“Fish story.” “Such statements hurt his credibility.” Let’s just call it what it is: a pile of lies from a profoundly dishonest man.
JULY 21, 2010
Obama’s Economic Fish Stories
On unemployment, the president claims that the stimulus bill was several times more potent than his chief economic adviser estimates. Such statements hurt his credibility.
By MICHAEL J. BOSKIN
A president’s most valuable asset—with voters, Congress, allies and enemies—is credibility. So it is unfortunate when extreme exaggeration emanates from the White House.
All presidents wind up saying some things that make even their own economists cringe (often the brainchild of political advisers unconstrained by economic principles, facts or arithmetic). Usually, economic advisers manage to correct these problematic statements before delivery. Sometimes they get channeled into relatively harmless nonsense, such as President Gerald Ford’s “Whip Inflation Now” buttons. Other times they produce damaging policies, such as President Richard Nixon’s wage and price controls. The most illiterate statement was President Jimmy Carter’s late-1970s plea to the Federal Reserve to lower interest rates to combat high inflation, the exact opposite of what it should do. Not surprisingly, the value of the dollar collapsed.
President Obama says “every economist who’s looked at it says that the Recovery Act has done its job”—i.e., the stimulus bill has turned the economy around. That’s nonsense. Opinions differ widely and many leading economists believe that its impact has been small. Why? The expectation of future spending and future tax hikes to pay for the stimulus and Mr. Obama’s vast expansion of government are offsetting the direct short-run expansionary effect. That is standard in all macroeconomic theories.
So, as I and others warned in 2008, the permanent government expansion and higher tax rate agenda is a classic example of what not to do during bad economic times. Worse yet, all the subsidies, bailouts, regulations and mandates are forcing noncommercial decisions on the economy, which now awaits literally thousands of new diktats as a result of things like ObamaCare and the financial reform bill. The uncertainty is impeding investment and hiring.
The president does not say that economists agree that the high future taxes to finance the stimulus will hurt the economy. (The University of Chicago’s Harald Uhlig estimates $3.40 of lost output for every dollar of government spending.) Either the president is not being told of serious alternative viewpoints, or serious viewpoints are defined as only those that support his position. In either case, he is being ill-served by his staff.
Mr. Obama’s economic statements are increasingly divorced not only from competing viewpoints but from those of his own economic advisers. It is surprising how many numerically challenged pronouncements come from this most scripted and political of White Houses. One slip is eventually forgiven, but when a pattern emerges, no one believes it is an accident.
For example, on the anniversary of the stimulus bill, Mr. Obama declared, “It is largely thanks to the Recovery Act that a second Depression is no longer a possibility.” Yet his Council of Economic Advisers just estimated the stimulus bill’s effect on GDP at its trough was 1%-2%.
The most common definition of a depression is a long period in which GDP or consumption declines at least 10%. The decline in GDP in the recent recession was 3.8%, in consumption 2%. No one disputes the recession was severe, but to reach a 10% GDP decline requires tripling the administration’s estimate (three times their 2% effect) added to the actual 3.8% decline. On the alternative consumption standard, the math is even more absurd. The depression statement isn’t credible. The stimulus bill has assumed certain mystic powers in administration discourse, but revoking the laws of arithmetic shouldn’t be one of them.
The recession would have been worse if not for the Fed’s monetary policy and quantitative easing. Also important were the unmentioned automatic stabilizers—taxes falling more than income, cushioning declines in after-tax incomes and consumption—which were far larger than the spending and tax rebates in the stimulus bill. Arguing that all these policies (including injecting capital into banks, which was necessary but done poorly) may have prevented a depression is perhaps still an exaggeration but at least is within hailing distance of plausibility. On that scale, the effect of the stimulus was puny.
On his recent “Recovery Tour,” Mr. Obama boasted, “The stimulus bill prevented the unemployment rate from “getting up to . . . 15%.” But the president’s own chief economic adviser, Christina Romer, has estimated that the stimulus bill reduced peak unemployment by one percentage point—i.e., since the unemployment rate peaked at 10.1%, it prevented the unemployment rate from rising to just over 11%. So Mr. Obama claims that the stimulus bill was several times more potent than his chief economic adviser estimates.
Perhaps the most serious disconnect concerns the impending expiration of the 2001 and 2003 tax cuts, which will raise the top two income tax rates and the rates on dividends and capital gains. If these growth inhibiting tax increases occur—about $75 billion in tax increases next year, $1.4 trillion over 10 years—there will be serious economic damage.
In the most recent issue of the American Economic Review, Ms. Romer (and her husband David H. Romer) conclude that “tax increases are highly contractionary . . . tax cuts have very large and persistent positive output effects.” Their estimates imply the tax increases would depress GDP by roughly half the growth rate in this so-far-anemic recovery.
If Mr. Obama is really serious about a second stimulus, by far the best thing he can do is have Congress quickly extend the expiring Bush tax cuts, combined with real spending cuts set to take effect as the economy improves.
The president badly needs to make more realistic pronouncements. No one expects him to say his policies have failed (although most have delivered far less than claimed at large cost). A little candor about the results of experimentation in uncharted waters would go a long way. But at the very least, his staff needs to avoid putting these exaggerations on the teleprompter. It undermines confidence and raises concerns about competence. It’s doing nobody any good—not the economy and certainly not Mr. Obama.
Mr. Boskin is a professor of economics at Stanford University and a senior fellow at the Hoover Institution. He chaired the Council of Economic Advisers under President George H.W. Bush.
Day after day after day, Obama touts slivers of good news as magnificent, while ignoring pile on top of pile of bad news. We keep getting these tortured numbers, cherry-picked out of a a rotten mess. And we’re constantly told the increasingly laughable narrative that Obama’s incredible leadership is what kept everything from being even worse than it is.
The funniest aspect of all is when Obama and his mouthpiece Robert Gibbs keep assuring us that no economist disagrees with their policies when their very own chief economist is on record disagreeing with Obama’s policies.
Obama mouthpiece Gibbs declares:
I’ll let Congressman Boehner unwind his eloquent argument for preserving the tax cuts for those that are quite wealthy. I don’t think the President believes – I don’t think there’s an economist that believes there’s a stimulative effect to — or a good reason in terms of economic growth to extend those tax cuts, particularly given the choice that one has to make about the budget deficit.
Forbes Magazine demonstrates how fallacious and even dishonest Obama’s and Gibbs’ statements have been in pointing out that the:
chairman of the Council of Economic Advisers, Christina Romer, herself a Keynesian, has done research that undercuts the Keynesian view of good fiscal policy. Some of this research is in a March 2007 paper, “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks,” co-authored with her husband, fellow University of California, Berkeley, economist David Romer.
In their article, they find that “tax increases are highly contractionary” and that tax cuts are highly expansionary.
And Forbes goes on to conclude:
“In other words, if she believes her own research, Christina Romer should be a strong critic of her new boss’s policies.”
So maybe you guys should stop making flagrantly false statements that all the economists agree with you, when in point of fact even your own economist doesn’t agree with you. Or, at least only agrees with you by denying her own academic research for the sake of appearances.
That may be why she’s leaving the White House. She can finally tell the truth – something that the Obama White House would never even dream of allowing her to do.