When the objective historians go write down the legacy of this President, they are not going to talk about health reform (even if the ACA failed, it does capture the fact, and I think it is a fact, that reform is needed – I happen to think it lies in the deregulatory side coupled with government picking up the reins on high-risk pools and offering free medical clinics but that’s for another story), they are not going to talk about the failure and cronyism of his green jobs initiatives, or any of his positive policies. Nope. Instead, they are going to remember that he is merely the Commander in Speech, and his legacy is going to be about what he didn’t do – and what is that? Well, he didn’t do a single thing for poor and minority communities in America – which is perhaps strange if you consider who he is and his history as a community organizer. Well, actually, it’s not strange – because I suspect that all that community organizing is “Bootleggers and Baptists” in the political and not economic sphere. It’s politics with a moral varnishment.
Few things are harder to listen to than Presidential speeches on the economy, unless one remembers that they are political speeches and nothing else. Here is the latest harangue and a very short analysis by Russ Roberts Ignore if you wish, it does have political overtones, but actually, you know, looking at the data and appealing to some very basic economic principles is nice every once in a while in a world where “if I say it is so then it must be so” seems to be the argument strategy du jour.
Here is President Obama’s summary of what happened to economic life in America after the late 1970′s:
As values of community broke down, and competitive pressure increased, businesses lobbied Washington to weaken unions and the value of the minimum wage. As a trickle-down ideology became more prominent, taxes were slashed for the wealthiest, while investments in things that make us all richer, like schools and infrastructure, were allowed to wither. And for a certain period of time, we could ignore this weakening economic foundation, in part because more families were relying on two earners as women entered the workforce. We took on more debt financed by a juiced-up housing market. But when the music stopped, and the crisis hit, millions of families were stripped of whatever cushion they had left.
And the result is an economy that’s become profoundly unequal, and families that are more insecure.
Let’s take it a sentence at a time:
As values of community broke down, and competitive pressure increased, businesses lobbied Washington to weaken unions and the value of the minimum wage.
I don’t know whether community values broke down, whatever that means but there was some competitive pressure on American companies from increased foreign trade. That was generally a good thing. But unions weakened because the economy was changing. Service jobs continued to grow and outside of the government, service jobs aren’t unionized. The President suggests that the whole thing was a nefarious plot by business to exploit workers. Is that true? Union workers as a percentage of the private sector work-force has fallen steadily since WWII. It did fall more quickly starting in the late 1970′s but it has continued to fall through Democratic and Republican Administrations. Is that all the power of lobbying?
Inflation eroded the value of the minimum wage. I assume the President means to say that businesses lobbied to keep the minimum wage from being increased to offset the erosion of inflation. That’s true. I think that was good or low-skilled workers, but let’s ignore that for now.
As a trickle-down ideology became more prominent, taxes were slashed for the wealthiest, while investments in things that make us all richer, like schools and infrastructure, were allowed to wither.
This is a combination of a deception and a lie. Tax rates were reduced for all Americans in the 1980′s. But of course the rich (and lots of non-rich) pay more in taxes today than in 1980. Confusing rates and amounts is convenient. But the next line is just wrong. Investments in schools and infrastructure were allowed to wither? Please. That’s just not true.
Capital outlays for education were about $20 billion in 1980, measured in 2011-2012 dollars. In 2008 the number was $71 billion. A tripling is not withering. In 2010, the most recent data, the number is $58 billion showing the effects of the recession. But no withering.
But the infrastructure is really bizarre. Here’s one measure from the CBO:
Notice that withering? Yeah, I missed it, too.
And for a certain period of time, we could ignore this weakening economic foundation, in part because more families were relying on two earners as women entered the workforce.
I don’t know about the “ignoring” part, but women did start working more. They also got divorced a lot more so single women started working more. So the proportion of households with two earners is now LOWER than it was in 1980. Not a lot lower. But lower.
We took on more debt financed by a juiced-up housing market.
I think he has causation backward there or at least he’s ignoring some simultaneity.
But when the music stopped, and the crisis hit, millions of families were stripped of whatever cushion they had left.
And the result is an economy that’s become profoundly unequal, and families that are more insecure.
Yes, the distribution of earnings and wealth is less equal than it was in 1979 or 1980. But what’s the cause of it? Lots of things, but few that are mentioned by the President. Increasing the power of unions and the minimum wage are the wrong ways to make things better. How about improving our lousy school system in America’s inner cities?
My “favorite” part of all of this? The “journalists” at the WaPo call this the “best” economic speech the President has given. One can only imagine what the rest of the rankings look like.
Russ doesn’t go far enough in his analysis of course – because cherry picking a few things that happened over a time period to make the point that, well, you figure out the point the President is making, is not exaclty scientific. You know, taxes for the poorest plummeted over this time period … to zero. The Fed inflated a couple of bubbles, or so it is thought, during this time period. Regulatory restrictions on what businesses could do and whom they can hire increased over this time period. Technology rapidly advanced during this time period. Other nations around the world got richer during this time period. Public sector unions grew more powerful during this time period. States plunged themselves into a series of spending-led budget crises during this time period, in part due to the growth of Medicaid, in part due to the growth in the prison system, in part due to unsustainable promises made to public sector employess. We ratched up dramatically the drug war during this period – incarcerating by a large margin more people than any nation on earth, and many of these are non-violent drug offenders who happen to be the same people that “trickle down” critics are arguing are not being trickled onto. Well, it’s hard for a rising tide to lift all boats when half of them are in prison. But hey, let’s just yell about crumbling infrastructure, because everyone has had their car run over a pothole – except of course the poor who are stuck in prisons – both physical and in the modern American inncer-city. Let’s not talk about that – perhaps the greatest human rights crisis in modern America, and instead we see politics as usual – pandering to people who have a misplaced romance about a union sector that is not exactly non-coercive like “real” unions are, and construction interest groups and state and local political interest groups who get horny at the idea of more federal dollars for “infrastructure” being thrown their way.
UPDATE: This hit my inbox just minutes after I posted it. It speaks for itself. I’ll paste in the pictures below without Professor Taylor’s observations.
It seems like it just gets worse and worse. No mention of how QE destroys social mobility either, destroying opportunity for low-income entrepreneurs who lack borrowing power .
And when it comes to free medical clinics, why is that not obvious to everyone? Why are cost-effective solutions like this never publicly discussed? Too much money for the bootleggers to gain through complex legislation is my theory.
Of course all this is political jibberish, but I find it infuriating nonetheless. The ny times wrote today that the the current economic crisis is a direct result of the Reagan tax cuts. When does the non sense stop?
The entire “trickle down” rhetoric is of course a complete straw man argument. I know of no one who ever advocated such a thing. Obama’s use of the phrase epitomizes his entire speech, and his entire presidency. I am convinced he believes it is not only acceptable, but that it is his duty to lie to us in order to impose his authoritarian agenda. For an outstanding treatment of the entire “trickle down” nonsense, see Sowell’s paper:
http://www.tsowell.com/images/Hoover%20Proof.pdf
Amen, jb. Maybe there is earlier use of the phrase “trickle down”, but it goes back at least to FDR. The imagery describes all wealth going to Daddy Warbucks first, then to his maids, butlers, gamekeepers, yacht builder, and tailor in London.
In the 1980 Republican primaries, George H. W. Bush added Voodoo Economics to describe the ideas of Robert Bartely, Jude Wanniski, and Arthur Laffer, and others.
I am not sure the president understands what supply-side economics is. If he took a course in college economics at Columbia, it likely would be pure Tobin Keynesianism with extensive emphasis on explaining away the failures of Marxism/Leninism. Then, surrounding himself with Bill Ayers and other like-minded folks, he may actually believe his own BS.
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