While President Obama is out on the campaign trail talking about how bad things were four years ago, and how we have to go “forward” to his second term to see just how great things are going to be in the next four years, the biggest problem he’s got is the here and now.
Real GDP in the second quarter stalled at 2.2 percent. There were a paltry 115,000 new jobs in April. The labor force shrank by 342,000 for the month, and the 63.6 percent labor-force participation rate is now the lowest since 1981. There are roughly 23 million people classified as either unemployed, underemployed, or no-longer-looking. And median household income has dropped by $4,300 during Obama’s time in office. This all adds up to a tough indictment of the administration’s economic policies.
Notable economists are having an easy time assigning blame.
Stanford economist John Taylor argues that every dollar taken from the private sector and channeled to the public-sector for government spending produces a GDP multiplier of less than one. Thus, the economy has gotten worse under Obama’s big-government policies. He would have been better off leaving the money in private hands.
Nobel Prize winner Gary Becker blames the current jobs deficit on the failure to resolve the budget and debt-ceiling issues, the lack of serious entitlement reform, and the absence of pro-growth tax reform toward broader and flatter tax rates.
University of Chicago professor Casey Mulligan and Stanford professor Ed Lazear blame the current economic situation on the proliferation and eligibility expansion of transfer payments such as Medicaid, Social Security, disability, food stamps, and extended unemployment benefits.
Economic historian Mike Bordo just completed a study that shows how deep recessions are always followed by strong spring-back recoveries — all except this one.
And University of Chicago professor John Cochrane argues that the failure to get a strong recovery is not because of the financial crisis, but because of stupid policies.
Not surprisingly, former governor Mitt Romney is gaining momentum in the polls, even despite the rough primary season. A recent survey by Raghavan Mayur for the highly regarded Investor’s Business Daily shows Obama losing his lead as the economy again stalls. A month ago the president led Romney by eight points. Now his lead is down to three. Among independents, after being down three points a month ago, Romney has opened up a 46 to 37 lead.
But Mitt Romney needs to look carefully at an important subhead: Among investors who are registered to vote — about 60 percent of likely voters come November — the pro-business, market-friendly, fiscally conservative Romney has a mere 47-44 lead over Obama. A mere three points.
Successful Republican politicians, like George W. Bush in 2004, generally carry the investor class by 10 or 12 percentage points. A three-point lead is not enough.
Paradoxically, although 65 percent of investors polled by IBD think investment income should be taxed at a lower rate than wages, 63 percent favor the Buffett rule, which puts a 30 percent minimum tax on millionaires. Of course, like everybody else, investors are worried about the stagnant economy, the huge budget deficit, Obamacare, and taxes. But Mitt Romney is going to have to do better with this group if he’s to win in November.
And keep in mind, the stock market has doubled under President Obama. Is that why the investor-class vote is up for grabs?
So while Mr. Romney is out there campaigning on free-enterprise principles to grow the economy, he might pay some attention to specific investor-related issues. In particular, he should pledge to keep the same low 15 percent tax rates on capital gains (which Obama wants to double) and dividends (which Obama wants to triple). Also, tax rates on estates and inheritances will go up if Obama is reelected. Romney might want to mention that, too.
George W. Bush slashed investment tax rates in 2003, and he did a good job of telling that story to investors in 2004. Romney needs to make that same investor connection this time around. President Obama knows the importance of this group. And right now the investor-class vote seems like a toss-up.
Romney’s gotta improve that story.
– Larry Kudlow, NRO’s economics editor, is host of CNBC’s The Kudlow Report and author of the daily web log, Kudlow’s Money Politic$.