Sunday, December 30, 2012

Obama's latest trip to Fantasyland

The President's Weekly Address yesterday was all about the consequences of going over the "fiscal cliff" for middle class America:
But we’re now at the point where, in just a couple days, the law says that every American’s tax rates are going up. Every American’s paycheck will get a lot smaller. And that would be the wrong thing to do for our economy. It would hurt middle-class families, and it would hurt the businesses that depend on your spending.
And he's absolutely right here, taxes will go up for a majority of Americans--including most of the middle class--if no deal is reached before the new year. But as I've noted, that's exactly what should happen for people who insist on an all-encompassing Federal Government empowered to solve every problem that society has (or that some simply believe society has).

In that regard, Obama continues to offer up a "balanced plan" to save the middle class from tax increases, cut deficits, and continue to grow the economy:
It’s a balanced plan – one that would protect the middle class, cut spending in a responsible way, and ask the wealthiest Americans to pay a little more. And I’ll keep working with anybody who’s serious about getting a comprehensive plan like this done – because it’s the right thing to do for our economic growth.
Of course, there is no actual spending cuts in Obama's plan; the cuts are all either in the rate of growth of spending or are tabled into the future. The central thrust of the plan remains the same: tax the rich. But what about the economic growth component? Is there any validity in the idea that such a plan will help the economy?

In a word, no.

And primarily, this is because Obama, his administration, and many of his supporters remain clueless about the economy, its current state, and the consequence of specific policies for growth. As an example of the last, in this very short address the President calls for yet another extension of unemployment insurance benefits. I realize there are some progressive/liberal economists who argue that such extensions are economic stimuli, but at this point in time--following extension after extension--it's just not a tenable position to hold, in the least. Because on top of these extensions, we've had "stimulus" spending, entitlement growth, and a payroll tax holiday across the past four years, all of which were supposed to help grow the economy. And where are we know, as another year of progressive rule is about to begin?

The President would have us believe that the economy is growing in a real sense, but he--and his advisors--are ignoring all of the data that says exactly the opposite:
[Money manager John Hussman] notes that most of the forward-looking indicators, including “industrial production, capacity utilization, real disposable income, real personal consumption, real sales, retail and food service sales, and real manufacturing and trades sales” are all pointing down. 
The Economic Cycle Research Institute agrees, and recently announced that a recession may have begun as long ago as July. The combined economic signal coming from industrial production and personal income, noted ECRI in a recent report, “has never occurred outside a recessionary context in over half a century - but it’s occurred in every recession.”
That's right. I don't mean to bring everyone down to start the New Year, but it is quite likely we are in another recession. Thus, the economic pattern under Obama: recession, stagnation, recession. The dropping unemployment rate has been used as a club by the Administration with which to beat economic nay-sayers over the head, but as I--and many others--have pointed out, the drops in the rate are coming almost entirely at the expense of the labor force participation rate. Indeed, as the above article notes:
Missed in most recent jobless reports was the news that the number of employed people in the United States, age 25 to 54, actually fell by half a million - before seasonal adjustments - from October to November.
This signals both a weak labor market and a weak economy. All of the "created jobs" touted by the Administration are largely meaningless, because they represent part-time work for the extreme ends of the labor market (the young and the old) and because they are barely sufficient to keep pace with population growth. The economy is not in danger of some sort of total collapse, but it remains weak. And--something Obama gets right, for once--it remains fragile.

The question is, what is the correct response from D.C.? Well for starters, any response must be grounded in reality, and that means recognizing and accepting the true state of things. The Administration is unwilling to do this, as the President continues to offer fantasy-land versions of reality. He does so because otherwise, he would have to deal with the actual consequences of his policies, minus the sugar-coating.

Again, it is very likely that we are in the midst of a recession. There are some conflicting reports out now on holiday spending numbers--a great indicator of perceived economic strength--but the general consensus suggests a weak season, much weaker than 2011. Some pundits would like to blame the fiscal cliff for this, but let's be honest: most people are not paying attention to such things. The typical holiday shopper bases their spending on their own situation. And given the actual employment situation, it's unsurprising that many chose to curb their spending this year.

So where has Obama's tripod of economic policies--more government spending, payroll tax holidays, and unemployment insurance benefit extensions--led us? Recession. And Obama's "balanced plan" to make things better? More of the same, plus some punitive taxation on the "rich" to justify not cutting any spending (which cannot possible have positive consequences for the economy).
The definition of insanity: doing the same thing over and over again and expecting different results.--unattributed
By the way, the above quote is often attributed to Albert Einstein. I know of no evidence to back that claim up, so I'll leave it as "unattributed."

Cheers, all.

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