Obama and ‘The Wealth of Nations’
Published in Wall Street Journal
President Obama should put Adam Smith’s “The Wealth of Nations” at the top of his summer reading list. This was clear after listening to his 54-minute list of economic excuses and policy proposals delivered earlier this month on the campus of Cuyahoga Community College in Cleveland.
At times Mr. Obama suggested that the profit motive is somehow ignoble, an opinion shared by many on the far left. But every student learns in introductory economics class that the pursuit of profits is essential to a successful economy, allocating resources to the use consumers value most.
This is not exactly a new insight. Writing in 1776, Adam Smith noted, “It is not from the benevolence of the butcher, the brewer, or the baker that we can expect our dinner, but from their regard to their own interest.”
The president spent nearly an hour demonizing his Republican opponent Mitt Romney’s economic policies and doubling down on his own failed agenda. He called for higher taxes on our most productive citizens and successful small businesses, more government spending and debt, and Washington micromanagement of wide swaths of the economy.
Instead of doubling down, Mr. Obama could have seen his party’s 2010 midterm defeat as a message from voters to move to the center, announcing that his vast expansion of government was temporary and necessitated by the financial crisis and deep recession.
That’s similar to what President Clinton did after his 1994 midterm rebuke that swept Republicans to control of Congress and led to bipartisan agreement to balance the budget and reform welfare. Mr. Clinton won re-election handily.
Here are four things the president could have proposed (but didn’t) to remove headwinds to growth and instill confidence in the economy:
1) Avoid the 2013 “fiscal cliff,” which the Congressional Budget Office says would put us back in recession, by extending all the Bush tax cuts for one year (leaving him free to pursue his tax hikes on the “rich” later).
2) Approve the Keystone pipeline and speed up oil and gas drilling approvals, with appropriate environmental safeguards, back to the levels they were before the 2010 moratorium following the BP oil disaster.
3) Enact long-run entitlement and tax reform with lower rates and a broader base, using the proposals of the Simpson-Bowles Commission—which the president appointed, but has so far ignored—as a starting point for negotiations.
4) Invest political capital to energize the moribund Doha Round of global trade liberalization and bilateral free-trade agreements.
By taking these four steps, the president would have given the recovery a greatly needed boost and encouraged more businesses to invest and hire. He may well look back on this missed opportunity to move toward the middle as the mistake that ultimately cost him re-election.
Mr. Obama constantly reminds us, with justification, that he inherited a recession. But the recession ended over three years ago, while the recovery has been distressingly anemic. He also blames an “obstructionist” Congress. But Democrats had a filibuster-proof majority in the Senate and control of the House his first two years. Republicans couldn’t obstruct anything. He’s even blamed the Japanese tsunami and the European debt crisis.
Is it any wonder that recent polls show the majority of Americans disapprove of the president’s economic policies and are asking why his explosion of spending and debt has done so little good. Mr. Obama claims that when he took office nobody knew just how deep this recession really was. Not so. I and other economists said it was going to be the worst recession in a generation, and immediately after the 2008 election urged him to temporarily set aside his big-government social-engineering agenda, from energy to health-care reform. Whatever their pros and cons, it was the worst possible time to add such a cost burden and uncertainty to the economy. He was mistaken in the hope the economy could withstand his change.
In 2009, 2010 and 2011, the administration forecast average economic growth of 4% in the next two years. But the economy has not had even one quarter of 4% growth during Mr. Obama’s stewardship. Rather, our economy has experienced its longest string of consecutive quarters of economic growth below 4% since World War II. Growth has averaged 1.4% in Mr. Obama’s first 13 quarters as president.
His record on jobs is just as bad. Mr. Obama’s initial forecast claimed unemployment would never reach 8% if his $800 billion stimulus bill passed in early 2009 (as it did) and would now be below 6%. That’s off by 3.9 million unemployed workers, millions more if we include those who have given up looking for work.
Perhaps we should not have expected more from the eloquent apostle of hope and change. Mr. Obama had little experience in or respect for the “for profit” part of the economy. Of his one brief sojourn in the business world, he says in his autobiography he felt “like a spy behind enemy lines.”
He now says that Mr. Romney’s business career—which former President Clinton describes as “sterling”—is not a qualification to be president. How would he know? Before becoming president, he had no executive experience of any kind—private or public.
Mr. Obama’s most recent statements reveal a strange disconnect from basic economic reality. In a press conference on June 8 he said, “The private sector is doing fine,” adding that we needed more federal spending subsidizing state and local government jobs, where he claims the jobs problem is centered. But according to the Bureau of Labor Statistics, there are 11 unemployed private-sector workers for every unemployed government worker.
Last month Mr. Obama said, “Since I’ve been president, federal spending has risen at the lowest pace in nearly 60 years.” But it turns out he was quoting a blogger who did not count the massive 2009 stimulus spending. Careful administration fact-checking served former presidents well. Is this administration’s standard no longer facts but anything on the Internet?
Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.