By Larry Kudlow
Sunday, December 08, 2013
Either President Obama needs a new speechwriter, or he
needs a new set of economic policies. Actually, he needs both.
Can anyone think of a more boring, banal, irrelevant or
stale speech than the one he gave this Thursday in D.C.? The speech was
allegedly on the economy, but more likely it was to divert attention from the
Obamacare catastrophe. Whatever the motive, his idea that the defining
challenge of our time is to reduce income inequality is completely wrong. In
truth, the defining challenge is to restore more rapid economic growth, create
substantially more jobs and significantly reduce unemployment.
This is the worst recovery in the modern era going back
to 1947. But Obama is always more interested in income redistribution than growth.
He never speaks the language of growth, such as a rising tide would lift all
boats. That's the basic economic truth of the remarkable prosperity of the '80s
and '90s, a period during which tax, regulatory, trade and monetary barriers
were reduced, and the door opened to innovation, entrepreneurship, capital
formation and job creation.
Obama comes from a long line of liberals whose guiding
star is the equality of result, i.e., income leveling, rather than the equality
of opportunity, which is the heart of free market capitalism. But in reverting
back to his obsession with income inequality, he repeats his tired mantra of
raising the minimum wage, ending so-called tax loopholes, launching
shovel-ready infrastructure projects and ending budget caps and the
spending-cut sequester.
And none of that has a thing to do with income
inequality. And none of it has anything to do with economic growth. It's just a
tired old laundry list from a tired second-term administration that has no new
ideas and is fighting its hardest to preserve the worst idea of all:
centralized, state-run Obamacare health planning.
The president talks about so-called research that proves
inequality and income impoverishment. Well, there are many rebuttals to this.
But here's a good one:
Cornell researcher Richard Burkhauser argues that over
the past 30 years or so, Obama's favorite period of alleged failure, the rich
and everyone else got richer. For the 30 years to 2007,
if you include Social Security benefits, the earned-income tax credit, employer
fringe benefits (like health insurance), Medicare, Medicaid and the net
reduction in marginal tax rates, the poorest fifth of the population saw
after-tax income grow by 32 percent. After-tax income also expanded by about a
third for the middle quintile. Yes, the middle classes have been shrinking. But
that's because they've moved to the upper brackets.
So even the suggestion of higher income inequality is a
falsehood.
And yes, the rich have grown richer. But they've used
those resources to enhance the productivity and investment gains of the
prospering lower brackets.
Numerous academic studies show that raising the minimum
wage, an old leftwing saw, hurts the working poor and raises barriers facing
the unemployed. A 30 to 50 percent hike in the minimum wage means lower profits
for business. So this isn't about helping the poor if low-skilled workers lose
their jobs as business profits fall.
Long-run infrastructure building? It's always a good
idea. But as former Obama adviser Peter Orszag pointed out years ago, public
works are totally impractical for counter-cyclical policy. They require years
of planning. Even shovel-ready endeavors cannot be undertaken quickly enough to
provide timely stimulus.
And the president wants to close so-called tax loopholes,
but he never talks about lowering marginal tax rates in return. He'd penalize
success, take the money and spend more on government-stimulus pet projects that
have failed time and again to stimulate the economy.
Along with a steadier and more predictable monetary
policy, lower tax and regulatory barriers are the keys to economic growth. Hold
back the government interference. Give up the obsession with income
redistribution and inequality. And go for growth.
For once the president should listen to the nation's top
CEOs. The Business Roundtable just put out a report stating that Obamacare
uncertainty is harming the economic rebound. BRT head Jim McNerney, the CEO of
Boeing, told members of a conference call the other day that uneven
implementation of the health care law has made it tough for businesses to
figure out where to allocate capital for new construction or hiring.
"There seems to be an exception every other day on
the Affordable Care Act," said McNerney. "Is your preferred
constituency going to get an exception or not? It's hard to know, so people
respond by hedging investment and hedging employment."
As I said, Obama needs new speechwriters and new
policies. He also needs new phone calls to guys like McNerney.
Unfortunately, the president shows absolutely no
understanding of the free market process that would in fact create the rising
tide of growth that the nation so desperately needs.
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