By Paolo von Schirach
May 23, 2012
WASHINGTON – The US economy is growing, but very little. Sadly, this is the worst recovery in modern history. Since the beginning of the upward cycle, total GDP growth is only 6.8%. This is less than half the average of past recoveries, 15.2%. But is this all Obama’s fault? Not all of it. Still, beyond debatable policy choices, his his main responsibility is in setting the wrong tone. Obama is a man of the past, not the visionary who can chart the future in admittedly difficult circumstances.
Underestimating the crisis
If we look at policies, the Obama administration most egregious mistake has been to underestimate the depth of the 2008-2009 recession. This was really critical because treating the economy as a manageable problem encouraged other mistakes, the worst of all being focusing on health care reform.
Health care is important, of course. But the economy is far more important. Besides, passing major legislation affecting the entire country with no bipartisan support was a huge political blunder. Whatever the content of the health care legislation, it became and stayed an extremely divisive issue.
Wrong bets on renewable energy
We could add more to the list, such as an administration so totally in love with renewable energy that it ignored the shale gas revolution that has put renewable energy out of business. Betting on the wrong horse cost America quite a bit of money. Gas is not as sexy as solar panels. But it is extremely cheap. This means lower energy prices, with obvious gains for the entire economy
That said, we should add that Obama has been confronted with a combination of gigantic problems. The first one is that this particular recession caused by too much debt would have been hard to deal with for anybody. Simply said, people crushed by their own debts cannot go out and spend, this way fueling growth.
Globalization hit American workers hard
The second one is probably even bigger. And this is the impact of the globalization of labor markets on tens of millions of US workers. Exposed to the international competition of mostly Asian companies employing millions willing to perform comparable jobs at a fraction of US wages, US companies had to retrench. Many went under or outsourced. Many others froze wages. And this killed the US middle class used to have rising standards of living when it was still shielded from global competitors. which is to say that when the 2008-09 recession hit, it found an already weakened and relatively impoverished country.
Obama did not understand
Obama and his people did not appreciate the magnitude of these challenges. They just did not see them. And so there were no bold new initiatives aimed at unleashing American talent and enterprise, our only chance to move the value chain and produce value by creating new sectors. I do understand that it is easy to say all this with the benefit of hindsight. But I would say that Obama’s total lack of practical business experience did not help him at all. His dream team of super smart Ivy League advisers did not get this either.
Be that as it may, there is also the issue of how one appears. And here Obama fares negatively. In my judgement, Obama’s fault is that he appears tied to old formulas whereby in hard times the government main job is to protect the weak, as opposed to doing its utmost to promote the new. And this is wrong, not so much in terms of short term outcomes, (after all thanks to Obama unemployed people get checks and others gets subsidies on this and that), but in terms of the psychology that it reveals.
Not a modern man
Obama is not a modern man. He is a welfare state champion who can thrive politically because there are fragile constituents in need that he can help and who will reward him with their votes in November. And this is after all how he is shaping his re-election campaign. He is promoting himself as the champion of the needy. He is trying to depict Mitt Romney as a greedy capitalist who is only seeking profits while not caring at all for the general welfare. This is old and trite populist stuff.
By all means there has to be a balance. Government has to consider the general welfare. But let us not forget that (in this new unforgiving global economy) if we do not grow, and grow fast, there is nothing to distribute at the end of the day.
Without growth we have nothing
The very fact that Obama could be generous with his favorite causes only by borrowing an extra $ 5 trillion should be a wake up call. We cannot keep borrowing for ever in order to fund unsustainable benefits. In the end, if America does not grow more vigorously, we will end up like Europe: a few people working, too may getting subsidies and a weaker society suffocated by impossible levels of debt. Unfortunately, I do not see president Obama leading America away from this course and onto a bold, pro-growth path. This is not his instinct and not his talent.