President Obama’s Failure

President Obama assumed office at a moment of crisis. While some of the policies that both he and President Bush pursued helped to pull us back from the brink, it rapidly became apparent that the real challenge facing him was finding a path toward longer-term recovery. Washington was at a crossroads.

One option was to put faith in American workers and businesses. Down this path lay an embrace of market-oriented solutions that empowered the private sector to succeed as it had succeeded before. While the market had clearly gone off the rails, driven in no small part by unwise government policies, the underlying strength of the American free-enterprise system was intact and could have been harnessed to create a recovery as sharp as the recession was deep.

The other option was to put faith in government. Down this path lay more spending, more debt, more government regulation, more bureaucracy—ultimately, more control for Washington over the national economy. Unfortunately, primed by decades of liberal orthodoxies, and liberal suspicions of the private sector, this was the direction in which the Obama administration marched.

Even before taking office, Barack Obama and his team settled upon an approach to resuscitate the economy that entailed massive fiscal stimulus. Proposing to begin the stimulus with more than $775 billion in new government spending, which the incoming administration trumpeted as the “biggest, boldest, countercyclical fiscal policy action in American history,” they put forward highly specific predictions about what their policy would accomplish: “A package in the range that the President-Elect has discussed is expected to create between three and four million jobs by the end of 2010.” Their report even provided a chart showing that, with the stimulus, the unemployment rate would be held under 8 percent.

The stimulus was implemented and the money was spent.  But the labor market continued to shrink and an additional 2.5 million jobs were lost. Instead of remaining below 8 percent, the unemployment rate soared past 10 percent and has remained above 8 percent for 31 consecutive months. As of the second quarter of 2011, two years after the Great Recession officially came to an end, GDP still has not recovered to its pre-recession level. The absence of recovery has transformed the tragic occurrence of high unemployment into the far more catastrophic phenomenon of long-term unemployment. At the end of the recession, the average duration of unemployment was 24.1 weeks. Now more than two years later, that number has spiked to a shocking 40.4 weeks, the highest number since the Department of Labor started tracking the statistic in 1948.

What went wrong? Despite the Obama administration’s insistence that the stimulus would be “timely,” “targeted,” and “temporary,” the program was poorly conceived and managed. Take, for instance, the infrastructure portion of the stimulus—some $150 billion of spending. Although President Obama had spoken out about “shovel-ready” projects that the stimulus program would underwrite, in fact, few if any projects were actually ready for the shovels. The envisioned infrastructure projects were often tied in knots by the federal government’s own regulatory apparatus, as President Obama was himself belatedly to discover.

When the President’s Council on Jobs and Competitiveness met with him, it recommended streamlining the federal permit process for major construction projects. It was explained to the President that the numerous hurdles in the process of applying for a permit and then gaining approval can cause delays for “months to years … and in many cases it can cause projects to be abandoned. ... I’m sure that when you implemented the Recovery Act your staff briefed you on many of these challenges.” President Obama reportedly reacted with a smile, saying, “Shovel-ready was not as ... uh … shovel-ready as we expected.” The Council, led by General Electric’s CEO Jeffrey Immelt, is said to have erupted in laughter.

While the stimulus faltered, President Obama moved on to a legislative agenda that, far from addressing the economic crisis, focused on big government market interventions with decidedly anti-growth implications. Obamacare, Dodd-Frank, and cap-and-trade are the signature examples. But threatened tax increases, impending environmental regulations, special favors for politically connected interest groups and labor unions, stalled trade agreements, draconian restrictions on energy exploration, and out-of-control spending undermining the nation’s fiscal position also took their toll. It was precisely the immense uncertainty thereby generated that inhibited investors and entrepreneurs from moving forward with the very kinds of plans and investments that the economy depends upon for growth.

The results of President Obama’s failed approach and misplaced priorities are, sadly, exactly what anyone with private sector experience could have anticipated. Standard & Poor’s August 2011 downgrade of America’s sovereign credit rating was almost an inevitable outcome of a set of policies that produced massive year-in, year-out deficits, a national debt that approached the total size of U.S. GDP, and a stalled economy. It will take a long time to repair the damage, restore consumer and business confidence, return to economic growth, and thus ultimately restart job creation. It will also take presidential leadership of a very different kind from what Barack Obama has offered.