Perhaps the reason for President Obama’s flat and energy-less speech Thursday night — TV cameras panning the convention floor actually showed delegates falling asleep — was that he already knew Friday’s jobs numbers were going to be a disaster. The August unemployment report completely punctured his argument that if you just give him four more years, his policies will solve the economy.
Of course, reading through the speech, I didn’t see the word “jobs” mentioned once. In fact, though I could be wrong, I didn’t see the word “growth” mentioned once.
What I did see were constant references to government. Obama has taken to calling it “citizenship.” But it’s the same old, same old. Whether it’s more money for the teachers’ unions, or more Solyndra-like green energy, or more for infrastructure, it translates to more government spending and dependency in a second Obama term, all to somehow be financed with tax hikes on the rich.
Unfortunately, as former President Clinton mentioned in his convention speech, the arithmetic doesn’t add up.
Taxing successful, upper-end earners, investors, and small-business owners will generate less than half the revenue Team Obama expects. Maybe far less than half, since taxing capital gets you less capital, lower investment, fewer jobs, and slower growth. This will lead to a huge revenue shortfall, all while spending as a share of GDP continues to rise, perhaps to 25 or 26 percent.
Despite the president’s argument, ever larger government is the problem. It interferes with private-sector growth. Obama has never understood this. During his speech he mocked tax cuts and deregulation, not understanding that permanent tax incentives and easier regulatory burdens free the economy to produce more growth.
Taxing rich people in order to spend more on food stamps, welfare, disability insurance, unemployment insurance, and other forms of government dependency does not add up to anything other than larger budget deficits at slower economic-growth rates. Obama is paying people not to work. But it’s a losing economic strategy.
And that’s the problem with the jobs numbers. At less than 2 percent growth, we should expect anemic employment. It’s exactly what we’re getting. There were only 96,000 new nonfarm payrolls in August, way below Wall Street expectations. The prior two months were revised lower by a net 41,000.
And while the unemployment rate slipped to 8.1 percent, it declined for all the wrong reasons: 368,000 people left the civilian labor force. The small-business household survey dropped 119,000, the second consecutive large decline. Wages and the private workweek were flat. And the labor participation rate slipped to 63.5 percent from 63.7 percent.
If you count the unemployed, underemployed, and discouraged workers, as well as those who’ve left the labor force altogether, more than 20 million job seekers have evaporated. They’ve given up hope.
And why are we surprised? Less than 2 percent economic growth in this so-called recovery — the worst since 1947 — cannot produce significant job-creation. You need at least 250,000 new jobs per month. But you’re not going to get that by overtaxing, overspending, over-borrowing, and over-regulating.
Look at this quote from Ronald Reagan at the 1984 Republican convention in Dallas: “Our tax policies are and will remain pro-work, pro-growth, and pro-family. We intend to simplify the entire tax system . . . to bring the tax rates of every American further down, not up. . . . If we bring them down far enough, growth will continue strong, the underground economy will shrink, the world will beat a path to our door, and no one will be able to hold America back — the future will be ours.”
This Reagan model of free-enterprise tax reform is completely at odds with Obama’s tax-the-rich, government-driven, central-planning model. Polls show that the public knows this, even if the White House does not.
And that leaves a huge opportunity for Mitt Romney to explain and expand on his Reagan-like vision of low-tax reform, spending restraint, and deregulation to free up the animal spirits of growth. But Romney only devoted a couple hundred words to this in his convention speech. He must be more aggressive. He must connect his policies to the economic solutions America wants.
Keeping more after-tax income will spur incentives for growth. Reward success, don’t punish it. And remember, you can’t have capitalism and job creation without capital. I want to hear Romney say these things.
He must loudly talk about his 20 percent personal tax reform and his 25 percent corporate tax rate (from 35 percent). He must discuss the importance of limiting government to only 20 percent of GDP in order to leave more resources in private hands.
Obama’s convention speech was more of what hasn’t worked. Romney has a great opportunity to show what will work.
– 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$.