The biggest Recession since 1929 began in early 2008, and many Americans think we are still in it. Technically, the economy is growing, but the growth is extremely slow, and it has not yet improved the lot of millions of Americans. Every Republican Presidential candidate blames Obama for the slow recovery. Is the slow recovery really Obama’s fault? The correct answer is, No. Here’s why.
Economist Paul Krugman wrote a column in the New York Times today in which he said that Republicans, conservative columnists, and some Federal Reserve Governors are just plain wrong when they say businesses are afraid to expand and create jobs because they fear costly regulations and higher taxes.
“The first thing you need to know,” Krugman wrote, “is that there’s no evidence supporting this claim and a lot of evidence showing that it’s false.” He cited a new paper by Lawrence Mishel of the Economic Policy Institute (EPI) that pointed out that extended periods of “jobless recovery” after recessions have been the rule for the past two decades. Indeed, private-sector job growth since the 2007-2009 recessions has been better than it was after the 2001 recession.
George Bush and a Republican Congress presided over the 2001 recovery. The reason this feels worse than 2001 is the 2008 Recession, created on Republican watch, was far worse than the 2001 Recession.
Republicans say that businesses are not expanding because of Obama. Krugman addressed that pointing out that there is no reason for business to expand because they have no customers, and “are not using the capacity they already have.” He added, “If anything, business spending has been stronger than one might have predicted given slow growth and high unemployment.”
This point was backed up by the EPI Report. In it, Lawrence Mishel wrote “…the absence of job creation reflects the continued unwinding of the financial collapse and the corresponding lack of demand. Firm investments and hiring are lower because they have ample capacity to produce the goods and services they are selling to a shrunken market, while firms are deleveraging at the same time.
As if they were all reading from the same book, Republicans say businesses won’t create jobs because they are shackled by taxes and regulations. The problem with this is that while candidates and commentators say that, businesses really don’t.
The EPI report pointed out several flaws with those arguments. “Interestingly, the single largest response [from small businesses] is “poor sales,” a Federation of Independent Businesses Report found. Thirty percent (30%) of respondents in reports since President Obama was inaugurated blame slow sales as the reason they are not expanding.
Republicans acknowledge this, but claim that taxes and regulation were the next highest concerns. According to the EPI report, in the Obama years, “some 13.9 percent of small businesses identified government regulation and another 20.8 percent identified taxes as their primary problem, the leading answers after poor sales.”
The EPI puts this in perspective. “Fortunately,… if one looks at the NFIB’s entire historical series (back to the fourth quarter of 1973) on this survey question it turns out that small businesses have always complained about regulation and taxes and not especially so under Obama. For instance, the share concerned about regulation under Obama (13.9 percent) is not substantially higher than under George W. Bush (9.9 percent and 11.0 percent) or Ronald Reagan’s second term (12.8 percent). There is also less concern about regulation under Obama than under Bill Clinton or George H. W. Bush.
The argument on taxes is similar. “Sure, there are 20.8 percent of respondents, on average, in the Obama years who see taxes as the primary problem facing their business. Yet, that intensity of concern about taxes is not all that different than under George W. Bush and is less than that reported during the first Reagan term through Clinton’s second term. It is hard to find a recent spike in concern about regulations or taxes that supports the story of escalating uncertainty or fears of regulations holding back the economy.”
Krugman concluded…”I can’t think of a time when a party’s economic doctrine has been so completely divorced from reality. And it also, of course, reflects the political need of the right to make everything bad in America President Obama’s fault. Never mind the fact that the housing bubble, the debt explosion and the financial crisis took place on the watch of a conservative, free-market-praising president; it’s that Democrat in the White House now who gets the blame.”
“But good politics can be very bad policy,” Krugman added. “The truth is that we’re in this mess because we had too little regulation, not too much. And now one of our two major parties is determined to double down on the mistakes that caused the disaster.
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