After an awful week in the stock market, Team Obama sent its acolytes out to the Sunday morning shows to let everyone know that the president-elect’s campaign promise to impose tax increases on higher-income earners as quickly as possible probably won’t kick in until at least 2011.
By doing so, Obama and his inner circle finally, if only tacitly, acknowledged what they had refused to recognize during the presidential campaign, namely that economic expectations matter in the here and now.
This opens the door to the incoming administration’s next required admission — that their candidate, their party, and the expectations they created during the presidential campaign have been mostly responsible for the steep dive in the equity markets, and, nearly six months ago, put the economy into what will probably officially be declared a recession after this year’s fourth quarter. Nancy Pelosi, Barack Obama, and Harry Reid did this in the areas of energy, taxation, and, with heavy assistance from Henry Paulson and Ben Bernanke, bailouts. With the exception of forcing, with the help of public opinion, a temporary lifting of the Outer Continental Shelf offshore drilling ban, there is little George Bush or the Republican minorities in Congress have been able to do to stop them, or to manage expectations.
The recession, once it becomes official, will thus richly deserve designation as the POR (Pelosi-Obama-Reid) recession. Further, Obama’s and the Democratic Party’s performance on the economy must be benchmarked from June 1, 2008 — not Election Day, not Inauguration Day, and not, as traditionally has been the case, from October 1 of the new president’s first year in office.
Evidence of the POR triumvirate’s virtually unilateral damage to the economy began appearing as early as the fourth quarter of 2007, the first quarter of negative growth in six years. The POR recession itself began in June. The historically steep downward revision in second-quarter gross domestic product (GDP) growth from an annualized 3.3% to 2.8% in the government’s final September announcement was more than likely due to deterioration that occurred in the final month of the quarter.
It’s not at all a coincidence that June was the month in which it became crystal clear that despite sky-high oil prices, Pelosi, Obama, and Reid were hostile to the idea of drilling for more oil — offshore or anywhere else. Pelosi insisted that “we can’t drill our way out of our problems.” In the speaker’s world, this means that you don’t drill at all. Reid declared that we have to stop using oil and coal because “it’s making us sick.” Obama seemed pleased that gas prices were so high, saying only that “I think that I would have preferred a gradual adjustment” instead of the sharp spike. What a guy.
As would be expected, the country’s businesses, investors, and consumers, never having witnessed a political party dedicate itself so completely to starving its own national economy, reacted very negatively to all of this. I said at the time that “businesses and investors are responding to their total lack of seriousness by battening down the hatches and preparing for the worst.” Subsequent events have validated that observation.
Even as fuel prices have plummeted, the siege mentality in America remains. That’s because, until Sunday’s minor bow to deferring them, the POR economy’s architects seemed determined to ram massive Social Security and other tax hikes down the throats of the most productive 5% of Americans in the name of creating handouts — oh, I’m sorry, “refundable tax credits” — for millions of others. Americans know that you don’t increase taxes on anyone in a slowing economy, unless your goal is to slow it down even more. Until Sunday, that seemed to be what Pelosi, Obama, and Reid intended. But deferral is totally inadequate, both short-term and long-term. Instead of putting off tax hikes until the economy can supposedly “afford” them, what we need right here, right now, is another across-the-board tax cut. This would quickly free up money for capital investment and lead to stronger growth when recovery comes.
The cascade of bailouts finished the job of establishing recessionary conditions. These too can be laid at the feet of Pelosi, Obama, Reid, and Democrats in previous Congresses. The summer implosions at Fannie Mae and Freddie Mac — enterprises that were run into the ground by Democratic cronies who established irresponsibly lax lending rules that ultimately ruined the mortgage marketplace — exacerbated financial sector problems elsewhere and led to the SUCKUP (Seemingly Unlimited Cash Kitty Under Paulson) in late September.
Other POR economy agenda items loom ominously in the background: “windfall” profits taxes on energy producers, unionization of the unwilling through secret ballot-ending “card check” legislation, and a plethora of economy-choking environmental initiatives, to name just a few.
Collectively, these factors have weighed down the economy for nearly half a year. In recognition of when they began doing what they have done, Team Obama and the POR economy’s performance must therefore be benchmarked against where things stood on June 1, 2008, as follows:
- Inflation (June 2007 through May 2008) — 4.2%.
- Unemployment — 5.5% (as of the May report; currently 6.5%).
- Prime rate — 5.0%.
- DJIA — 12638 (down 36% as of the November 21 close).
- S&P 500 — 1400 (down 43% as of that same close).
- NASDAQ — 2523 (down 49%).
- Quarterly GDP growth before the June-related adjustment — 3.3%.