In campaigning for the presidency,
Barrack Obama inspired popular support of millions of voters by
eloquently promising to “transform” America with “fundamental”
change. Now his popularity is at its all-time low, his signature
legislation, Obamacare, has been a disaster, his highly touted—and
extremely expensive—stimulus program has failed. He has done
nothing to lower the federal debt or tackle the future insolvency of
Social Security, Medicare or Medicaid. And the economy continues to
stumble 58 months after the recession officially ended.
In the first quarter 2014, home loan
demand plunged 58% from the same period a year ago and 23% percent
from fourth quarter 2013. Ever since the Fed began its “quantitative
easing”—printing money—in late 2008, it was hoped that driving
down interest rates would stimulate home buying and lead to growth in
other segments of the economy. Many people were able to refinance
their homes with lower mortgage rates, but the hoped-for follow
through for the rest of the economy has been very weak. Moreover,
the low interest rates have a sizable downside: they lowered the
purchasing power of millions of retirees struggling to supplement
fixed incomes with decent returns from low-risk investments.
Since the recession ended 58 months ago
in 2009, the gross domestic product (GDP) has grown only 1.8% a year
on average, half the rate of the past three recessions. The
unemployment rate remains stubbornly high at 6.7%, and the standard
of living for most people has declined. Median household income
declined 1.65% in 2008 and 2.6% in 2009—but it continued to fall
after the end of the recession: by 2.3% in 2010 and 2.5% in 2011. In
2013 median household income was 6.2% lower than in 2007, the
official beginning of the recession. And it was 4.7% lower than in
June 2009, the official end of the recession. Obama’s policies have
put the country on the wrong track. This is emphasized by the fact
that since the end of the recession, employment has risen from 140
million to 145.7 million—but the number of Americans who are
neither working nor seeking to work soared from 80.9 million to 91.4
million!
The labor participation rate includes
workers and those looking for work but not those who have quit
looking for work. This rate now stands at 62.8%, the lowest in
36 years. The employment rate (employment-to-population ratio) stands
at 58.9%, compared to 59.4% in 2009. Pathetic as those numbers are,
the situation is much worse than they indicate. As we pointed out in
a previous posting, 60% of the jobs lost during the recession were in
the middle pay range and only 21% in lower paying jobs, but almost
the exact opposite occurred during the so-called recovery: 58% of the
new jobs were low-paying while only 22% were in the middle range. In
short, workforce income has downshifted. Far from showing an economic
recovery, the numbers collectively show the economy has been going
downhill since Obama became president.
Obama got elected by promising a
fantasy he cannot deliver because it is disconnected from economic
realities. The “transformational change” he promised has
burdened the economy with wasteful government spending, mounting
debt, tax increases and costly regulations that dissuaded business
from investing and hiring. Evidence throughout the world shows the
path to prosperity lies in reducing government spending and
government’s role, not in increasing them as Obama has done. The
International Monetary Fund data show that nations which restrained
government spending enjoyed above-average economic growth. Daniel Mitchell of the Cato Institute provides some examples:
In Sweden, government budgets grew an
average of only 1.9% annually from 1992 to 2001, and government
spending as a percent of GDP dropped 15%.
In Germany, government spending grew an
average of less than 0.2% annually 2003 to 2007, and government
spending dropped to 5.4% of GDP. A significant budget deficit became
a surplus.
In Canada, government spending grew an
average of only 0.8% annually 1992 to 1997, and government spending
as a percent of GDP dropped 9.4%. A large deficit turned into a
surplus.
Latvia has cut government spending by
an average of more than 4% annually since 2008 and reduced government
spending as a percent of GDP by more than 7%.
Other nations with similar results
include: Ireland (1985-89), Slovakia (2000-04), Singapore (1998-08),
Italy (1996-2000), Lithuania (2008-present), Taiwan (2001-06), Israel
(2002-05), Estonia (2008-11), Iceland (2008-present) and the
Netherlands (1995-2000).
Regulations slow economic growth and
impose costs on business and consumers. They make business less
competitive and leave consumers less money for saving or
spending—including spending for necessities. The overall cost of
federal regulatory compliance is estimated at $1.9 trillion annually
in a new study, based largely on government documents, by Wayne Crews
of the Competitive Enterprise Institute. This amounts to $14,974 per
U.S. household, because the added cost of regulatory compliance is
embedded in the prices of all goods and services. Regulation is not a
free service provided by a benevolent government for its citizens; it
is a service that costs them much more than they realize. But by far
the greatest and most tragic cost is the slower economic growth that
has meant fewer jobs, lower incomes and vanishing economic
possibilities that tens of millions of Americans will never see.
The 2013 Federal Register contains
3,659 final rules, which means they must be obeyed now, and 2,594
proposed rules that will have to be obeyed when their final
publication appears. Mr. Crews reports that there are another 3,305
regulations moving through the pipeline. Of these, 191 are defined
as “economically significant” (having annual costs over $100
million each). This means we are likely to see even more of these
expensive regulations from Obama’s remainder in office than in his
first 3 years as president, when 106 new regulations in this cost
category were adopted. That compares to 28 during the eight years of
the George W. Bush administration.
The Federal Register in 2013 contained
79,311 pages. The all-time record was 81,405 pages in 2010. Four of
the five largest occurred during Obama’s presidency.
Regulations also impose costs by
delaying or denying permits for enterprises that would provide
employment. Obama has stated his goal of income equality affects
everything he does, even why he ran for president. He speaks out
against the rich with the class warfare rhetoric of Saul Alinsky and
Karl Marx. This makes him popular with middle and lower income voters
and unwilling to approve permits or regulations that would favor
business or the wealthy—even when they would provide jobs and good
wages for the very people he professes to be most concerned about. A
case in point is the oil and gas industry.
According to the Bureau of Labor
Statistics, new jobs in the oil and gas industry increased 92%
between 2003 and 2012, compared to a 3% increase in all jobs during
this period. The BLS says the average annual wage in the oil and gas
industry was$107,200 in 2012, the latest full year available. At the
other end of the scale, waiters and waitresses earned about $16,200 a
year, workers in the accommodations industry averaged $27,300, and
those in retail trade averaged $27,700. But in oil boom regions,
energy development lifted wages for low-income workers, too.
Williston, North Dakota, and Sidney,
Montana, are oil boom towns on the western edge of the Bakken
geologic formation. Drs. Polzin and Whitsett report:
“Before the Bakken boom in 2003, BLS
data showed that average wages in all jobs in Richland County
[Sidney] and Williams County [Williston] were roughly equal to their
state averages. In Richland County, wages averaged $30,000, or 91% of
the Montana average. In Williams County, wages averaged $32,700, or
97% of the North Dakota average.
“The data show that these counties
now have average wages that have risen to 133% (Montana) and 170%
(North Dakota) of their state averages. And wages in lower-paying
jobs have also increased in inflation adjusted terms and relative to
the region. In Richland County, food service wages have risen 109%
(from 80%) of the Montana average. In Williams County, wage growth
has been even more dramatic—to 146% from 97% before.”
The authors point out that these two
counties are not atypical but characteristic of oil and gas
development throughout the U.S. They conclude: “Lower-paid workers
in retail trade, food services and accommodations jobs experienced
much faster than expected increases in wages per worker. The data
don’t lie.”
The reality of lower-wage, less-skilled
workers benefiting from higher-wage, more skilled workers does not
jibe with collectivist ideology to which Obama clings. That
ideology holds that people becoming rich under capitalism do so at the
expense of the poorer classes. That is the essence of the class
warfare attacks against the rich and demands that they pay higher
taxes—their “fair share”—and that government redistribute
this wealth. The more some people increase their wealth, the more
virulent become the diatribes against the inequality of wealth. The
clamor increases for extending unemployment benefits, other transfer
payments, food stamps, subsidies for Obamacare, and other welfare
measures, all disincentives to work.
North Dakota has an unemployment rate
of 2.6%, the lowest in the nation. You’d
think Obama would want to emulate North Dakota in order achieve jobs
and lower the unemployment rate elsewhere. He has spoken repeatedly about his
concern for “jobs, jobs, jobs,” which he claims to be concerned
about and trying to create. But he has so far refused to approve the
Keystone XL pipeline to bring oil from Alberta to refineries on the
Gulf Coast, which would create thousands of jobs just like happened
in North Dakota. Last year North Dakota added 18,000 jobs; the Keystone XL pipeline would add 20,000 jobs over several states. The Keystone XL pipeline has been waiting for approval since 2008. (It appears the White House doesn’t want to
reject the pipeline until after the November elections because
billionaire Tom Steyer, who is pleased by the delay, has promised
$100 million to help the Democrats retain the Senate. Obama doesn’t
want to nix the pipeline until after November elections because
several Democratic office holders are in favor of the pipeline and
might lose re-election if the pipeline is vetoed.)
Another illustrative example in the oil
and gas industry is Oregon’s Jordan Cove terminal for exporting
liquefied natural gas. It will provide Rocky Mountain drilling
states with easier access to international markets; however, it took
two years to obtain federal approval, which happened just last month.
The regulatory delay was tantamount to a 100% tax on the profits that
would have been made during those two years. The costly delay would
no doubt have been even longer if Putin’s invasion of Crimea had
not led Congress to push for more exports to ease Russia’s control
over Europe’s energy needs. Significantly, there are 24 other
liquefied natural gas terminal projects waiting for approval.
Before wealth can be “redistributed,,”
it must first be created. Obama's policies act against the creation
of wealth. Food stamps do not create jobs. Extending unemployment
benefits does not create jobs. Waiters and waitresses and others in
low-paying employment do not create jobs; they benefit from jobs
created by others.
How do people become wealthy? By
providing goods, services and jobs that other people accept to better
themselves. Consumers and workers choose new or more economical
products, more efficient service or a better paying job because those
things are in their self-interest. Other people provide these things
through innovation, capital investment and hard work. Some get rich
from this process. So much the better, for now they have the know-how
and capital to do more of the same. Buyers and sellers enter
transactions for their own benefit, but each side must benefit the
other in order to succeed. Transactions are “win-win.” In this
system those who accumulate the most wealth are those who most enrich
others through the freedom of the marketplace. These are the people
Obama targets for higher taxes in order to make them pay their “fair
share.”
When Obama castigates the wealthy for
not paying their “fair share,” his accusation is devoid of any
respect for their natural rights. Under a system of natural rights,
every individual has a natural right—by the cause-and-effect
principle—to whatever wealth he accumulates by the exercise of his
rights through labor and trade with others. That is the only “fair”
system for the distribution of wealth. It is also the most efficient
way of utilizing financial, human, and material resources and raising
the standard of living in society.
Aristotle was the first to introduce
the cause-and-effect principle in human thought, more than 2,000
years ago, but it has been at the root of knowledge far longer. At
least as far back as primitive man learned to hunt or grow food, he
has employed the cause-and-effect principle to learn about the world
around him and advance his condition. The same cause-and-effect
principle is applied so often today we take it for granted in our
daily routines, our work, providing for our families and their
futures, in medical research and countless other scientific pursuits
that extend our knowledge of nature. It is this same principle that
identifies property as an effect of action stemming from the
right to life, which is the cause. The right to property was
seen by our Founding Fathers as the principle means of exercising
their right to the “pursuit of happiness,” which is a moral
statement of an individual's natural right to act for his own self
interest. It means his own happiness is a moral purpose of his life,
in the context of his own rights and respecting the same rights of
others. The only political system for this is free-market
capitalism.
Natural
rights are “unalienable,” as the Declaration of independence
states. That means they are “not transferable
to another person or capable of being repudiated.” You cannot
repudiate natural rights; you can only honor them or violate them—as
Obama has done by trying to “fundamentally transform” America. It
is appropriate to recall Étienne Gilson’s observation, “The
natural law always buries its undertakers.”
When government attempts to
redistribute wealth, it necessarily violates the property rights of
some for the unearned benefit of others. Some people gain, others
lose. Unlike free-market transactions, which are win-win,
government-forced economic transactions are win-lose. The more
win-lose transactions proliferate, the more the economy underperforms
what would be achieved by the win-win transactions of a free market.
Obamacare is a perfect example: tens of millions of people lose by
being forced to pay more for their health insurance, and the money is
redistributed to others in the form of unearned health benefits and
salaries to administrators.
Obamacare is not an exception. All
government economic interventions are “win-lose” transactions.
They are wasteful, distort price signals, misallocate funds, and
foster inefficient use of natural resources. In a future posting we
shall discuss these issues and include examples. For now, we conclude
with further evidence against demands for economic equality and show
that the disparity is NOT increasing, as is frequently claimed. Those
claims are simply phony propaganda for advancing socialist schemes.
According to the Bureau of Labor
Statistics, inheritance and gifts account for 16% of household wealth
of the top quintile. For the hated top one percent, inheritance is
about 15%. Those numbers have declined by almost half in recent
decades. Meanwhile, inheritance comprises 43% of the lowest quintile
of household wealth and 31% of the second-lowest quintile.
Kevin
D. Williamson writes: “The wealthiest Americans work for their
money, and the poor could learn from them. Wealthy households contain
on average more than four times as many full-time workers as do poor
households....They live modestly relative to their means and for the
most part do not work on Wall Street or as corporate executives....
“The country would in fact be far
better off if more people lived the way the top 20 percent do:
married, working their butts off, saving and investing their money,
and living within their means. ...as a practical matter we are
running out of ways to spend money on the needy: We already pay for
education, food, housing, job training, health care, heating, etc.”
