Obama’s economic plan? Back to the ’70s!

 

By James Pethokoukis

8 December 2011

Barack Obama has a major problem with what’s been happening in America over “the last few decades.”

Here’s Obama during his Osawatomie speech:

 … there is a certain crowd in Washington who, for the last few decades, have said, let’s respond to this economic challenge with the same old tune. “The market will take care of everything,” they tell us. If we just cut more regulations and cut more taxes—especially for the wealthy—our economy will grow stronger. … But here’s the problem: It doesn’t work. It has never worked. … Over the last few decades, huge advances in technology have allowed businesses to do more with less, and it’s made it easier for them to set up shop and hire workers anywhere they want in the world. … In the last few decades, the average income of the top 1 percent has gone up by more than 250 percent to $1.2 million per year. …  And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a one-in-three chance of making it to the middle class—33 percent. … And yet, over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk. … This is about the nation’s welfare. It’s about making choices that benefit not just the people who’ve done fantastically well over the last few decades, but that benefits the middle class, and those fighting to get into the middle class, and the economy as a whole.

1. Obama clearly thinks the “last few decades” have been a disaster for the U.S. economy, that America’s 30-year economic experiment in enhanced economic freedom—lower tax rates, less regulation, freer trade—has been a failure. Indeed, Obama says that although the “theory fits well on a bumper sticker … it has never worked.” Reagan and Clinton blew it. (Tax cutting JFK, too, apparently.) Time for a different formula. Time to raise taxes and create more rules for business with a goal of “shared prosperity and shared responsibility.”

2. But what Obama is really saying is this: “Let’s go back to the 1970s.” It was a Golden Age of Equality, with the top 1 percent’s share of national income at its lowest level of the 20th century. And the nostalgia surely doesn’t stop there. It was also a time of strong unions, expensive oil, regulated industry, and high tax rates. This is exactly the Obamacrat agenda. Of course, the 1970s were also a time of economic chaos and stagflation that led voters in 1980 to reject Jimmy Carter by a crushing landslide. Yet Obama wants give that formula another shot.

3. Back during the success-punishing 1970s, the top marginal tax rate was 70 percent. And guess what? Liberal economists such as Paul Krugman, Brad Delong, and Peter Diamond—whose nomination by Obama to the Federal Reserve thankfully failed in the Senate—think the top tax rate should zoom back there again. More evidence that Clintonomics is dead in today’s Democratic Party. Then again, Obama, like many Democrats, never thought the Reagan tax cuts made much sense. As Obama wrote in The Audacity of Hope: “The high marginal tax rates that existed when Reagan took office may not have curbed incentives to work or invest … but they did lead to a wasteful industry of setting up tax shelters.” So the only downside was excessive tax planning?

4. Here is the real record of cutting taxes and regulation: The U.S. economy grew at an average pace of 3.3 percent from 1983-2007, inflation—the scourge of the 1970s—was slayed, and the stock market rose by 1,400 percent. Median middle-class incomes rose by roughly 50 percent. (These numbers are even more impressive when you recall that heading into the 1980s, experts were predicting a dystopian, Solyent Greenesque, Age of Limits future for America.) Obama would be lucky to fail like this.