It’s not a won­der­ful econ­omy

But with some pol­icy corrections, the econ­omy can be­come pros­per­ous again

The Washington Times Daily - - COMMENTARY - By Stephen Moore

Since the elec­tion, the stock mar­ket has soared, con­sumer con­fi­dence has climbed to its high­est level in 20 years, and sev­eral com­pa­nies have com­mit­ted to multi­bil­lion dol­lar new in­vest­ments in the United States. To say that Amer­ica has a new spring it its step — at least for now — would be an un­der­state­ment. It feels like the last joy­ous scene in “It’s a Won­der­ful Life” when Ge­orge Bai­ley stum­bles home on Christ­mas Eve to a house full of friends and fam­ily.

The burst of op­ti­mism has Pres­i­dent Obama and sup­port­ers of his poli­cies pro­claim­ing that Oba­ma­nomics was a grand suc­cess af­ter all. Last week the White House put out it’s an­nual eco­nomic re­port which not only re­stated that Mr. Obama’s stim­u­lus bill and bailouts not only helped “stave off a sec­ond Great De­pres­sion,” but also has, as Obama put it, cre­ated “the strong­est, most durable econ­omy in the world.” His chief

econ­o­mist Ja­son Fur­man boasted last week: “I didn’t think I’d ever see the unem­ploy­ment rate this low.”

The me­dia is echo­ing these claims. The New York Times gushes: “Pres­i­dent Obama is Hand­ing a Strong Econ­omy to His Suc­ces­sor,” while CNN claims that the econ­omy is “Obama’s Gift to Trump.”

A gift? Did It ever seem to oc­cur to these folks that con­sumers and in­vestors are singing “Ode to Joy” pre­cisely be­cause Barack Obama and his poli­cies are leav­ing in a few weeks?

It’s true the econ­omy is show­ing some signs of im­prove­ment. The hous­ing mar­ket is strong, job growth is slow but steady, and wages are fi­nally nudg­ing up. But most Amer­i­cans aren’t buy­ing the Gar­den of Eden sce­nario. A Fox News poll last week finds only 30 per­cent of vot­ers think Obama poli­cies left them bet­ter off since the end of the re­ces­sion.

The real ver­dict on the econ­omy was de­liv­ered by vot­ers last month. If eco­nomic con­di­tions were nearly as strong as Democrats claim, why did Mr. Obama’s heir ap­par­ent, Hil­lary Clin­ton, lose the elec­tion?

Here’s the ob­vi­ous an­swer: for most Amer­i­cans not liv­ing in Sil­i­con Val­ley, Hol­ly­wood, Man­hat­tan or Wash­ing­ton, D.C., the econ­omy is still dra­mat­i­cally un­der­per­form­ing. Even the Fed is say­ing that the fore­cast is for the U.S. to slodge along in the rut of 2 per­cent growth for the next sev­eral years and many pri­vate economists see a re­ces­sion loom­ing be­fore the next elec­tion without a sharp change in pol­icy.

Here is a brief list of the struc­tural eco­nomic prob­lems Pres­i­dent-elect Trump will have to tackle in his first year in of­fice:

1. The growth deficit. Mr. Trump is in­her­it­ing an econ­omy with an ever-widen­ing growth gap. The 2 per­cent re­cov­ery has down­shifted over the last year to 1.5 per­cent is now pro­duc­ing $2 tril­lion less GDP each year than if we had ex­pe­ri­enced even a nor­mal re­cov­ery of 3 per­cent growth. The Obama re­cov­ery is nearly $3 tril­lion be­hind the Rea­gan ex­pan­sion of closer to 4 per­cent. This is the equiv­a­lent to the com­bined out­put of Ohio, Penn­syl­va­nia and Michi­gan com­bined gone miss­ing.

2. Flat-lined in­comes. One reper­cus­sion of slow growth is stag­nant wages. The Cen­sus re­port showed good news on in­comes for 2015 with wages fi­nally (af­ter eight years) ris­ing and poverty tak­ing a nice dip. But the num­bers also show that me­dian house­hold in­come is $1,200 lower af­ter ad­just­ing for in­fla­tion than it was in 2000. This decade and a half of stag­nant take home pay helps ex­plain why so many vot­ers think the Amer­i­can Dream is dead.

3. The in­vest­ment/pro­duc­tiv­ity drought. For eight years now Amer­ica has been in a se­vere in­vest­ment slump. Com­pared to one year ago, pri­vate do­mes­tic busi­ness in­vest­ment has cratered 29 per­cent and pro­duc­tiv­ity is an ane­mic one per­cent. There can be no sus­tain­able real wage gains without pro­duc­tiv­ity and cap­i­tal in­vest­ment. It’s not too shock­ing that the pres­i­dent who raised in­vest­ment taxes on cap­i­tal gains and div­i­dends by nearly 60 per­cent — to 23.8 from 15 per­cent — has presided over an in­vest­ment slump.

4. Real unem­ploy­ment rate in Amer­ica is close to 10 per­cent. The low head­line unem­ploy­ment rate of 4.5 per­cent that Ja­son Fur­man touts is a sta­tis­ti­cal mi­rage. When count­ing un­der­em­ployed part timers and those work­ing age Amer­i­cans who have dropped out of the la­bor force, it is closer to 10 per­cent. Nearly 95 mil­lion Amer­i­cans over the age of 16 are not work­ing — an all-time record high. The big­gest de­cline has been among 16- 30 year olds. No won­der so many are sleep­ing in their par­ent’s base­ment.

5. The bud­get and debt are spi­ral­ing out of con­trol. Here’s the real “gift” Mr. Obama is leav­ing for Mr. Trump. The bud­get deficit is ex­pected to climb back to $1 tril­lion a year for as far as the eye can see. Mr. Obama’s eco­nomic phi­los­o­phy has been that bor­row­ing would make us richer, so dur­ing his ten­ure, the na­tional debt has nearly dou­bled to nearly $20 tril­lion. The fed­eral debt has reached nearly $200,000 per house­hold — which is like a sec­ond mort­gage.

6. Wel­fare still near record highs. If the ro­bust econ­omy is here, why are a near record 44 mil­lion Amer­i­cans still on food stamps? That’s 12 mil­lion more than at the start of the re­ces­sion. Oba­maCare put more than 10 mil­lion more Amer­i­cans on Med­i­caid as well.

7. The reg­u­la­tory crush. Mr. Obama has greatly sur­passed his pre­de­ces­sors in the issuance of costly government reg­u­la­tions. New reg­u­la­tions on power plants, fuel stan­dards, bank­ing, and health­care have raised con­sumer costs while sti­fling in­dus­try. A study by The Her­itage Foun­da­tion finds that Obama has im­posed 229 ma­jor reg­u­la­tions, cost­ing $108 bil­lion an­nu­ally. The Na­tional As­so­ci­a­tion of Man­u­fac­tur­ers es­ti­mates reg­u­la­tions cost any­where from $10,000 to $30,000 PER worker. Is it any won­der that fac­to­ries have been head­ing to China and Mex­ico?

So, no Mr. Trump isn’t in­her­it­ing a won­der­ful econ­omy from Mr. Obama. It’s a fi­nan­cial house of cards built on years of debt and cheap money. Amer­i­cans get that and this is why they voted for a change of lead­er­ship. Which brings me to the real rea­son for hol­i­day cheer: with some swift pol­icy course corrections — on taxes, reg­u­la­tion, health care, and en­ergy the econ­omy can be­come gen­uinely pros­per­ous again in a hurry.

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