Obama's Obsession with Ideology Dooms U.S. Economy

Everyone knows if you can't say something nice about someone you shouldn't say anything at all, so let's stipulate that President Obama's stimulus package probably helped end the recession a few months earlier than it otherwise would have ended.

But that about does it for the nice talk. While we may be coming out of recession, we are not experiencing a robust recovery. And the president can be blamed for some of that.

The biggest domestic policy mistake of President Obama's tenure has been strategic in nature: he refused to change tack when economic conditions changed dramatically.

During his campaign, Obama outlined several proposals to overhaul health care, increase taxes on energy, impose new rules on communications technologies, and more. Most of these ambitions were developed before the financial crisis of 2008 and the subsequent economic tailspin.

When economic conditions changed, Obama should have revised his economic playbook. But after the passage of the stimulus package, the president went right back to pressing ahead with his earlier economic agenda. This was a serious error.

With unemployment still near double digits, the president is pressing for regulations that will raise energy costs.

Throughout 2009 and into this year--even as unemployment continued to climb--Obama pushed for the massive overhaul of the nation's health care system he'd outlined during the campaign. The push generated enormous public uncertainty and unease regarding the nation's spending and the future tax burden needed to pay for it. This apprehension has chilled the economy.

Meanwhile, with unemployment still near double digits, the president is pressing for regulations that will raise energy costs. The so-called cap-and-trade legislation he is pushing, which he outlined during his campaign run, would raise fuel prices at a time when most people's personal balance sheets are still weak coming out of the recession.

Higher fuel costs hit small businesses and the poor and middle class the hardest since greater percentages of their total income go to meet energy needs. This measure would have been best left behind once the economy turned sharply south. But the president and his allies in Congress are pressing ahead, aiming to pass this economy-strangling legislation before the mid-term elections.

The president also continues to support new regulations on telecommunications and Internet companies even though communications and high-tech have been some of the few innovative bright spots in the economy. These "net neutrality" rules were also campaign promises that Obama would have been better off junking once the economy dipped.

There's still time for the president to pursue policies that could bolster economic confidence and activity.

For starters he should drop his pursuit of energy and Internet regulations. And he must reform the government-sponsored entities at the heart of the housing and financial crisis--Fannie Mae and Freddie Mac. But that won't be enough. He must also get serious about new job creation and economic growth.

How? The economy won't come roaring back until investors are confident they can take risks investing in businesses again. But that confidence level is threatened by uncertainty over the tax treatment of investments.

Here's why! President Bush signed into law a dividend-tax cut in 2003. But that cut expires this year and it's up to Congress and the president to extend it. The president's progressive allies would like to see the tax-cut expire, hoping to tax the investor class to pay for new social programs.

Obama could help the economy by extending this and other expiring tax-cuts. Better yet, he could push for a bipartisan tax reform deal that would radically simplify the tax code, broaden the tax base and promote a gusher of new economic activity and risk-taking.

America's entrepreneurs would respond, hiring would jump, and the American economic engine would kick into higher gear. That's change you can believe in. Got hope?

Nick Schulz is the editor-in-chief of American.com and the DeWitt Wallace Fellow at AEI.

Photo credit: White House/Pete Souza

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About the Author

 

Nick
Schulz

  • Nick Schulz was the DeWitt Wallace Fellow at AEI and editor-in-chief of American.com, AEI's online magazine focusing on business, economics, and public affairs. He writes the “Economics 2.0” column for Forbes.com where he analyzes technology, innovation, entrepreneurship, and economic growth. He is the co-author with Arnold Kling of From Poverty to Prosperity: Intangible Assets, Hidden Liabilities, and the Lasting Triumph Over Scarcity. He has been published widely in newspapers and magazines around the country, including The Washington Post, The Wall Street Journal, the Los Angeles Times, USA Today, and Slate.


  • Phone: 202-862-5911
    Email: nick.schulz@aei.org

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