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Rzeczpospolita, Poland

The Price Will Be Paid
by Obama’s Successors

By Maciej Andrzej Leszczyński

Translated By Michał Bolek

7 November 2012

Edited by Tom Proctor

Poland - Rzeczpospolita - Original Article (Polish)

The Democratic president won more than just an election and a second term. He also won entrance into the league of the most prominent leaders in U.S. history, writes an American political scientist.

Obama has been repeating [himself] for the last three weeks: Don’t change direction. We caught the ball on the fly. The economy is gaining speed. We’re getting out of the worst collapse in the history of the world, which the Republicans gave us.

White House chief economist Alan Krueger boasted on Friday that the unemployment rate is dropping below 8 percent. The thing is, the amount of unemployment isn’t dropping and the recession inherited by Obama wasn’t worst in the history. But the truth is that the winner has a guaranteed place in history as the figure of a great healer and the man who took America from collapse to economic boom.

Millions of New Workplaces

The current 7.9 percent unemployment rate is, in fact, an increase from the 7.8 percent rate of last month. And the recession inherited by Obama is nothing compared to what Ronald Reagan inherited from Jimmy Carter. Today it may be difficult to believe, but when Reagan took the presidential oath, unemployment was swiftly increasing to, mind it, 10.8 percent! The economy then shrank by 6 percent, compared to a 5.7 percent [decrease] during the 2008-2009 recession.

Obama can boast about the slow economic [recovery] not because of really optimistic economic indicators, but because of the very low expectations of U.S. residents.

Over 12 million Americans are still queuing at employment agencies. 41 percent of them have been unemployed for at least six months. If the number of those looking for a job and those who have lost hope was added on, it would turn out that the unemployment rate exceeds 14.6 percent today. There’s a 23 percent unemployment rate among people under 25 and 40.5 percent rate among African-Americans.

It’s difficult to regard new taxes and a great injection of public money into the economy as an effective cure. The three years since the official end of the recession, which took place in June 2009, have been the longest period of getting out of a recession in the history of the U.S. The economic increase remained on average 2.2 percent. Obama created 3.3 million new [jobs] outside the agricultural sector, [which is 7.7 million] less than Reagan. At that time, the American economy was accelerated by lower taxes and strict monetary discipline. Today, it’s simply contrary. Increasing public taxes and relaxing the financial policy dramatically delayed the comeback to the path of swift economic growth – delayed it, but didn’t shatter it. Obama hoped the revival process would start even before the election campaign. It didn’t happen, but the economy can get off the ground now, just after the election, irrespective of the old-new president’s Keynesian policy.

Mitt Romney’s pre-election declarations that he’d create 12 million new workplaces came across as derision. An economist pointed out that [his statements] are not an accomplishment. It must happen within the next four years anyway. According to analysts from Moody’s, the number of new jobs will be 11.7 million at worst. The analyses prepared for the White House say that one can expect work possibilities for 12.3 million unemployed people. To be sure, the experts from the congressional budget commission dampen the enthusiasm and talk about no more than 9.3 million new jobs. But those are still serious numbers, especially if the present unemployment troubles are taken into account.

The Fed Is Guaranteeing Employment

Even if we were to assume the most pessimistic of indications, the president and his advisors could [congratulate] themselves about them on every television program and demand laurels. And they would be right, regardless of whether Obama makes any move or not. President George W. Bush, or more precisely, the employers, only created one million new jobs. President Bill Clinton, regarded as an economic miracle-worker, created 11 million workplaces in each of his two terms, which was an epoch-making result.

President Obama created 162 thousand jobs during his first term. This was the main cause of the serious problems with his re-election. Also in the group are the greatest beneficiaries of his social policy; they’re among the minorities, the unemployed and the people who Romney criticized many times during this election campaign by calling them the 49 percent of people who don’t pay taxes. However, they didn’t believe in Barack Obama’s recipes for a long time.

However, a strikingly small number of new jobs doesn’t mean the potential of the American market shrank so dramatically. This potential exists, and thanks to it, the economists assess, the new-old president will be able to almost immediately show a very big economic increase to the end of the first quarter of 2013, in contrast to current very pessimistic predictions. It’s worth emphasizing that if the Republican candidate had won the election, he could also bugle those results as his great success, even without any special action taken to rebuild the labor market.

The key to unemployment decreases and expansions of the labor market are not governmental activities, but the monetary policy of the Federal Reserve System. An interesting report prepared by a group of economists from the Georgia Institute of Technology shows that thanks to keeping the basic interest rate in 2013 at zero, the Fed almost guarantees that the current pace of [job creation] will stay at an average level. That’s a result of macroeconomic trends. And thanks to this fact, President Obama can already write his speech to summarize the first, and surely the second, quarter of 2013.

Nothing to Do with the Vision

It’s not the first time that the laurel of a restorer goes to an American president not for what he did himself, but for what was done for him. Franklin Delano Roosevelt took power in the very middle of a turmoil: the biggest recession in American history. To save the country from bankruptcy, his economists forced the suspension of the gold standard. It was a brilliant move, but it didn’t have anything to do with what is today considered Roosevelt’s biggest service: the creation of a pension system and [reforms of] labor law.

Ronald Reagan changed the disastrous streak of the American economy. He obviously helped to stimulate appetite by cutting taxes by 25 percent, but the truth is that the effects of his policy could not be noticed until the term of his successor, George Bush. And all credit for the economic improvement in Reagan’s term goes to Paul Volcker, the chief of the Federal Reserve System; he mastered the galloping inflation. And it didn’t have anything to do with Reagan’s conservative vision.

Of course, it can’t be guaranteed that the economic increase in 2013-2016 will be comparable to the miracle from the second half of the 1930s or 1980s. However, it’s sure that the next four years will be incomparably better than the last five. That’s why Barack Obama, his left-wing social policy, public healthcare and even his ecological initiatives will be regarded as brilliant anti-recession moves. As the Keynesians show President Roosevelt’s achievements, so will the next generations pride themselves on the artificial stimulation of the economy through borrowed money, interventions in the bank system and public healthcare as the only effective recipes for getting out of the crisis.

The enormous expenditures obviously will force the subsequent raising of taxes, still bigger public debts and, consequently, more and more interventionism. After some time, the import restrictions and the difficulties of transferring investment capital abroad must be implemented, which is shown by the history of Barack Obama’s great Democratic predecessors.

In the Shadow of Revolutionary Politics

In the long run, all those activities will cause disastrous economic effects. As Bill Clinton’s policy of upsetting the credit market led to the crash in 2008, so will Obama’s decisions make the private sector get into serious trouble and limit economic activity and employment.

But it will be the price that his successors will pay. Who knows, maybe the Republican president will … It will be difficult for them to get out from under the shadow of the great Democratic visionary and his revolutionary politics that caused the American economic boom.



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