Platitudes can’t revive economy
NEW YORK — The president may be out of ideas, but he is never out of words. He shared voluminous amounts of them with audiences on his latest speaking tour, or pivot, on the economy.
And for good reason.
“If once a week I’m not talking about jobs, the economy and the middle class, then all manner of distraction fills the void,” Barack Obama told The New York Times in a recent interview.
He was probably referring to “phony scandals,” and things like that.
The president is great when it comes to platitudes. At Knox College in Galesburg, Ill., Obama laid out the “cornerstones” of what it means to be middle class in America: a good job, a good education, a home of one’s own, a secure retirement and affordable health care.
He’s less adept at outlining the policies needed to achieve those goals. That’s when Obama is at a loss for words and inconsistent in his explanations. A few examples will suffice.
No. 1: Because Obama speaks with such authority, it often takes several repetitions before I realize that what he’s saying is total nonsense. For example, he wants to spend $50 billion on infrastructure to create jobs. But the 1,700-mile Keystone XL pipeline, which would carry oil from Canada’s tar sands to refineries on the Gulf of Mexico, would “create about 50 full- time jobs,” he said at a speech last week at an Amazon.com Inc. fulfillment center in Chattanooga, Tenn.
The State Department did say that the project’s effect on permanent job creation would be negligible. In the interim, however, the pipeline would create, directly or indirectly, as many as 42,000 jobs. That includes subcontractors, suppliers of materials and equipment, and hospitality services (food, clothing, lodging) in addition to 3,900 construction jobs. The same kind of jobs the White House used to promote its $831 billion fiscal stimulus in 2009, explaining that one person’s spending is another person’s income.
What’s the difference between the job-creating potential of Obama’s proposed infrastructure investment and that of the pipeline? One is public, the other is private. If that’s the distinction, he needs to explain it or drop the fiction that hiring to rebuild roads and bridges has a different impact on employment, wages and spending than hiring to build a pipeline.
No. 2: Another Obama favorite is his contention that the way to “grow the economy” is from “the middle class out.” What exactly does that mean?
“Obama is saying we need an economy where people are paid enough to buy things,” said Robert Litan, director of research at Bloomberg Government, which is part of Bloomberg LP. “It’s Henry Ford economics: Ford made cars, and he paid his workers enough so they could afford to buy them.”
He also paid his workers enough to prevent them from quitting. The idea behind what economists call “efficiency wages” is to pay employees enough to keep them happy, encourage them to work hard, and save the company the expense of hiring and training replacements.
“Obama would like all employers to pay efficiency wages, but he doesn’t have an executive order to do that,” Litan said.
If Obama really wants to “grow the economy,” to borrow that horrific phrase, he needs to understand the dynamic. It’s individuals with ideas — entrepreneurship and innovation — that raise our standard of living. And not just that of the innovators themselves, who get rich off their creative genius. All of us benefit. Productivity growth comes from new technologies — everything from the steam engine to electricity to the telephone to digitalized bits of information — that allow us to produce more with less, reducing costs and raising real incomes.
Obama may not understand how economies advance and prosper — and he could never admit it if he did — but the path of wealth creation is top down, not inside out. It’s not about class; it’s how an economy works.
No. 3: Aware that his speeches sound like retreads, Obama has found a new rallying cry for his middle-class advocacy campaign: the claim that concentrated wealth inflates bubbles and destabilizes the economy.
Is he suggesting that the top 1 percent were responsible for the lax lending standards and subprime loans that were at the root of the financial crisis?
No, and though he may not be aware of it, there is support in academia for the notion that income inequality contributed to the bubble. Too bad he latched onto something that fit his worldview without digging deeper to get a firm grasp of the subject.
Raghuram Rajan, the newly appointed governor of the Central Bank of India, made the case in his 2010 book, “Fault Lines,” that lower- and middle-income households reacted to stagnant real incomes by taking on more debt. What people couldn’t afford, they bought on credit. The policy response, misguided in Rajan’s view, was to encourage lower lending standards and promote affordable housing. Yet Obama now suggests eliminating “red tape” to make housing more affordable. It would be nice to think he learned something from the mess he inherited.
In his speeches, Obama pointed out that the deficit is falling at the fastest pace in 60 years. It’s a big applause line. It’s also shortsighted. Today’s shrinking deficit ignores the relentless rise in debt as a share of the economy. Unless the federal government finds a way to raise revenue and/or cut spending over the next decade, there will be steep cuts to the social safety net, programs such as Social Security and Medicare.
If Obama is really concerned about middle class families, he should start looking out for their future.
Caroline Baum is a Bloomberg View columnist.