It’s the Fiscal Uncertainty, Stupid

It is not easy to discern under the fog of misinformation disseminated by the Obama administration and its leftist allies in the Congress and the Federal bureaucracy, but these folks seem genuinely puzzled that their Keynesian/socialist policies have not brought the US economy roaring back to life. They said and, more to the point, apparently believed that: the nearly billion dollar stimulus program would provide the perfect jolt to the US job creation machine and cut the employment rate by at least 2%; Obamacare was exactly what the American consumer needed and wanted, and that it would eventually rescue the economy from the ravages of unchecked health care expenditures; the extension and expansion of unemployment benefits and other welfare programs would ease unemployment and cushion the effect that the economic contraction was having on poorer Americans; and finally, their misbegotten mortgage assistance program, cash for clunkers and other artificial, one-time statist interventions in the economy would save it from the severe harm inflicted by the evil policies of the Bush administration – policies which were strangely reminiscent of those of the current administration.

All of these suppositions are patent nonsense. But that this is so is completely beyond the ken of the vastly-experienced businessman whom the American people so foolishly installed in the White House. Obama utterly rejects the policies of Ronald Reagan that rescued the US economy from similar dire circumstances 30 years ago. Instead, he plows ahead with failed Keynesian economic policies and wonders why they don’t herald the economic revitalization that he believes they should. He is clueless as to why American businessmen and the American consumer don’t respond as he expects. It’s the fiscal uncertainty, stupid! The actions of Obama and his minions who, tragically, govern our fair land have created massive uncertainty about what will come next; and it is that uncertainty – as much as the already manifest deleterious effects of Obama’s policies – that is the cause for the continued stagnation in the American economy.

The notion that the uncertainty caused by Obama’s unwise fiscal policies is as damaging as the already perceived ill effects of those policies is not a new idea – although my phrasing of the concept in the title is hopefully novel. I would like to pursue the thought in two ways in this article. First, I will quickly review the nature of the uncertainties and the harmful consequences that follow. Second, I will consider two excellent, recently published books that analyze Obama’s fiscal policies: The Great Money Binge: Spending Our Way to Socialism, by George Melloan (Threshold Editions, 2009) and It’s Not as Bad as You Think: Why Capitalism Trumps Fear and the Economy Will Thrive, by Brian Wesbury (Wiley, 2010). I will discuss how these astute authors’ analyses of the nature of Obamanomics are almost exactly parallel, but how they come to diametrically opposed conclusions as to the consequences for the country and the economy. The point is that if these accomplished experts (both conservative, incidentally) are in complete disagreement about the fallout from Obamanomics, how great indeed must be the uncertainty it is producing in the business community, among investors and consumers and of course in the public at large.

The financial uncertainties that our nation faces are crippling as well as perplexing. But before we recite them, let us list a few of the certainties that have been established beyond doubt in the last 18 months:

·       Obama is a leftist ideologue who wants to transform the US from a society characterized by free markets, limited government, traditional culture and individual liberty into a government-controlled, Euro-style social welfare state.

·       Nationalized health care, cap and trade, massive deficit spending, punitive taxation – especially on the ‘rich,’ extensive government regulation, re-unionization of the American work force and demonization of American business are the main mechanisms he intends to deploy to bring about his radical transformation. He has succeeded in a few of these areas and he continues to press the others.

·       Despite the fact that his agenda was evident for all who cared to look during the 2008 campaign, the American people were blinded by his charisma and apparent pragmatism, by the cover provided to him by the media, and by the populace’s desire to put the nation’s dismal racial legacy to a final rest by elevating a black man to the Presidency. But now a significant portion of the electorate has awoken to the horrendous mistake that was made and is determined to correct said blunder at the earliest opportunity.

These things we know. We see what Obama has done and he is now largely transparent about what he still intends to do. Now what don’t we know?

·       We are unsure of the level of taxation awaiting us. Obama wants to raise income taxes, capital gains taxes, taxes on dividends, FICA earnings limits, estate taxes and all manner of corporate taxes. Will he succeed? To what extent?

·       Do we have inflation waiting just around the corner? perhaps hyperinflation? or will it be deflation? or just stagnation?

·       Will the economy dip back into recession?

·       What surprises await consumers, businessmen and investors in the two multi-thousand page bills that Congress passed in the last four months? What effect will they have on consumer spending or saving, entrepreneurship, the housing industry, the medical profession, Wall Street, Main Street and your street?

·       How much more of Obama’s destructive agenda will be enacted before he stands for re-election? cap and trade? card check? more campaign finance ‘reform’? more education ‘reform’? amnesty for illegal aliens?

·       How deep is the resistance to the threat he poses? Are the Tea Party people representative of not just deep-seated resentment but of a more widespread disappointment at Barack’s plans? Is the Republican Party more RINO than Tea? How will all of this be manifested in the Congressional elections this fall? What effect will that election have on the progress of Obama’s radical agenda? Can any of it be rolled back?

Because of these uncertainties: businesses are loath to invest in new ventures or hire new workers; consumers are reluctant to buy homes; the stock market is subject to wild gyrations; other countries lose faith in the soundness of the dollar; parents worry about their children being able to live as well as the parents do; we remain paralyzed and unable to address the entitlement calamity that is bearing down upon us; public morale is damaged by the enormous debt we are piling up; and our pride in our nation is weakened. Incidentally, this litany doesn’t even touch upon the people’s fear for the country’s security occasioned by Obama’s foreign policy of ‘soft power,’ appeasement, obsequious groveling to tyrants, disarmament and multilateralism.

I doubt there is anything that I have said here with which the two afore-mentioned authors would not agree. In their books, they each come down very hard on Obama along the lines that I have laid out in this piece. The similarities in their analyses of Obamanomics are highlighted by the facts that both books have Forwards written by the same person (Amity Shlaes) and both authors have deep connections to the Wall Street Journal. Yet, Melloan strikes a very pessimistic note, whereas Wesbury remains optimistic.

Melloan: Now, with the crash of 2008, our new president and government appear committed to ignoring the lessons of the past. With multibillion dollar ‘stimulus packages’ becoming the norm, and a multitrillion-dollar national debt that will keep growing so long as present policies are continued, America can look forward to a very grim future indeed.

Wesbury: There is clear evidence that panics and depressions happened with some regularity back in the 1800s and early 1900s, and it is also true that government was small back then, but … Government experimented with two different national banks, often changed the price of gold or silver, issued debt, and regularly interfered with the banking system. … The key is that the United States made it through all of that and has averaged a little more than 3 percent real GDP growth per year for the past … 200 years. This history of free market capitalism is a huge hurdle for anyone who wants to say that it was built on sand to overcome. The United States has created so much wealth and built such a robust system that taking it down is much more difficult than anyone thinks. In the end the economy is built on a rock. … Capitalism has not failed. And it’s not time to give up—on free markets or a better tomorrow. History has shown that every time the economy was thought to be done, worn out, finished, it bounced back. …[It will do so again.] It’s not as bad as you think.


Melloan concedes that America’s economic goose is cooked, while Wesbury attempts to convince the reader that the American economy can take Obama’s best punch and still come back strong. As a stockbroker acquaintance says: ‘The market factored in Social Security, then it factored in Medicare; it will likewise factor in Obamacare.’ But there is no more factor room counters Melloan. Are we hopelessly far down the road to ruin or will America’s unbelievable history of resilience rescue us? I wish I knew which of these two gentlemen was correct. How could they come to such vastly different conclusions based on the same evidence and based on essentially the same evaluation of the evidence? I think the answer can be found in the notion of a tipping point. The idea, which I believe originates with Thomas Sowell, is that there is a point in the transformation of America from a Constitutional Republic to a Euro welfare state beyond which – if we reach it – it will be impossible to reverse course. Actually, in a previous post in this blog, in which I discuss this idea at length, I described three tipping points – one political, another economic and a third cultural. Melloan and Wesbury are concerned exclusively with the second. The answer to the puzzle I posed is that Melloan believes that we have passed the economic tipping point, whereas Wesbury does not. I sure hope that Wesbury is right.

This article also appeared in The Intellectual Conservative on Aug 3, 2010 at: