Ethics & Public Policy Center

It’s Obama’s Economy

Published in National Review Online on June 6, 2012



Last week’s dismal jobs report struck like a thunderbolt, shaking the confidence of those who assumed an Obama second term was all but a sure thing. It’s finally dawning on the political class that, yes, President Obama could lose the presidential election this November.

This might help explain Paul Krugman’s latest column in the New York Times. In it, Krugman attempts to answer the “political lifeline” question that is now on the minds of many Democrats: What could possibly save the president, flailing in the ocean of his own failed record in office, from defeat? Krugman’s advice, though not particularly creative, is certainly easy to remember: Blame the Republicans!

Of course, this president doesn’t need to be convinced of the value of an effective blame game. Blaming Republicans is one of his strong suits. As his four-year term in office winds down, he still devotes significant space in nearly every public utterance to blaming his predecessor for his troubles.

But Krugman wants President Obama to go still farther in this regard. Instead of just blaming President Bush for the state of the economy he inherited in 2009, Krugman wants the president to make the case that, if not for the implementation of ill-conceived Republican economic policies in recent years, the Obama economy would be roaring along just fine in 2012.

In other words, despite the fact that the president has been in office since 2009, this isn’t really Obama’s economy at all; it’s actually the Republicans’ economy.

No doubt it would be impressive if the president managed to convince the electorate that three years’ worth of anemic job creation is all the GOP’s fault. And certainly one can’t blame Krugman for making the suggestion (desperate political times call for desperate political evasions). But the odds of this working for President Obama are near zero.

For starters, there’s the problem of who has actually been in charge of economic policy since 2009. The president came into office with commanding Democratic majorities in the House and Senate. He could have done anything he wanted during those years, without even consulting with Republicans. And, in fact, he did do pretty much anything he wanted in those years, in spite of GOP objections. Which is why, as Douglas Holtz-Eakin has already noted, we got the $800 billion stimulus spending plan, very substantial spending increases in the 2009 and 2010 appropriations processes, Dodd-Frank, the auto bailout, a state- and local-government bailout bill, Cash for Clunkers, and much else—not to mention the huge tax hikes, including tax hikes on labor, contained in Obamacare. This was the president’s activist economic agenda, and it’s all been implemented or is in the process of being implemented. The fact that it hasn’t worked to spur a robust economic recovery is no one’s fault but the president’s.

Nonetheless, Krugman presses ahead and tries to make the argument that our troubles today stem in part from the fading of the effects of the 2009 and 2010 stimulus measures. And of course he’s partially right about that. Whenever government relies exclusively on Keynesian-inspired efforts to artificially boost consumer spending, it’s a little bit like a sugar rush. There may be a short-term lift (although even that is disputable), but that’s always followed by a decline that makes you feel just as bad as when you started. Who’s at fault for that? Certainly not the critics of the 2009 stimulus effort. They made this exact point even before the law was passed. This is a defect of Keynesianism. When stimulus is withdrawn, as it eventually must be, growth slows. There are only two solutions to this problem: Either we convert temporary deficit spending into permanent deficit spending (see Greece), or we do the sensible thing and look for ways to boost growth beyond the continual goosing of aggregate demand with government policy.

Further, Krugman’s argument is undermined by the fact that, since the payroll-tax cut of 2010 (which the GOP agreed to and passed) was enacted, the president hasn’t even asked for significant stimulus spending or tax cuts from Congress. His most recent budget plan calls for an increased deficit of just $82 billion in 2012 compared with current law, according to the Congressional Budget Office. This is too small to have an effect on anything—no matter what model is used to estimate the economic effects of the higher deficit. So if he really believes further stimulus is what the economy is missing, he has no one to blame but himself; he has not made that case to the American people.

And on taxes, Krugman’s crusade to punish the successful leads him to contradict his own arguments. In 2010, in the aftermath of the Republican takeover of the House, the president reached out to the GOP leadership in Congress and expressed a willingness to cut a deal to extend the 2010 individual income-tax schedule (including the Bush tax cuts), as well as other expiring provisions, through 2012. That was done, and along with it came the 2011 and 2012 payroll-tax cut. Krugman implies that this deal is somehow related to today’s sputtering economy. Under what theory? According to the Keynesian bible, if today’s problems stem largely from a lack of consumer spending (as Krugman contends), a tax hike, even on just the rich, would slow growth. So it makes absolutely no sense for Krugman to argue that what’s needed now is further stimulus—and then call for higher taxes too.

In American politics, presidents are held accountable for the state of the economy. This isn’t always entirely fair, as many factors outside the president’s control shape economic performance. And certainly not everything that is holding back the economy at this stage is the president’s fault. But much of the problem is the president’s fault, and that means it is fair enough to lay responsibility for where things stand at the president’s feet. There’s just no way around it: This is President Obama’s economy. That’s how voters will see it in November, and they will be right to see it that way.

James C. Capretta is a fellow at the Ethics and Public Policy Center. He was an associate director at the Office of Management and Budget from 2001 to 2004.

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