President Obama traveled to Illinois today to give the same tired, worn-out economic speech he’s been giving for almost five years now.
Rather than offering new solutions that could revive the dormant economy and put people back to work, the President offered the same old policies that have already failed, namely more stimulus spending on infrastructure and misguided educational programs. Taking money out of one area of the economy and spending it in another through the government does not create economic growth.
The unemployment rate is still much too high at 7.6 percent; 11.8 million Americans are out of work; and the economy grew at a paltry 1.8 percent last quarter. At this point in a recovery, growth should far surpass that low rate.
The main reason the economy continues to grow below its potential is the uncertainty businesses feel because of the President’s own policies. Obamacare and the Dodd-Frank financial reform legislation are making it impossible for businesses to plan. Adding to the uncertainty is a debt crisis still lingering in the near future, unless Washington reforms entitlements like Social Security and Medicare soon—yet the President refuses to offer a serious plan.
The damage of all this uncertainty is severe. The Federal Reserve Bank of San Francisco, headed by Janet Yellen—reportedly one of President Obama’s top picks to be the next Chairman of the Federal Reserve—said in a report released this week that if not for the current policy uncertainty, the unemployment rate would be 6.5 percent today, much lower than where it actually stands.
Heritage experts give their initial analysis of the President’s speech below.
Growth Slower Than It Should Be After a Recession
The President wants to blame sequestration for the weak economy. The truth is that the economic recovery has been mediocre since before the sequester kicked in and consistently worse than economists expected back in 2009.
If the recovery from the 2009 recession had been typical, the economy would already be back to normal, and the President would be touting his success and the resilience of the American entrepreneur.
Data gathered by the Federal Reserve Bank of Minneapolis shows that gross domestic product (GDP) now is just 2.5 percent larger than it was in 2007. In nine of the previous 10 recessions, GDP was more than 13 percent larger than its pre-recession peak after five years. The lack of employment growth is also troubling. The adult employment-population ratio dropped like a stone from 63 percent in mid-2007 to 58.7 percent in 2009. In 2010, it stood at 58.5 percent. In 2011, 58.2 percent. In 2012, 58.6 percent. Now, in 2013, it’s still stuck at 58.7 percent. A Heritage study last year found that, after adjusting for demographics, 10.5 million fewer Americans were working in 2011 than in 2007. Unfortunately, the labor market has barely improved in the last two years.
– Salim Furth, Senior Policy Analyst, Macroeconomics
Americans Still Upwardly Mobile
The President said “unfortunately, opportunities for upward mobility in America have gotten harder to find over the past 30 years.” This claim may sound persuasive, but it has little validity in economic literature. One of the most recent and comprehensive papers on economic mobility stated that “Our results, which pertain to the cohorts born between 1952 and 1975, do not reveal major changes in intergenerational mobility.” Children continue to surpass their parents, with 93 percent in the bottom tier doing better than their parents, while 88 percent of middle-class children will have more income than their parents. So far, the preponderance of the evidence does not support this claim.
– Rea Hederman, Director, Center for Data Analysis and Lazof Family Fellow
All Incomes Rising
The Occupy Wall Street Movement may be dead as a doornail, but its spirit is kept alive by President Obama. Only five paragraphs into his address, the President went after the target of their once-seething animosity: the reviled 1 percent.
“The income of the top 1 percent nearly quadrupled from 1979 to 2007, while the typical family’s barely budged,” he claims.
According to the nonpartisan Congressional Budget Office, after-tax income has risen for all Americans, albeit by very different margins, during this timeframe. For those in the middle three quintiles—i.e. the “typical families”—income has increased by almost 40 percent.
As Ron Hasking and Scott Winship of the Brookings Institution conclude: “There is no disappearing middle class in these data; nor can household income, even at the bottom, be characterized as stagnant, let alone declining.”
It’s also worth noting the great falsehood that is implied in all this talk about the 1 percent: the notion that in America, we have static classes of haves and have nots. In reality, because we have economic mobility in this country, the composition of the 1 percent varies over the years and the decades. Some of today’s one percenters were not even born 30 years ago, and most were not in the 1 percent at the time.
– David Azerrad, Research Fellow and Associate Director, B. Kenneth Simon Center for Principles and Politics
Debt Is Growing Under Obama
If President Obama had a magic wand, he might just wish America’s debt problem away. As it is, however, public debt doubled under his watch, and the nation’s debt problem is very real and getting worse. Trying to obscure the issue by pointing at a lower deficit in 2013 as justification to go on another stimulus spending spree is reckless. In the President’s words:
If you ask some of these Republicans about their economic agenda, or how they’d strengthen the middle class, they’ll shift the topic to “out-of-control” government spending—despite the fact that we have cut the deficit by nearly half as a share of the economy since I took office.
Setting the record straight: Deficits projected at $642 billion by the Congressional Budget Office for this year are “low” only when compared to their trillion-dollar-plus levels over the past four years. The U.S. deficit and debt situation actually worsened since before the recession, and corrective measures are even more urgent now than they were in 2007.
Publicly held debt, which Congress borrows in credit markets in the U.S. and abroad, is projected to grow by $7 trillion in just one decade, from $12 trillion today to more than $19 trillion by 2023. Continuing on this course means that the President and Congress would pile an additional $56,000 in debt on every American household, adding to the already massive $94,000 per household debt burden today. Add to this the debt owed to the Social Security and Medicare trust funds and other intragovernmental debt, and the per-household debt burden is even more massive, approaching $140,000 and growing.
This reckless accumulation of debt has to stop. It threatens the very prosperity of the middle class President Obama claims to want to help with his policies.
Americans are looking to the President for leadership when it comes to solving the nation’s budget problems, not proposals to make the problem even worse.
– Romina Boccia, Grover M. Hermann Fellow in Federal Budgetary Affairs
More Washington Control of Infrastructure Spending Is Not a Bold Idea
Obama hinted at wanting to explore “some big and bold ideas” in today’s speech. Alas, he revisited the tired notion that federal “investments” (read: spending) will reignite the economy. Americans remember the failed stimulus and know stimulus 2.0 wouldn’t yield any better results. Just last month, a Rasmussen poll found that 65 percent of Americans want to cut government spending to help the economy.
In particular, the President’s penchant for spending on transportation and infrastructure, though seemingly innocuous, is fraught with problems. It sends the message that Washington can meet all of states’ transportation needs and wants—which it can’t and shouldn’t. It also ignores the fact that Washington is broke and already running dangerously high budget deficits.
A reliable, efficient, cost-effective transportation network is necessary for a thriving U.S. economy. However, if states let Washington co-opt future transportation funding and planning decisions, they will see their transportation projects politicized and their resources squandered on low-priority programs. Currently, Washington collects federal gas tax dollars from motorists and diverts a portion to pay for local projects such as transit, bicycle paths, and sidewalks. These activities do not benefit motorists, because they do not measurably relieve congestion or improve mobility.
Instead, Congress and the President should give states and localities—which can partner with the private sector when it makes sense—the flexibility and control they need to meet their unique transportation and infrastructure needs.
– Emily Goff, Research Associate, Thomas A. Roe Institute for Economic Policy Studies
Obamacare Doesn’t Cut Costs
Per usual, the President touted his health law’s “free” benefits. But as Heritage has pointed out before, his law’s benefit mandates are not free—insurers are not graciously covering the cost of your added benefits. You pay for them via premium increases.
For instance, while only select seniors fell into Medicare’s “donut hole,” the CBO projects that average Medicare Part D premiums will increase due to Obamacare’s new rules.
An additional consequence of Obamacare’s “free” benefits: As companies will now spend more on insurance costs, workers will receive less in wages—the very thing that President Obama decried in this speech. This makes sense because companies view wages and benefits as the total cost of labor. Increasing the cost of labor in one area just means that companies will cut back in other areas. In this case, increasing the cost of benefits will decrease wages. So when raises are smaller than expected, thank Obamacare’s “free checkups.” A sad irony is the definitive work on this subject was authored by Obama advisor Dr. Jonathan Gruber.
And in another exaggeration, the President claims up to half of all Americans have a pre-existing condition and his law is coming to save them by forcing insurers to offer them coverage. In reality, most of those Americans already have coverage in the group market, with a small portion of them facing barriers to coverage in the individual market.
Furthermore, his law created a program to accept those who were sick with no coverage before Obamacare fully takes effect in 2014, and it has run into serious funding problems, with enrollment at less than 30 percent of original projections and costs averaging 2.5 times greater than anticipated.
The President went on to cite the widely touted 50 percent premium decrease in New York, which has been strongly refuted. Regardless, premium decreases are certainly not what experts predict in the rest of the states.
Finally, in response to the President’s call for better solutions, The Heritage Foundation has a better plan for quality, affordable health care.
– Alyene Senger, Research Associate, Center for Health Policy Studies
Obama Wrong on Energy and Global Warming
President Obama made two comments on energy in his speech, highlighting America’s increased oil production and saying that we’ll “continue to focus on strategies to create good jobs in wind, solar, and natural gas that are lowering energy costs and dangerous carbon pollution.” There are several problems with these statements.
First, more domestic oil and gas production, which deserved more attention for the jobs and economic wealth created in recent years, have occurred in spite of the Administration, not because of it. There has been a stark difference between oil and gas production on private and state-owned lands and federal lands.
Second, where we’ve had a government strategy in the energy sector (whether grants, loan guarantees, targeted tax credits or mandates), we’ve experienced wasted taxpayer dollars and labor and capital siphoned out of the private sector to benefit special interests and political preferences.
Third, it is misleading to label carbon dioxide as “dangerous pollution.” CO2 is a colorless, odorless, and non-toxic gas, and climate models have failed to predict the 16-year plateau in global temperatures. We’re not experiencing catastrophic warming as a result of increased CO2—and even if we were, the President’s policies would do almost nothing to reverse course, while causing a lot of economic destruction in the process.
– Nick Loris, Herbert and Joyce Morgan Fellow
Education Prescriptions Misguided
President Obama reiterated calls to increase “investment”—i.e., spending—on education and to “make high-quality preschool available to every four year-old in America.” Universal, government preschool, financed by the federal government, is mired in bad policy. While the Administration will hold up evaluations like the Perry preschool project to claim that every dollar spent on government preschool yields $7 in return, the findings of these small-scale studies have never been replicated and accrued to a unique set of just five dozen children nearly half a century ago.
States that have large-scale public preschool programs have not seen a positive impact on 4th grade reading scores, the first opportunity researchers have to assess whether preschool is having an impact on this fundamental skill. Indeed, the type of preschool-for-all President Obama envisions is far more likely to mimic the failing Head Start program, which has cost taxpayers more than $150 billion since it began in 1965, and has left low-income children no better off in the process. What’s more, the Obama Administration’s new preschool proposal would add to the long list of existing federal early education and child care programs—despite little evidence of demand for such programs.
– Lindsey Burke, Will Skillman Fellow in Education
The President’s speech wasn’t all bad. One positive was the President’s call to make it easier for all Americans to save for retirement. That is a laudable and necessary goal and one that could be achieved through tax reform. In addition to helping Americans save, tax reform would go a long way toward freeing the economy to grow stronger. Unfortunately, like on most other important issues, President Obama has shown no leadership to actually reform the tax code.