For President Obama and Speaker Pelosi, the reckoning is near.
In hubris, they imposed a radical liberal agenda on an unwilling centrist electorate. Now, the economic recovery is failing and voters are set to rebuke Democrats in November.
From electing Scott Brown in Massachusetts to vociferous dissent at town meetings, Americans made it clear they did not want the Democrats’ health-care reforms.
Those create vast new entitlements, levy higher taxes, impose mandates on businesses and state budgets, and increase demand for medical services and drugs, without expanding the supply of health professionals or loosening the monopoly grip of pharmaceutical companies. It imposes few meaningful cost controls.
As feared, businesses face runaway employee health insurance costs, dramatically increasing their incentives to outsource more jobs to Asia.
The financial-reform law creates employment for liberal lawyers and community activists in the federal bureaucracy to write 500 new regulations and staff a new consumer watchdog that will duplicate reforms for credit cards, bank accounts and consumer loans already being put in place by the Federal Reserve.
The big banks are still too big to fail, controlling a larger share of the nation’s deposits than before the crisis.
Restrictions on bank trading and derivatives miss the mark. Bad loans, not trading, took down Citigroup (C) and Bank of America (BAC), and few effective restrictions or controls are imposed on mortgage-backed securities and similar financial instruments that permitted giant banks to disguise lousing lending decisions from unknowing investors.
The financial system is even more vulnerable to abuse and collapse than before.
The 8,000 regional banks remain cash starved, because the President failed to use the TARP to create an analog to the Savings and Loan Crisis era Resolution Trust to purge balance sheets of toxic real estate loans and mortgage backed securities. Big Democratic contributors at Goldman Sachs (GS), JPMorgan (JPM) and other New York financial houses are making too much money working out those financial instruments, and the President acceded to their pleas for profits, against the best interests of jobs creation.
Now, small and medium sized businesses that rely on regional banks for credit can’t expand and add employees. For ordinary working families, credit is scarcer and more expensive. Neither phenomenon is good for jobs creation.
Having failed to push a carbon tax through a voter wary Senate, the President is intent on punishing energy use by executive fiat through the Environmental Projection Agency.
The Council of Economic Advisors claims the $787 billion stimulus package saved or created about three million jobs but the Administration head count of jobs directly funded by the economic Recovery Act simply contracts the assumptions behind this analysis.
A good deal of the money was wasted or delayed private hiring, exacerbating unemployment.
For example, subsidies to build windmills or green buildings displace other investments in new generating capacity and commercial space but don’t add to the kilowatts purchased and office space rented two and three years from now. The economy gets the same investments—those just cost more and get postponed.
The President managed to make much temporary stimulus spending permanent, creating trillion- dollar deficits for many years to come and endangering the federal government’s triple-A bond rating. Obama’s response is to increase income and estate taxes, and Pelosi is floating a national sales tax. None of those create jobs.
Signs abound that the economic recovery is faltering under the weight of statism. Retail sales and new home construction are sinking, Obama’s inept Treasury and housing bureaucrats can’t stem foreclosure for two million families this year, and non-financial companies are sitting on nearly $2 trillion in cash reluctant to invest and hire.
Now, the President’s Harvard bred, Wall Street fed, Washington dressed economists tell Americans they must endure high unemployment and declining incomes for most of this decade.
Maybe common folk who vote and earn a living in the real world know something Ivy League professors living off endowment income and advising presidents can’t fathom. Reckless, unproductive government spending, higher taxes and regulations that accomplish little but to raise costs, kill investment, drive jobs offshore and destroy prosperity.
It simply is not in Obama and Pelosi’s DNA to believe ordinary people know what’s good for them.
Thankfully, the first Democrats, Thomas Jefferson and James Madison, gave common folk a remedy for the arrogance of aristocrats — elections every two years.
Peter Morici is a professor at the Smith School of Business, University of Maryland, and former Chief Economist at the U.S. International Trade Commission.