It’s a message the Obama Administration is loath to hear, as it signals a growing discontent with ever-burdensome government spending. The President has shared with us his understanding of the qualifications to be President. “The President’s job, is to figure out how everybody in the country has a fair shot, while maximizing profits” is the goal of the private equity sector, he said, consistent with his relentless effort to denigrate Romney’s experience — experience that former President Clinton last week referred to as “sterling”. That’s an assessment with which Newark, New Jersey Democratic Mayor Corey Booker agreed, calling the White House efforts to attack Romney’s private equity experience, “nauseating”.
As the kids like to exclaim in their texts and emails, “OMG!”
Could our President really be that clueless? Actually, Mr. President, maximizing profits is not really the primary goal of successful businessmen. The primary goal of successful businessmen (and the financiers who provide them with capital) is to increase the market for the products or services they provide. Their primary purpose, Mr. President, is to grow their businesses (which is what grows the economy and creates jobs), and profits are how businesses fund their growth.
Private Equity firms provide capital and management, often to struggling companies, to enable them to increase efficiency and to grow and prosper. Sometimes they succeed and sometimes they fail. When businesses grow, the velocity of money increases as private enterprise invests in material, equipment new plants and personnel required to efficiently produce the company’s goods or services. Each company must find the proper balance between inputs (including labor) and outputs (the goods or services it sells). In the aggregate, unemployment decreases when economic growth increases. It’s that simple. That the President apparently doesn’t understand this, explains a lot about why his policies have produced what may be the weakest economic recovery in history.
The non-partisan Congressional Budget Office, in its recently released budget projections, has forecast our public-debt-to-total GDP ratio at 70% by year’s end. This public debt doesn’t include the debt the government owes to the American public for future social security payments. When that non-public debt is included, our total debt-to-GDP ratio soars way beyond 100% of GDP, which is both unprecedented in peacetime and, in the judgment of many leading economists, irresponsible. The CBO goes on to warn that “to the extent additional tax revenues were generated by boosting marginal tax rates, those higher rates would discourage people from working and saving, further reducing output and income.” In other words, as we have written time and time again is these essays, the Administration should be focused on economic growth, and then economic growth and after that economic growth. Instead, the President has chosen to make business profit, and the enterprises that produce it, the straw bogeymen of his re-election campaign.
Not to be out gaffed by the President, Vice President Biden rushed to the microphone to inform us that “private equity guys” aren’t bad, but that they are not necessarily more qualified to be president than plumbers. Well, we’ll accept that. But we would hasten to add that both “private equity guys” and successful plumbers are probably far more qualified to be president than community organizers, or state legislators who make a specialty of dodging difficult votes.
The President and his Administration talk about job creation as though it flows from a federal spigot, if only we can find which spigot to turn on. Let us stipulate that the government can create jobs, including many good ones. It can create jobs by providing to other federal, state and local government agencies, funds it extracts from private and corporate citizens. We’ll resist the temptation to dwell on the multitude of projects that seem to have been funded primarily to keep late-night comedians in material for years to come. We’ll even take a pass on criticizing the, approximately, $300,000 per-job cost the government claims it created or saved (2.4 million jobs at cost of $700 billion). It is, however, despite liberal claims to the contrary, a very inefficient way to create meaningful, long-term employment. Turning the private sector loose and freeing the economy from government policies that inhibit growth is a far more efficient way to stimulate the economy.
If the Government really wanted to stimulate high-quality employment, the United States would not boast the developed world’s highest corporate tax rate. Nor would the President be campaigning on a platform to increase taxes on capital, nor would he make demonizing the 1% who pay more in taxes than the bottom 90% the cornerstone of his campaign. He would mount an effort to eliminate every unnecessary rule and regulation that burdens those attempting to start new businesses or grow existing businesses, and construction would be underway on the Keystone Pipeline.
CBO director, Douglas Elmendorf, who is as non–partisan as anyone could be, testifying before the House Budget Committee last year confirmed that uncertainty about federal policy is diminishing household and business spending, explaining “that uncertainty covers many federal policies including regulatory policy, health policy and tax policy”. Elmendorf went on to testify that CBO data shows debt rising to 190% of the size of the entire economy over the next two decades “The current level of debt is reducing our output, our incomes relative to what would be the case if we had a lower level of debt, leaving aside the effects of this particular recession, which complicate that,” Elmendorf said.
And earlier this year, Elmendorf, testifying before the Senate Budget Committee stated that while the President’s $800 billion stimulus package might boost the economy in the short term, in the long-term, the effect of such spending is a net negative on economic growth. Specifically, he told the Committee that while the stimulus bill would provide a big boost in GDP in the short term, in the long-term the effect of the President’s spending program would be a net negative on GDP growth. Whatever bump the economy got in the early years, he said, would be offset by the negative effect on growth over the balance of the decade.
While, we certainly agree with Elmendorf’s conclusion that Obama’s plan will result in a net loss of growth over time, let’s take a look at the “bump” CBO predicted in the early years. According to CBO’s scoring of the Obama stimulus plan, the economy was expected to grow 3.1% last year. Instead, it grew by only 2.8% and that was only after strong inventory accumulation in the fourth quarter. Then the government reported that growth had dipped back down to 2.2% during the first quarter of 2012, and that has now been revised down further to only 1.8%. We doubt that CBO would, today, predict a front end “big boost” in GDP. In fact, CBO has now cautioned that growth could begin to contract as early as next year, which the latest dismal job creation numbers seem to confirm.
The President knows he can’t campaign on his stewardship of the economy so the White House game plan is to attack Romney’s business experience. We do not expect President Obama to praise Mr. Romney’s accomplishments. Romney is, after all, seeking to make the President a one-term head of state. Romney is, however, an eminently worthy opponent and while he clearly has to articulate his own resonating vision for America, the President errs by doubling down on a campaign to portray Romney as unfit to occupy the oval office. There are serious economic issues and questions of important national policy confronting the country and they are the issues and questions on which the election should be focused. The President, having wracked up one trillion dollar deficit after another, seems to think big deficits won’t matter to the electorate in this election. The vote in Wisconsin suggests he should think again.