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Michael Barone: Obama Riles Dems Over New Deal Complacency

After failed policy attempts, the president discovers the virtues of a 'growing economy'

“The single most important jobs program we can put in place is a growing economy.” So said President Barack Obama at his recent news conference defending the tax deal he made with Republicans.

Michael Barone
Michael Barone

“The single most important anti-poverty program we can put in place is making sure folks have jobs and the economy is growing. We can do a whole bunch of other stuff, but if the economy is not growing, if the private sector is not hiring faster than it’s currently hiring, then we are going to continue to have problems no matter how many programs we put in place.”

It’s hard to disagree. Robust economic growth solves a lot of fiscal and other problems.

But Obama’s fellow Democrats, to whom he explicitly directed these comments, can be forgiven for being puzzled. The whole thrust of his first two years — the stimulus package, the health-care legislation, the vast increases in government spending — has been to put programs in place that have done little or nothing to stimulate economic growth.

That’s not accidental. The template for the Obama Democrats’ policies, the New Deal of the 1930s, was not designed to stimulate economic growth, but to freeze in place a tolerable but not dynamic status quo.

The New Deal’s father, President Franklin Roosevelt, believed that the era of economic growth was over, just as many contemporaries believed that technological progress was at an end (how far could you go beyond the radio and the refrigerator?). FDR, like his cousin Theodore, was an affluent heir who had contempt for men who built businesses and made money. They were “economic royalists” and “malefactors of great wealth” — sentiments echoed by President Obama last week.

The initial New Deal program, the National Industrial Recovery Act, set up 700-plus industry codes to hold up wages and prices. That made some sense in a time of deflationary downward spiral, but proved unsustainable over a longer term.

Later New Deal programs strengthened labor unions, in an attempt to protect workers and freeze work rules in place — which tended to block the flexible management practices that eventually gave a competitive edge to later foreign-based auto companies. New Deal transportation policy protected existing trucking firms from competition, a policy overturned by the likes of Ralph Nader and Edward Kennedy in the 1970s.

High tax rates on high-earners and continued uncertainty over increased regulation and unionization led to what economists called a capital strike. Job creation was dismal as the 1930s went on, and unemployment hovered over 10 percent until wartime mobilization began in the 1940s.

All that sounds more than a little familiar.

Many of the Obama Democrats’ policies are an attempt to freeze the status quo in place. Example: the mortgage forbearance policies intended to allow strapped-out homeowners to refinance at lower rates. These inspired the February 2009 Rick Santelli rant that sparked the Tea Party movement — why should prudent taxpayers bail out those who have overindulged?

In any case, forbearance has failed: Few have taken advantage, and about half who have ended up in foreclosure anyway. The Obama Democrats’ attempts to prop up housing prices at near-bubble levels seem to be faltering as prices continue to sag.

Similarly, the one-third of the stimulus package money sent to state and local governments allowed them to maintain public payrolls for a while — and to keep public employee union members paying union dues. Most union members today are public employees, and unions gave Democrats $400 million in the 2008 election cycle.

But this payoff is coming to an end, and state and local governments, especially those where public employee unions are strongest, are facing fiscal crises. The Obama Democrats’ attempt to freeze their political benefactors in place is proving unsustainable.

In 2008, candidate Obama told Joe the Plumber that he wanted high taxes on high-earners in order “to spread the wealth around.” He told ABC’s Charlie Gibson that he wanted higher capital gains taxes even if they produced less revenue in the interest of “fairness.”

Now after his party’s 2010 shellacking, incumbent Obama seems to have discovered the virtues of a “growing economy.” The New York Times reports that he has asked his administration to develop proposals to eliminate tax preferences and lower tax rates, as the 1986 bipartisan tax reform did.

Perhaps the president is learning that you can’t plunder the private sector endlessly, Chicago-style, without ill effects.

Michael Barone is a senior writer for U.S. News & World Report and principal coauthor of The Almanac of American Politics. Click here to contact him.

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