Month: July 2013

It was four years ago this past June that the National Bureau of Economic Research declared that the Great Recession had ended – roughly 120 days into the Obama presidency. But on this fourth anniversary, the welcome news from 2009, and the promise of a return to normalcy, is no closer to reality. Indeed the markers of continued distress are unmistakable:

 – 22 million Americans are unemployed, under-unemployed or have given up looking for work entirely. Nearly 40 percent of the unemployed have been out of work six months or longer. The labor force participation rate is at its lowest level in 31 years.

– 76 percent of Americans are living paycheck-to-paycheck. Only half have enough savings to get by for three months. Nearly 1 in 3 have no savings at all to cushion against job loss, medical bills or major expense.

 – 48 million  Americans are on food stamps, a shocking 35 percent increase since 2008. An astonishing 101 million Americans are on some form of government-sponsored-nutrition assistance.

– 15 percent of Americans are in poverty, the highest level in the 53 years that the Census has been keeping records. 16 million of these Americans are children.

This is the most durably dismal US economic situation since the Great Depression. Economic growth, the key to recovery and expansion, has averaged a measly two percent during President Obama’s term, making this the weakest recovery since the Depression. GDP for Q1 of 2013 was a dismal 1.8 percent – barely above stall speed. Estimated growth for QII, due out next week, promises more of the same.  While the Fed’s easy money has powered the stock market to new heights, there is no longer a correlation between the good times on Wall Street and the painful reality of Main Street.

Globally, things are not much better. Dynamic emerging markets that were able to increase growth during the financial crisis are now stumbling.

Brazil’s economy is slowing down. India’s growth, which had previously averaged more than eight percent per year, is now expected to be no more than 5.6 percent this year, according to the IMF. And China, the second largest economy, which had managed double-digit growth for a decade, is seeing its rate of growth cut by 30 percent this year. The euro zone, of course, is in its second year of recession, with chronic instability in its southern frontier and mounting, unsustainable debt.

All of this is important, for as Robert Samuelson said, “Sluggish growth and slumps feed on each other. China’s slowdown lowers its demand for basic commodities (iron ore, soybeans copper), which hurts Latin American and African suppliers. Europe’s recession weakens the US and China, which are big exporters to Europe.” And the slowdown in China has an impact on US exports to that country.

All of this drives an unvirtuous cycle of decline. Ominously, as emerging market economies begin to flatline, there is now no global engine of growth that can prop up the world economy. We are not in a crisis, but we can clearly see one forming on the horizon.

So into this volatile mix of deep uncertainty on domestic and international economic affairs, what is President Obama’s proposed plan to fortify America’s position and protect the American economy and its workers? Tax reform to incentivize business creation? Genuine entitlement reform and government spending restraint, to stablize and then reduce the deficit, guarantee future retiree benefits with confidence and lower interest payments on the debt? Revamping nanny-state government regulation that inhibits business creation and expansion?

No.

The President has decided to declare war on American-produced energy.

Speaking recently at Georgetown University, the President announced a far-reaching plan to fight climate change that would profoundly reshape the way the US produces and consumes electricity. POTUS laid out the first-ever federal effort to rein in greehouse-gas emissions (GHG) from the power sector, which, if put into place, would accelerate the demise of coal  – a cheap and plentiful resource for the US – as the backbone of power generation.

That he would do so by Executive fiat, without the apparent need for congressional approval, only adds to the mortification. A more ill-timed and counter-productive policy initiative is hard to imagine.

As the Wall Street Journal pointed out, “Mr. Obama’s “climate action plan” adds up to one of the most extensive reorganization fo the US economy since the 1930s, imposed through administrative fiat and raw executive power. He wants to reduce greenhouse gas emissions by 17 percent by 2020, but over his 6,500 word address he articulated no such goal for the unemployment rate or GDP.”

Simply stated, there can be no economic activity, let alone growth, without energy. It touches every aspect of our lives, every day. The Obama plan would slam the US electricity industry where coal-fired plants account for 37 percent of all energy production, as of 2012. Energy analysts estimate that the new rules could push one-third of the US coal-fired fleet into retirement, playing havoc with energy prices for businesses and consumers alike as energy shortages and volatile prices in non-coal fuels impact jobs and employment.

What is most frustrating is that the initiative is a solution in search of a problem.

US, energy-related emissions of carbon dioxide, the greenhouse gas that is the considered the main contributor to global warming, have fallen 12% between 2005 and 2012 and are at their lowest level since 1994, according to a recent estimate by the Energy Information Administration, the statistical arm of the U.S. Energy Department.  Moreover, US gains occurred against a backdrop where global emissions were up 15 percent for the same period – principally based on increases from China and other emerging countries.

So, America is not the offender here. And even the most dedicated climate alarmist has to know that  the most stringent USG diktats to reduce American GHG  will not make up for the increases in other nations.  Yet, to please a militant environmental constituency, the President is willing to create energy disruption, price increases and general uncertainty that will bleed into the economy as businesses must cope with the fallout. The result? Fewer jobs, less hiring, business creation or expansion.  All of that means less growth at a time when growth is at a premium.

But this should not come entirely as a surprise. In the list of Administration priorities, the economy always gets top rhetorical billing, but rarely does it enjoy stature as a matter of policy when there is a choice between the economy and social policy.

Consider Obamacare. The President effectively upended health insurance for nearly 90 percent of Americans who have coverage, to provide insurance for the 10 percent that don’t. Lower premiums, improved care and you still get to keep your doctor? All promises proven false as the truth of the law has become known. Even the unions have figured out the ruse.

But more importantly, to get to universal coverage, the Administration sacrificed the economy. The now delayed corporate mandate already had companies hiring  part-time instead of full-time workers to avoid the burden of Obamacare penalties, distorting the job market. In addition, with state exchanges in flux, and the small business exchanges delayed, the new law creates enormous uncertainty for individuals and SMEs as they attempt to forecast insurance costs.

Larger firms, having to balance the law’s stringent new requirements against the cost of coverage, may well find that it is cheaper to pay a penalty than continue to pay the cost of employee insurance, dumping their workers on the open market, where they will have to find coverage themselves. That, in turn,  is going to create havoc with the most sensitive contributor to US economic health – personal consumption. If you lose your employer-based insurance and have to go to the individual market to find similar coverage – the market segment that has seen the highest increase in premium prices – it is going to have an impact on consumer spending.

It is a slow motion train wreck.

 Writ large, in the last four years the Obama administration has squandered a real opportunity for economic revival in favor of a social justice economics agenda that has left the country demonstrably weaker than before 2008, and less capable of coping with a possible new economic downturn that is forming on the horizon. Viewed in this light, it is a breathtaking record of incompetence and dereliction of public service, whose true dimensions will be seen and felt in another economic contraction.

Unfortunately, those who will pay for these mistakes are not the officials running the government. Those folks will be just fine. No, it will be those who bore the brunt of the last recession most severely, those who are currently mired in economic misery, as well as those that have fought so hard to hold their ground, that will be washed away in a next calamity.

President Obama begins this week with a renewed rhetorical push on the economy. Don’t be fooled. Well honed catch-phrases and familiar strawmen of blame can deflect criticism, but it cannot paper over a record that effectively undermined American workers to fulfill elite liberal orthodoxy.

We deserved better. We were warned.

But you ultimately get what you vote for.