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Shlaes: Obama’s Content Problem


Amity Shlaes, a senior fellow in economic history at the Council on Foreign Relations and author of The Forgotten Man: A New History of the Great Depression, tells NRO that President Obama’s jobs speech “sounded good but fell short on the content.”

“You see Obama’s impulse to be fiscally responsible — the Romer-Summers impulse — and you see the impulse for social equity — his Bob Reich impulse,” says Shlaes. “This kind of tension was also very typical of Franklin Roosevelt: you’d hear two conflicting things in the same speech. That’s because he saw the world politically and not economically. The same is true for Obama.”

“The language of the president’s speech is encouraging because it references small business and growth. It’s also initially encouraging to see him talk about his education program, Race to the Top, which sounds like the opposite of No Child Left Behind,” says Shlaes. “But here is an example of how the content doesn’t live up to its billing. Race to the Top sounds like we’re rewarding competition and helping students with scholarships — a sort of October Sky scenario where boys compete in missile-building contests. Instead the money really flows to institutions via the state to pay teachers or low performers, i.e. it’s aimed to move the weak forward rather than incent the strong. That’s nice, but it’s a Bush repeat.”

Obama is not addressing the core problem of what creates growth, adds Shlaes. “He’s throwing money in the general direction of economic activity. With the same level of commitment, however, he could have instituted permanent tax cuts instead of temporary gimmicks.” Doing that, she says, could permit more small business growth, since many of them often find “federal stimuli uncertain.”

“In terms of growth, the speech was deeply disappointing,” adds Shlaes. “The president is supposed to allow the economy to finds its feet. He doesn’t do that with this plan.”

Republicans’ concerns that Obama may use TARP money for his projects are nothing new, says Shlaes. “In the New Deal period, Roosevelt used new laws and precedents from World War I to address a non-military emergency. Now we’re seeing the president use financial-markets policy to address a fiscal/social challenge.”

“The economic theory that applies here is public-choice theory,” says Shlaes. “The government always wants to grow — it will eat anything and compete with anything. The use of TARP is a creative approach. It’s classic public-choice theory. It’s time for us to brush up on Hayek and public choice. The statute for TARP says that it can be used for other matters, but interpreting the statute as green light for spending is troubling. TARP wasn’t sold to the America people as a spending program for projects outside of the financial sector.”

Overall, President Obama’s speech on economics “isn’t good, but it also isn’t too bad,” says Shlaes. “We don’t want to get hysterical about this. Nixon sounded a lot worse with wage and prices controls. So did Gerald Ford with ‘Whip Inflation Now.’”