Obamanomics 101
No cheers for capitalism.
by Fred Barnes
Back in February, President Obama met with a group of CEOs in the White House, seeking their support for his economic stimulus package. One of his chief targets was Jim Owens, the head of Caterpillar in Peoria, Illinois. The day after the session in Washington, the president flew to Peoria to speak at the Caterpillar factory and took Owens and newly elected Republican representative Aaron Schock, the youngest member of Congress at 28, with him.
Aboard Air Force One, Obama chatted amiably with Owens and Schock. Owens showed Obama two pages of a PowerPoint presentation. The first gave the details of China's stimulus, devoted mostly to infrastructure. The second was Obama's stimulus (drafted by congressional Democrats), with far less money going to building and repairing roads, bridges, and other projects. That was the problem, Owens told Obama: too little for infrastructure and thus too little to engage companies like Caterpillar, which had just furloughed 20,000 workers.
When Obama delivered his speech in Peoria, he either hadn't understood what Owens told him or simply refused to accept it. The stimulus package, he said, would be "a major step forward on our path to economic recovery. And I'm not the only one who thinks so." Owens, the president said, had told him that "if Congress passes our plan, this company will be able to rehire some of the folks who were just laid off."
This was not only untrue, but proved to be embarrassing for Obama. After the speech, Owens talked to reporters at the foot of the podium. No, he wouldn't be bringing back any workers. (Later, Caterpillar announced that 2,500 of the layoffs would be permanent.) Owens and Schock flew back to Washington on Air Force One. This time, Obama ignored them. There was a chill. Press Secretary Robert Gibbs and adviser David Axelrod walked past Owens and Schock repeatedly to speak to the press pool in the rear of the plane. They didn't stop to chat either.
I bring up Obama's Peoria adventure because it bears on the Jobs Summit for which he has summoned business leaders to the White House on December 3. In February, the president and Owens were not on the same wavelength. That's likely to be the case with Obama and the business community at the summit as well--unless Obama has changed his economic tune significantly. There's no reason to believe he has. Nor have congressional Democrats.
Obama has his own theory of our current economic situation. His "first job," he told Chuck Todd of NBC News, was to stave off another "Great Depression," save government jobs (police, firefighters, teachers), and "make sure certain sectors of the economy were supported," such as "construction and infrastructure." "We've gotten that job done," he said.
"Our next job is to make sure we can accelerate the job growth," he said. " So what we're seeing now is businesses are starting to invest again, they are starting to be profitable again, but they haven't started hiring again."
What's the matter with these business guys? The suggestion here is they ought to be hiring. But they're "sitting on the sidelines," the president told Major Garrett of Fox News. He regards them as not-very-conscientious objectors, avoiding the struggle to revive the economy and put people back to work. They're not doing their part, their duty.
Stronger words from Obama may follow. During the Depression, President Roosevelt demonized business and the wealthy ("economic royalists") and raised their taxes. When they declined to invest and stir economic growth, he accused them of staging a "capital strike." The Obama equivalent, if it comes to that, would be a "hiring strike."
We haven't gotten there yet. But Obama has made clear in his 10-month presidency that he has minimal respect for business or the profit motive. Ambitious, talented young people should work for nonprofits. Last summer, he criticized doctors who gouged by insisting on expensive tonsillectomies to cure simple sore throats. They reflected a "business mentality," he said.
And what the president doesn't understand--or, to be more charitable, refuses to acknowledge--about free markets, the economy, and competition could fill a book, or at least an Obama speech. The economic growth he sees was produced, in part, by cash-for-clunkers and the first-time homebuyers tax credit. It foreshadowed an unusually weak recovery. And the profits came largely from cost-cutting, not a flood of new revenue.
Obama told Garrett that spending cuts or tax increases would jeopardize the recovery. But what do businesses, small and large, see staring them in the face? Tax increases--President Obama's tax increases. He backs an increase in tax rates on income, dividends, and capital gains that will go into effect in 2011. Obama-care, should it pass, is loaded with tax hikes. House Speaker Nancy Pelosi wants a Value Added Tax.
The president is looking at "tax provisions" to spur hiring, but he's done that before. Last winter, he spoke fondly of a two-year tax credit to boost small business hiring, but congressional Democrats declined to put it in the stimulus. Instead, they produced a measure that bailed out profligate state and local governments and rewarded liberal interest groups.
That stimulus has failed to stimulate, and the administration's claims of jobs it has supposedly created or saved have been discredited and become a national scandal. Obama's excuse: Calculating a jobs number is an "inexact science."
Small, targeted tax cuts like the one aimed at small business won't do much for hiring. "This is an anti-risk-taking climate," says Republican representative Paul Ryan. "You have to give them [businesses and investors] incentives to lower the price of risk." Ryan recommends cutting the business income tax to 25 percent from 35 percent, eliminating the tax on capital gains for two years, and providing a 100 percent tax writeoff for equipment, plant construction, and other expenses the first year. Hiring would follow.
Presidents from Calvin Coolidge to John Kennedy to Ronald Reagan to George Bush understood that strong incentives are necessary to trigger rapid growth and hiring. Strong incentives, plus more investment in infrastructure, would no doubt have won the endorsement of Jim Owens of Caterpillar. He didn't get them from Obama, and my guess is he never will.
Fred Barnes is executive editor of THE WEEKLY STANDARD.
