Analysis of Obama's Economic and Fiscal Policies

Although it is still early in the Obama Administration, it is possible to assess the economic and fiscal policies it has implemented thus far.

Obama's fiscal policies generally have been disastrous. His so-called $787 billion economic “stimulus” has dramatically increased the federal budget deficit and the federal debt. In addition, he missed the opportunity for fiscal restraint by signing into law the $400 billion worth of appropriations bills for the current fiscal year that had not been passed before his predecessor left office. Those bills were heavily-laden with congressional earmarks for pork-barrel spending. The Obama Administration recently revised its estimate of the increase in the debt over the next decade from $7 trillion to $9 trillion. The increase in the debt will require more borrowing and printing of money in the long term, which will cause inflation and increased interest rates, which are both harmful to the economy.

As I note in earlier posts, the federal government does not -- nor should it -- have an economic policy, per se. It only has economic aspects to other policies, such as its fiscal policy (i.e. taxing and spending).

Obama's stimulus and other spending bills did extend some of President George W. Bush's middle class tax cuts, but he somewhat undermined the economic benefit of those tax cuts by increasing the tax on tobacco. Some of the federal spending probably did have some economically stimulative effect (See also my post, Conservative Analysis of Cash for Clunkers), but any citation of the stimulus for the recent signs of economic recovery undermines the premise behind the size of the stimulus because no more than about 10% of the $787 billion has been spent. In other words, if only $79 billion were enough to stimulate economic growth, then the rest of the spending must have been unnecessary. I observe in my post, How to Measure Whether an Economic Stimulus Is Working, the difficulty of attributing any increases of the gross domestic product to the stimulus alone, as other factors apparently are having more of a beneficial effect on the economy, such as actions by the Federal Reserve, federal bailouts of corporations during the Bush Administration and the natural business cycle. In short, the minimal economic benefit of Obama's spending spree has not been worth the price of the increase in the federal debt. It is essential that conservatives not allow Obama and his supporters to attribute any economic recovery to the stimulus alone, in addition to pointing to the long-term cost of it.

Note: the federal debt would be even worse but for one beneficial Bush Administration policy, much as the Clinton Administration benefited from a fiscal policy of its predecessor. The repayment by banks of billions of dollars of bailout loans made to them by the Bush Administration will allow Obama to try to escape blame for an even worse federal deficit and debt, just as President Bill Clinton benefited from the restoration to prosperity of the savings and loans taken over by the Administration of President George H.W. Bush. Clinton had criticized the elder Bush for the economy and deficit, but then took the credit when the deficit decreased because of Bush's policies. Conservatives should not let Obama get away with any Clintonesque deceit like they let Clinton get away with it.

Besides Obama's fiscal policies, there has been little other action from Obama Administration yet that affects the economy. For example, he has not even asked the Senate to ratify free trade agreements signed by President Bush, nor has he proposed any new trade agreements. Monetary policy is controlled by the Federal Reserve, which operates independently. Obama has indicated that he will renominate Fed Chairman, Ben Bernanke.

Two mistakes in strategy that Obama has made, however, were both harmful to the economy. One was to increase pessimism early in his administration by adopting the political strategy of making the economy appear even worse than it was in order to blame his predecessor for the recession and thus to take credit for any subsequent recovery. But the pessimism discouraged investment, which was evidenced by the decrease in the value of stocks, as well as by a drop in consumer confidence, which caused a decrease in consumption. Obama changed his strategy, but not until after much harm was done.

The other factor Obama has generated is uncertainty, which is economically harmful in a way similar to pessimism. His proposals to raise income taxes and taxes on businesses, his proposed energy tax, and his proposed massive federalization of health insurance, which would necessitate much more borrowing and spending alone, have spooked many investors.

In conclusion, Obama has been a fiscal disaster, which will be economically harmful in the long term. At best, economically, some of hs policies have been somewhat beneficial in the short term, but are being outweighed by other beneficial factors beyond his control, while he has undermined the benefits of his own economic policies through his pessimism and creation of unceratainty and fear.

Conservatives should continue to oppose Obama's fiscal policy of massive increases in spending and promote spending decreases. They should oppose Obama's economically harmful proposals to increase taxes and regulation and promote policies that would favor economic growth like income tax cuts, business tax cuts and increased trade.