Thursday, October 25, 2012

"Did Economists Doom Obama's Presidency?"

An article from Real Clear Markets (h/t Instapundit) that discusses whether it was Obama's over-reliance on incorrect economic predictions that doomed his Presidency. Here is the relevant part:
If President Obama loses the election in November, economists may well end up taking a share of the blame - for good reason. Their models misled him into applying ambitious stimulus therapies to jump start the economy and boost employment that haven't worked, vastly undermining his re-election prospects.

Back in January 2009, a now infamous study coauthored by Christina Romer, the future chair of the President Obama's Council of Economic Advisors, and Jared Bernstein, the future chief economist for the Vice President, predicted that an $800 billion economic stimulus targeted toward boosting consumer demand would stave off a severe recession and hold unemployment below 8 percent by the end of 2009.

What was so compelling about their study was the illusion of precision. The Obama administration used their statistical analysis to aggressively promote specific policy proposals, including the package of tax cuts and discretionary federal spending embodied in the so-called stimulus package, the American Recovery and Reinvestment Act of 2009.

But little of what they predicted has panned out.
(emphasis mine).

I haven't read the study, so I don't know the specifics of what they called for, or how well the President followed their recommendations. However, the reason for the failure is apparent just looking at the underlined portion above. We never had an $800 billion economic stimulus targeted toward boosting consumer demand.

Under classic Keynesian economic theory, to pump consumer demand, you have to get money into the hands of consumers. In the 1930's, this was done (to a certain extent) by creating massive job programs that built critical infrastructure. Under George W. Bush, they got rid of the middle-man and just simply mailed people stimulus checks. However, Obama never bothered (or, I would suggest, intend) to get this money to the consumer. Instead, the money went to banks, which sat on it when they weren't paying it out as bonuses; it went to companies, government agencies, and local governments that spent hundreds of thousands, or even millions of dollars in some cases, for each low paying job they created; billions disappeared into green-dream companies that went bankrupt (but were successful in siphoning off money to rich Obama supporters). On top of that, Obama instituted policies that took more money out of the pocket of consumers--such as closing refineries, oil wells, and power plants, thereby increasing energy costs; forcing people to buy stupid, expensive fluorescent bulbs instead of cheaper traditional light bulbs; passing huge regulatory and tax increases such as Obamacare that discouraged business growth; and continued the war on air travel. In short, none of the money got to consumers. And that is why it failed.

I would go farther, however, and suggest that Obama and his administration never intended it to succeed. In their twisted minds, American consumers are evil wasters of the environment and downtrodders of the poor. America was evil simply because it was more successful than other nations or peoples. Thus, the money went where they wanted it to go--the coffers of public sector unions (to ensure continued political support) and to Obama's rich supporters and friends . . . and not into the hands of the consumers where it would have boosted consumer demand.

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