Obama’s Phony Economics

President Obama’s much hyped Big Economic Speeches were largely a rerun of his standard campaign speech, complete with the usual, bitter attacks on House Republicans and misleading or false claims of economic success including:
Over the past 39 months, our businesses have created 7.2 million new jobs.
The President hopes you’ll perceive this number as a lot of jobs.  But as this chart shows the Obama era has been the weakest post recession job market ever recorded.
Job growth during the last 8 post recession economies
A few minutes later President Obama said: “Our deficits are falling at the fastest rate in 60 years.”
Obama wants you to be persuaded that concern about deficits is now behind us and it’s time to crank up the spending machine.  But his statistic is simply not true.  His administration ran the biggest deficit in US history in 2009.  If the Congressional Budget Office’s projection for 2013 turns out to be accurate the deficit will have fallen at the rate of 55% over the last four years. 
But 55% in four years isn’t even close to Obama’s claim of “falling at the fastest rate in 60 years.”
  • In three years, from 2004 to 2007 the deficit fell at the rate of 61%.
  • In four years from 1993 to 1997 the deficit fell by 91%
  • In one year, from 1968 to 1969 a $25 billion deficit became a $3 billion surplus, for a drop of 112%
  • In three years, from 1962 to 1965 the deficit declined at the rate of 80%.

The 2013 deficit will be the smallest of the Obama era but will still be larger than any deficit ever run prior to the Obama era and 40% larger than the largest Bush deficit.  Even after adjusting for inflation the 2013 deficit will be the largest in history, except for Obama’s four previous deficits. Little Obama

[The rate of growth of ] Health care costs is slowing, but many working families haven’t seen the savings yet.

But there are no “savings” as long as the costs continue to grow, even if the rate of growth is slower than it was (a dubious claim.)  Savings would result only if costs go down.  Does Mr. Obama understand basic economics?  Little Obama

In the period after World War II, a growing middle class was the engine of our prosperity.

While there is no standard definition of “middle class” an overwhelming majority of Americans identify themselves as members.  Thus, all politicians strive to be seen as favoring the middle class.  Obama’s crediting the middle class with being “the engine of  prosperity” is cynical flattery, an appeal to ignorance, not a legitimate lesson in economics.

An expanding middle class, is the result of, not the engine of prosperity.  The real engines of prosperity are entrepreneurs and investors who innovate and/or create new products and services, organize new enterprises or expand exiting companies, and in so doing create jobs, thus increasing the demand for labor.

The middle class is made up mostly of “labor” or people who earn their compensation in the form of wages from jobs.  Labor, like everything else has a price which is subject to the market forces of supply and demand.  When demand for labor rises relative to supply the price of labor – wages, benefits – increases.  When demand for labor weakens, the price stagnates or goes down.  Since the end of the recession in mid 2009 the demand for labor has not kept up with the increased supply of labor from growth in the working age population.  Thus, average compensation, the price of labor, is down.

A “growing middle class” is the result of growing demand for labor.  The government can not cause the total, economy-wide demand for labor to grow because it takes the resources that fund it’s programs from the private economy, causing an offsetting decrease in private sector demand for labor.

During the post-war period Obama references with nostalgia there was greater economic opportunity because government was far more restrained than it is today.  Most of today’s federal regulatory and economic intervention systems didn’t even exist in the 1950s and 1960s.

Barack Obama’s ideological belief that prosperity stems from government decree rather than from maximum economic opportunity has never produced the results he claims he wants, and it never will.

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