President Barack Obama’s actions on the economy have had the opposite effect than what was intended. His address to Congress was meant to restore confidence; instead, consumers retreated and investors sold.
His Treasury Secretary’s bank plan was meant to settle uncertainty; instead it added to it. Every speech, every interview, and every initiative has caused investors in America to recoil.
With consumer confidence plummeting to its lowest level in history and the stock market falling 20% since his taking office, it’s clear that something is wrong.
I believe it is that so far, Barack Obama has focused on the short term, on what I refer to as the first order effects of his policies. That initially plays well with some in the media and with the public at large. But investors are looking to see what the impact will be down the road. They don’t like what they see. President Obama’s economic policies fail to take into account second and third order effects.
In the president’s first address to Congress, he announced plans for a trillion-dollar health care plan and to take responsibility for a child from birth to its first job—universal healthcare, universal pre-school and universal higher education. To a lot of people, that sounds pretty good.
But look at the consequences: a budget that grows discretionary spending by a whopping 12%, that produces trillion-dollar deficits and that means much more borrowing from the Chinese and others. We may be approaching the tipping point where people who are lending us all that money will begin to worry about what the dollar will be worth in the future.
President Obama’s excessive spending and borrowing could precipitate a crisis of confidence in our currency and lead to hyper-inflation, evaporating what is left of family savings and wiping out the middle class.
The President’s cap-and-trade plan also ignores second order effects. By placing a trillion dollar energy burden on companies that do business here and without requiring China and India and others to sign on, energy-intensive companies will move.
Emissions will grow in China even as they decline—along with jobs—here in the US. Even those who are worried about carbon emissions don’t call it America warming—they call it global warming.
The President’s corporate tax plan makes the same error. He proposes to tax multi-national companies that “export jobs to other countries.” Sounds good on the surface.
But American companies that have subsidiaries doing business in other countries already pay taxes there; making them pay higher US taxes will make them uncompetitive in those markets and cost jobs here. And the multinationals themselves will simply relocate outside the US. The result will not be more jobs and more tax revenue as the President claims, but less.
The administration intends to sharply raise taxes on all investment income: interest, dividends and capital gains. But the pool of risk capital that finances new jobs and new businesses has already been shrunk by trillions of dollars; raising the tax on investment will shrink it further, depress job creation and result in less government revenue.
Even the President’s mortgage plan fails to adequately consider its long term consequences. By requiring investors and lenders to reduce the principal amount of their loan and by enabling bankruptcy judges to re-write mortgages, investors in the future will demand higher mortgage interest rates to compensate for their higher risk. Housing will suffer, as will responsible borrowers.
Perhaps the most disconcerting aspect of the President’s proposals is that they appear to be taking America down the very path of big government, big spending and big borrowing that got us in so much trouble in the first place.
By ignoring the second order consequences of his policies, the President is deepening and lengthening this recession. He inherited a recession, yes, but he is making it worse.
There is still time to limit the damage caused by the President’s policies. Republicans and “blue dog” Democrats need to insist on fiscal discipline. Expanding health insurance and improving education can be achieved without massive new federal spending.
Taxes should not be raised. Energy policy must not penalize America. Entitlements must be reformed. And a half a trillion dollar deficit in four years, which rises every year thereafter, must be rejected. It is unacceptable as a budget; it is unthinkable as a goal.
In times like these, America needs leaders with vision—men and women who see beyond the immediate, who understand and appreciate the importance of looking beyond today’s horizon.
President Obama has the opportunity to be that kind of leader. But that will only happen if he and his administration put aside their nearsighted, liberal agenda and focus on America’s future.
Mitt Romney is the former governor of Massachusetts.