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The President’s Incoherent Economic ‘Philosophy’
Whatever he’s for, apparently it’s not a free-market economy.

The president campaigns in Dearborn, Mich., April 18, 2012.

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James C. Capretta

The president in these speeches has argued over and over that a key ingredient to growth is more federal spending on education and workforce training. This argument runs counter to five decades of experience. The federal government has steadily become more and more involved in elementary and secondary education since 1965. There’s not a shred of evidence that it has helped raise educational performance by students. On the contrary, the steady encroachment of federal regulations and spending in education has coincided with an erosion of the nation’s standing relative to that of our peers around the world.

And, with respect to workforce training, the federal government has conducted countless studies on the effectiveness of the many existing workforce-training programs going back at least 30 years. These programs — run mainly by the Department of Labor — have been shown time and again to produce mediocre results, at best, in terms of gains in future earnings for workers. The idea that somehow the Obama administration has a formula for doing this better in the future than it has been done in the past is simply not credible, to put it mildly.

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Finally, on taxes, there’s no dispute among economists that, other things being equal, higher marginal rates are worse than lower marginal rates for economic growth.  Indeed, every bipartisan budget plan offered over the past three years has had as a central pillar tax reform with lower marginal rates and a broader base. The only one calling for raising marginal rates is President Obama. He is the outlier.

The formula for long-term growth in the United States is not a secret or a mystery. It’s the same formula that economists preach to countries that have very little track record of economic progress. The key is to embrace a strong free-market economy with stable monetary policy, free trade, low marginal tax rates, a tight rein on government entitlement promises and regulations, and narrow deficits.

The president’s plan touches on none of this. He has proposed no serious tax reform or deficit-reduction package. He is, at best, reluctant to promote free trade, for fear of offending his union base. And, on entitlements, he has taken the largest expansion in a generation and piled that on top of the unaffordable programs already on the books.

Meanwhile, the GOP plan, put together by House Budget Committee chairman Paul Ryan, takes on all of the serious challenges holding back the American economy. It removes trillions of dollars in unfunded liabilities from the U.S. balance sheet, puts the government on a path to balanced budgets, and reforms both the individual and the corporate income-tax systems to lower rates and broaden the bases — without any reduction in revenue. And there’s still plenty of funding in the Ryan budget for worthwhile federal spending on infrastructure and other programs, including reformed education and workforce-training efforts.

The president would have been better off sticking to a Keynesian defense of his original stimulus plan. It would have been a more plausible story. Because now that he has abandoned defending that, he basically has nothing left to say. Which is why he is resorting to pumping up trivialities and calling them a plan.

— James C. Capretta is a fellow at the Ethics and Public Policy Center. He was an associate director of the Office of Management and Budget from 2001 to 2004.



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