Friday, June 03, 2011

The President and the Economy

The economy continues to slump. President Obama has around a year to turn it around. That will give people enough time to recognize a robust economy and for him to campaign on it. If things do not improve by the Summer of 2012 then he will be in the same position as George H. W. Bush. The mild recession of 1992 actually ended before the election but economists didn't announce that until early 1993. That let Clinton take credit for the recovery.

Obama will not be able to renew his "Hope and Change" campaign. Sitting president have to run on their record. Obama's foreign policy is too close to Bush's to win an election. Rather than removing troops from Iraq as fast as they could march, he continued Bush's policies. He escalated Afghanistan without much to show for it. the excitement over killing bin Laden has already faded. His promise to make America popular again never panned out. Obamacare continues to be divisive. That leaves the economy as the issue that will decide the election.

The current economy is in much worse shape than the one in 1992. Policies were put in place by Clinton and continued by George W. Bush to encourage home ownership. As a result, the percentage of families owning their home rose from an average in the low 60 percentage range to the high 60s. In addition, a lot of other people bought houses that were more expensive than they could afford. That created the housing bubble and caused a host of other problems. Things will not improve until housing values and ownership work back to where they would have been without the bubble. This process is still going on and will continue.

A big portion of the economy in the 2000s depended on new housing. This started with the actual home builders and mortgage companies but included every business that makes or sells the things needed to outfit a new home. So that portion of the economy will not recover in time to help Obama.

Obama has spent the last two and a half years blaming the Bush administration for the recession. Unfortunately the man in the Oval Office is held responsible for the economy. That allowed Clinton to take credit for a recovery that predated him but it also means that Obama will be held responsible for economic problems in 2012.

It doesn't help that his policies have probably hurt the economy. His stimulus package didn't stimulate. A large portion of it went for tax breaks that were so small, most people didn't notice them. Most of the rest went to keep cities and states from laying off government workers.

Obamacare has probably hurt employment although it is hard to tell. Most of it has not gone into effect and thousands of waivers have been issued. Still, it increases the future cost of employing someone so it is unlikely to have helped.

The Obama administration has pursued a weak dollar policy. This is another continuation of the Bush administration but there is a difference. The idea is to reduce the value of the dollar overseas. This makes imported goods more expensive and encourages people to buy American. It also makes American products cheaper overseas and encourages exports. This might work in a strong economy but the rest of the world has its own problems. There are no strong markets to sell to. The main result of the weak dollar is to make imports cost more. That is one big reason the price of gasoline has gone up. It hurts food prices, also.

The Administration was counting on pent-up consumer demand to drive a the recovery. It worked for a while but rising costs, especially on gasoline, are causing consumers to cut back. This represents a failure of Obama policies.

The rest of Obama's economic plans are closer to crony capitalism than anything else. Businesses and industries that the President favors are given advantages or even direct subsidies. Others are left to fend for themselves.

The automotive industry is a perfect example of this. There are only two US-owned large car-makers - GM and Ford. Chrysler went from being German-owned to American-owned before Obama sold it to the Italians. Honda and Toyota are Japanese-owned but most of the cars sold in the US are made here by American workers. Of these five companies, GM and Chrysler were given billions in grants and loans (they paid the loans back but not the grants). Ford was offered assistance but refused it. Toyota was hit with a major recall.

Even allowing for the fact that the two Japanese companies were in better financial shape, it still looks like the Obama administration was favoring unionized manufacturers over non-unionized ones.

This example holds true in general. The Obama administration has given huge subsidies to industries like trains, wind and solar power that are unlikely to ever show any return. At the same time, it has crippled the oil industry.

The Obama Administration's love of picking winners and losers means that only a few parts of the economy are able to grow and even this is distorted by government money. In the 1970s and 1980s, Britain and the US reviewed regulations and rewrote the ones that kept businesses from hiring. The Obama administration would never even think of doing something like that. Their answer for everything is more government, not less.

While big pieces of the economy are beyond the Administration's control, the Obama administration has failed to properly manage the pieces that it does control.

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