direction which history has already invalidated, and for which there is significant evidence was responsible for our weak economy. Even worse, by combining this approach with massive spending cuts the Republicans will significantly reduce overall aggregate demand by lowering the Government’s participation in the economy before the recovery has become sustainable and the middle class is back on their feet. There are many who believe that this would precipitate a second, and potentially fare more adverse, economic contraction. It is also why nearly 400 economists give Obama’s economic strategy a 50% better chance of success than Romney’s! (http://huff.to/...)
So in conclusion, although I’ll be the first to admit that I’d like to see more aggressive policy and stronger leadership from the Obama administration; I’m far more concerned what will happen if the Republicans gain control. It is why I strongly encourage supporters of President Obama to give all they can, in whatever way they can, for the remaining days and weeks leading up to this critical election.
NOTE: My apologies for the length of this. Yet I believe that it's the complexity of the issue that is causing many people to embrace Romney’s lies and simplistic spin. Hopefully this diary has been able to shed light on the significance of this election.