Murray Weidenbaum holds the Mallinckrodt Distinguished University Professorship at Washington University, where he also serves as honorary chairman of the Weidenbaum Center on the Economy, Government, and Public Policy.
Historians tell us that every age is a time of transition. The present is no exception. Since January 2009, President Obama has initiated many policy changes which are shifting the balance of power between the public sector and the private sector and especially from business to government. However, you do not have to be a professional historian to recall that quite a few of these changes began in the administration of George W. Bush.
When we reflect on the broad sweep of American history, we see many earlier periods of transition, especially in the 19th century. But let us briefly turn to the 20th century. For example, many people think about the presidency of Herbert Hoover as a period of reaction or inaction. However, on balance, Hoover's term of office was a far greater move toward bigger government than the nation had experienced under his predecessor Calvin Coolidge. In fact, some of the major New Deal agencies that flourished under Hoover's successor, Franklin D. Roosevelt, had their origin in the policies of his Republican predecessor. This was the case especially in the housing and farm credit areas.
Clearly, the Obama Administration has embarked upon an unusually ambitious array of expansions of government responsibility and expenditure. Some of them, however, were initiated under the previous president. Much of the bailout of financial institutions was authorized by the Emergency Economic Stabilization Act of 2008. That law authorized TARP, the Troubled Asset Relief Program and its subsidiary, the Automotive Industry Financing Program.
Nevertheless, since inauguration day (January 20, 2009), the trend toward increasing the power of government has accelerated. The $787 billion stimulus bill (technically, the American Recovery and Investment Act) was passed in early 2009. Also, early 2009 saw the enactment of the new credit card control law and the Smoking Prevention and Tobacco Control Act. In addition, several major proposals passed the House of Representatives in mid-2009, notably the climate change legislation and the bill that would control top management compensation in American businesses generally.
We can get some understanding of the general attitude of the new Obama team by reading what they say since taking office. For example, the new Secretary of the Interior introduced his budget request with the following ringing statement: "Together, we will change the world as we oversee the Department of the Interior's responsibilities across all 50 states, the territories, and oceans." That was not an off-the-cuff comment, but a republishing of an earlier speech that he gave.
The new assistant attorney general for antitrust stated that "antitrust authorities [are] key members of the government's economic recovery team. . . . Antitrust must be among the frontline issues in the government's broader response to the distressed economy." Apparently, companies aren't being sued often enough. To be fair, bureaucratic imperialism is of long standing -- and quite bipartisan.
Unprecedented expansions in the scope of the federal government's activities are contained in the White House proposals for new regulation of financial institutions and of labor relations, for increased tax burdens on international trade and investment and on business generally and, of course, for a greater government role in health care.
I am not presenting this information as a value judgment. Personally, I believe that it is far too soon to evaluate the results of President Obama's economic program. As you would expect, any serious observer sees pluses and minuses and I will be doing just that in a moment.
Right now, I believe that it is useful to acknowledge that there is considerable controversy on the part of the public toward many of these new initiatives. We recently have witnessed very vocal complaints on the part of people who think the administration is doing too much in terms of expanding the role of government in our society.
Although they are not quite as vocal, nevertheless, some of the strongest supporters of Barack Obama during his long campaign for the presidency believe that he is being too cautious and should be doing more and doing it more quickly. We should recall, however, that virtually every president since George Washington has experienced variations of both kinds of public reaction -- positive and negative -- and simultaneously.
In my view there is an element of accuracy in each of these two types of responses at the present time. But they are not mirror images of each other. Rather, I find it useful to look at the short-term results of the new administration's actions and policies -- and then examine the long-term implications.
In the short run, the United States seems to be coming out of the longest and deepest recession since the Great Depression of the 1930s. The early part of an economic upturn is increasingly becoming visible. Consumer sentiment is improving; retail sales are up; the decline in housing seems to be leveling off; banks are starting to extend credit again.
Deflation is no longer a major concern and inflation is and interest rates are staying very low. Many economic forecasters, and I am one of them, believe that the U.S. economy hit bottom in the middle of this year and that we are now growing again in terms of the total amount of goods and services being produced in the United States. That is what we call the gross domestic product.
However, this is no rosy scenario that I am describing. Unemployment is in the neighborhood of 10 percent and that is painfully high. Yet a year from now the continued growth of the economy should be generating a substantial number of new jobs, enough to bring the unemployment rate down. That is the good news in the economic outlook.
Unfortunately, when I look beyond the coming year, I become less optimistic. That is when the rapid expansion of government spending and the resultant budget deficits will be generating some adverse economic effects. Financing unprecedentedly large budget deficits will mean pulling out of the private sector much of the capital needed to finance the creation of new companies, new products, and new jobs.
That is the downside of the expansion taking place in the American public sector. Despite some of the soothing rhetoric to the contrary, business is at the receiving end of unfriendly developments in both high policy and detailed procedure. The changes and the administration's proposals for future action range from a renewed emphasis in antitrust prosecution to increased taxation of those who do the saving and investment and to impending expansion of regulation, ranging from financial institutions to ordinary businesses.
The cumulative effect of this new trend will not be dramatic but will be felt over the years. American companies will experience a much weaker expansion in new capital investment and thus in overall sales and earnings growth than in the previous decade. At the same time, new protectionist policies will make it more difficult for American firms to compete in the global marketplace.
Sooner or later, the United States is going to be hard-pressed to sell all of the new Treasury securities that will be necessary to finance rapidly rising budget deficits. The likely response of paying higher interest rates will have a further dampening effect on our economy.
To some extent decision makers in Washington may have second thoughts and begin to take account of the undesirable side effects of the Obama economic program. Thus, many of the ambitious proposals from the White House may be watered down by Congress or even deferred to a later time. The economic results of Obamanomics may be less pessimistic than I have just sketched out.
In any event, economic developments are always full of surprises. *
"[In] this world nothing can be said to be certain, except death and taxes." --Benjamin Franklin