Friday’s Wall Street Journal contained a fascinating op-ed by Obama senior economic policy adviser Jeffrey Liebman. Well, actually, the op-ed itself is not that fascinating: It seems like the campaign memo that led to Obama’s disastrous “the private sector is doing fine” comment, which the administration walked back almost immediately.
But several things are fascinating about the op-ed.
First is this: “There is a strong consensus about what the immediate challenges facing our economy are: first and foremost, a continued lack of demand as a lingering result of the recession.” Strong consensus among whom? Economists? Americans? Whatever the group, the consensus is obviously wrong: Wealth arises from the efficient and constant reallocation of human and material resources. Demand drives that reallocation but the reallocation also drives demand.
The consensus among most Americans I talk to is that it is the heavy burden of regulation and taxation–including the uncertainty created by constantly shifting rules –that has created a drag on investment. That drag on investment has created a drag on job creation, and on labor productivity, both of which have dramatically reduced demand. In that sense the stimulus was bound to fail—it had to struggle against the rest of the administration’s economic policy, which was to strangulate capital formation and investments through punitive taxation and regulation.
#more#Another fascinating thing about the op-ed is that Liebman doesn’t mention taxation or regulation as drags on the economy at all. Of course, if he’s an adviser to President Obama, you’d expect him to deny that excessive taxation or regulation are to blame. But — like Obama himself — Liebman doesn’t deny it. He doesn’t even acknowledge it. This is what has made conservatives nostalgic for the Clinton administration: In the 1990s, when you had a valid point, Clinton had a response to it. And when that valid point was your main argument, he engaged the issue head on. But the Obama team responds to your main argument either by ignoring it, or telling people that you’re “full of you know what.”
Yet another fascinating thing about the op-ed is that Liebman unambiguously doubles down on the president’s original “private sector is doing fine” gaffe:
One of the largest drags on our economy has been the layoffs of public employees like teachers, firefighters and police officers due to state budget cuts. Even as American businesses have created nearly 4.3 million private-sector jobs over the past 27 months, state and local government employment has fallen by 450,000 jobs during that time. But Congress has failed to act to put hundreds of thousands of teachers and first-responders back to work.
This is simply an unbelievable view of the public sector. Liebman hilariously blames Republicans for the fact that Congress “has failed” to put all these state and local workers back to work, as if it were self-evident that Congress should have anything at all to do with the fiscal policies of state and local governments. It’s another example of Liebman confusing cause and effect: Common sense suffices to see that it is the recession which caused the public-sector job losses, not the job losses that have kept us in economic doldrums. But that’s symptomatic of Obama’s whole approach to job creation, which is to try to counteract the effects of economic slowdown instead of its causes.
Indeed, if this op-ed is any guide, the Obama team has no idea what the causes of the economic downturn are, and are not even listening to what conservatives might have to say on the subject. That leads me to the most fascinating aspect of Liebman’s op-ed: He is a longtime Harvard professor of economic policy, former chief economist at the Office of Management and Budget, and holds bachelor’s and doctoral degrees in economics from Yale and Harvard.
Is it possible that what appears to be the most economically illiterate administration since the New Deal is actually full of economists so brilliant that simple Republicans can’t even understand what they’re saying? Perhaps it’s the impenetrable brilliance of Liebman’s economic theories that has left Republicans with the impression that those theories fly in the face of obvious facts and common sense.
Liebman had better hope so, because if not, his fascinating op-ed is indefensible and borderline preposterous.