Frag­ile stim­u­lus pulse

The Washington Times Weekly - - Commentary - Don­ald Lam­bro

The old say­ing that money isn’t ev­ery­thing seems to epit­o­mize Pres­i­dent Obama’s in­ept at­tempts to jump-start the econ­omy by throw­ing two to three tril­lion dol­lars at it. Noth­ing ap­pears to be work­ing.

First he signed a nearly $800 bil­lion spending stim­u­lus bill to pump money into the states through a retro-New Deal-style wave of pub­lic works projects and the fi­nan­cial mar­kets tanked.

Then he an­nounced a sec­ond ef­fort to pump $275 bil­lion to bailout sub­prime mort­gage hold­ers threat­ened with fore­clo­sure and the big­gest banks, al­ready tot­ter­ing to­ward in­sol­vency, fell into an even steeper nose dive.

Then the U.S. Trea­sury and the Fed­eral Re­serve un­veiled yet an­other pub­lic-pri­vate eco­nomic res­cue plan to lever­age $2 tril­lion or so to buy up toxic as­sets in the fi­nan­cial in­dus­try and other busi­nesses tee­ter­ing on the edge.

It was the ad­min­is­tra­tion’s sec­ond at­tempt to sell a warmed-over plan that failed to im­press Wall Street and the global fi­nan­cial mar­kets. In­vestors here and abroad fled U.S. eq­ui­ties in droves.

No mat­ter what Mr. Obama has done thus far, he has failed to lift the mood of deep­en­ing pes­simism that blan­kets the in­vest­ment com­mu­nity and the wider econ­omy.

As last week opened, all of the stock mar­ket in­dexes were con­tin­u­ing their rapid de­scent, with the Dow Jones In­dus­trial Av­er­age slid­ing to­wards 7,000. There were as many explanations for all this as there were eco­nomic an­a­lysts, but it all came down to one com­mon de­nom­i­na­tor — con­fi­dence — and the ad­min­is­tra­tion wasn’t pro­vid­ing it.

“The big­gest thing I see here is the in­cred­i­ble pes­simism. The gov­ern­ment is do­ing a lousy job of al­le­vi­at­ing fears,” com­plained Keith Springer, pres­i­dent of Cap­i­tal Fi­nan­cial Ad­vi­sory Ser­vices.

In­deed, there seemed to be only mes­sages of doom and gloom com­ing out of the gov­ern­ment. Fed Chair­man Ben Ber­nanke is push­ing re­cov­ery off un­til 2010, pos­si­bly 2011. Mr. Obama and his top ad­vis­ers were say­ing it could be years be­fore the econ­omy turns around, maybe not un­til his term is over.

For the man who had ex­pressed ad­mi­ra­tion for Pres­i­dent Rea­gan’s eter­nal op­ti­mism, Mr. Obama’s eco­nomic rhetoric seemed stuck in the 2008 cam­paign of­fen­sive.

“I just would like him to end by say­ing that he is hope­ful and com­pletely con­vinced we’re gonna come through this,” for­mer Pres­i­dent Clin­ton sug­gested two weeks ago.

Writ­ing in CNNPol­i­ this week, global eco­nomic an­a­lyst David Smick echoed Mr. Clin­ton’s ad­vice. “Con­stantly sug­gest­ing, ‘If the stim­u­lus doesn’t work, there’s more to come,’ only de­stroys con­fi­dence. In­vestors and con­sumers are en­cour­aged to hold off, to see if a bet­ter deal ma­te­ri­al­izes down the road,” Mr. Smick said.

No one ex­pects the econ­omy to turn around any­time soon, no mat­ter what Mr. Obama tries. But there is the rea­son­able ex­pec­ta­tion that a new ad­min­is­tra­tion can at least change the na­tion’s psy­chol­ogy and that hasn’t hap­pened yet.

In­deed, the Wash­ing­ton news me­dia has be­gun to sug­gest that the bear mar­ket and grow­ing in­vestor fears are in­ex­tri­ca­bly tied to the loss of con­fi­dence in Mr. Obama’s eco­nomic poli­cies.

Last week, ABC’s Ge­orge Stephanopou­los re­ported on the net­work’s nightly news that “since the [ad­min­is­tra­tion’s] bank plan was un­veiled, the Dow in­dus­tri­als has lost 800 points.” His re­port in­cluded an in­ter­view with an econ­o­mist who said “in­vestors are not con­vinced [Mr. Obama’s] pro­grams are go­ing to work.”

Sup­port for Mr. Obama’s eco­nomic re­cov­ery plan re­mains high for now at 64 per­cent, but as the lat­est Wash­ing­ton Post poll re­vealed Tues­day, “deep par­ti­san fault lines are quickly reemerg­ing.” His job ap­proval rat­ing among Repub­li­cans has dropped sharply since last month, from 62 per­cent to 37 per­cent, and nearly 40 per­cent of Amer­i­cans now ap­prove of the job the GOP is do­ing in Congress, up by dou­ble dig­its since last year.

Notably, a large ma­jor­ity now says Mr. Obama’s plan falls short of what is needed to turn the econ­omy around. A whop­ping 63 per­cent say much more stim­u­lus is needed (tax cuts?), with 29 per­cent say­ing “a lot more.” A meek 20 per­cent say the plan “will be enough.”

This is what is fu­el­ing the lack of con­fi­dence in Mr. Obama’s re­cov­ery plan as the econ­omy re­treats into a shut­down men­tal­ity.

Hav­ing said all this, I con­tinue to be­lieve in the Amer­i­can econ­omy’s in­her­ent re­silience, if we pur­sue the right poli­cies and send the right mes­sages.

Tele­graph­ing — as the Obama ad­min­is­tra­tion did this week — that they will raise the top two in­come tax rates on up­per in­come in­di­vid­u­als and small busi­nesses in 2011 (when the coun­try will still be in, or com­ing out of its re­ces­sion) weak­ens the econ­omy’s fu­ture prospects.

Mak­ing mat­ters worse, states and coun­ties, from Cal­i­for­nia to New York, are rais­ing taxes, too, cre­at­ing even big­ger ob­sta­cles to an early re­cov­ery.

This is not a time to be rais­ing taxes on any­one. On the con­trary, we should be cut­ting tax rates on busi­nesses, in­vestors and work­ers to give the econ­omy the cap­i­tal and breath­ing room it needs to re­cover.

That is the eco­nomic pre­scrip­tion Repub­li­cans have been re­lent­lessly urg­ing the ad­min­is­tra­tion to take, but without suc­cess. A $13-a-week tax credit for low-to mid­dle-in­come tax­pay­ers that will end next year isn’t go­ing to make a dent in a cash­strapped econ­omy. The Amer­i­can peo­ple are just beginning to un­der­stand that.

Don­ald Lam­bro, chief po­lit­i­cal cor­re­spon­dent of The Wash­ing­ton Times, is a na­tion­ally syndicated colum­nist.

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