Obama’s New New Deal at a dead end

Jim Powell Senior Fellow, Cato Institute
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In 2009, when recession-weary Americans yearned for recovery, President Obama did the politically correct thing: He embraced FDR’s New Deal as a model for his policies. There was much talk about Obama’s “New New Deal,” supposedly a source of hope and change. Like FDR, Obama demonized employers, raised taxes and spent money he didn’t have.

Obama did this even though FDR failed to resolve the most important problem: chronic high peacetime unemployment. It averaged 17 percent during the New Deal era (1933-1940). One shouldn’t be surprised that Obama’s New New Deal has also failed to resolve chronic high unemployment.

There are fewer people employed now than were employed when Obama became president in January 2009. Back then, according to the Bureau of Labor Statistics, there were 142,099,000 people employed. Despite some $800 billion of “stimulus” spending and several trillion dollars of bailouts and monetary infusions during the past two and a half years, there were only 139,296,000 people employed in July 2011 (the latest period for which statistics are available).

In addition, more people are out of work now than when Obama was sworn in: 11,616,000 in January 2009 versus 13,931,000 in July 2011. The inheritance from President Bush that Obama keeps talking about included a 7.6 percent unemployment rate. Since January 2009, we have had 25 months (and counting) with unemployment at or over 9 percent and several more months with unemployment between 8 and 9 percent. We were told that none of this would happen if Congress passed Obama’s “emergency” stimulus bill. GDP statistics might suggest that there has been some recovery, but as far as the unemployed are concerned, there has been no recovery.

By now, the failure of Obama, FDR and others ought to make clear that runaway government spending is quack medicine. It doesn’t stimulate private sector growth or private sector employment. Reviving the private sector is absolutely crucial, since it pays all the bills. Government doesn’t have any money other than what it extracts from the private sector.

Why in the world would anybody imagine that taking resources away from the private sector might help the private sector recover? Each dollar that government spends reduces by one dollar what taxpayers can spend. There isn’t any evidence that government can spend money more effectively. Politicians don’t have a crystal ball. They don’t know whether their policies will do more good than harm. Since politicians are human beings, they’re going to make errors, and their vast power means that their errors harm not just a city or state or region, but the entire country and beyond.

The only sure thing is that diverting private sector resources to government will make government bigger. Unfortunately, government has a well-deserved reputation for inefficiency and corruption. That’s because people aren’t as careful when they’re spending other people’s money as they are when they’re spending their own money. Although the U.S. Post Office has a government-enforced monopoly, it loses billions of dollars every year, and it has some $15 billion of debt. New York City’s government-run betting parlors gross nearly $1 billion a year but lose money and are more than $40 million in debt. Former Mayor Rudolph Giuliani called it “the world’s only bookie that loses money.” Burdened by costly contracts with the United Food & Commercial Workers Union, the Washington State Liquor Control board has struggled to avoid losses by enforcing a state-run liquor store monopoly that extorts above-market prices for booze. The Pennsylvania Liquor Control Board, which also enforces a state liquor store monopoly, found it necessary to pay a consulting firm $173,000 to give its sullen employees smiling lessons. Government can’t even be counted on to run a zoo properly. Dr. Donald K. Nichols, a pathologist at the National Zoological Park in Washington, D.C., reported that “because of incompetence in management and veterinary medicine, the operations of the National Zoo have been in such a state of disarray that it has led to poor animal care, animal suffering and even animal deaths.”

Ending chronic high unemployment as fast as possible would involve creating the strongest possible incentives for investors to make financial commitments, for entrepreneurs to start businesses and for people to work. The lower the cost of government, the more money employers will have for hiring and the more money consumers will have for spending. The fewer the obstacles to enterprise, the more prosperity there is likely to be. In brief, what’s needed is a comprehensive overhaul of taxes, spending and regulation.

Of course, Obama seems ideologically opposed to any of this, and he draws support from some of the biggest lobbyists for runaway government spending. But since high unemployment could doom his hopes for re-election, he might have considered the possibility that his biggest mistake was to take the economy for granted. It doesn’t take kindly to abuse.

Jim Powell, a senior fellow at the Cato Institute, is the author of FDR’s Folly, Wilson’s War, Bully Boy,The Triumph of Liberty and other books.