In a recent poll by the Wall Street Journal and NBC news, a majority of Americans expressed their frustration with the approach our government has taken in response to the financial crisis and economic slowdown. Just 43 percent of the respondents expressed satisfaction with how President Obama has handled the economy, a decline of 13 percentage points from a year ago. The disapproval vividly reflects disappointment toward economic policy decisions and management over the past year.
As the downward-trending poll numbers suggest, a majority of our fellow citizens are not comfortable with the “dramatic change” we have witnessed. The quest to enlarge and mobilize government in the name of rescuing and rebuilding our economy has created both economic uncertainty and a considerable degree of anxiety about our economic future.
There has always been tension between the state and the free market. The genius of the American economy has been its ability to balance the two, with policies that preserve stability while promoting innovation. However, as shown in the 2010 Index of Economic Freedom that was released last week, the battle has tilted decidedly toward big government. The magnitude of the recent loss of economic freedom has been alarmingly high, with considerable negative implications for our economic future. While many countries around the world continue on the path of economic liberalization, the United States is, in many respects, moving in the opposite direction, simultaneously burdening its economy with increasing government spending, uncompetitive tax rates, and barriers to trade and investment that stifle entrepreneurship and dynamic growth.
By burdening our economy with even bigger government and stifling it with less economic freedom, we are creating a dangerous economic environment where opportunities are missed, and lingering uncertainty undermines our economic potential.
In one of his many inspiring speeches, President Obama in fact talked about the importance of innovation:
“[There is] an important role that we can play, laying the ground rules to spur innovation. That’s the role of government — to provide investment that spurs innovation and also to set up common-sense ground rules to ensure that there’s a level playing field for all comers who seek to contribute their innovations.”
As a matter of fact, the proven path to stimulating economic growth is to advance economic freedom by promoting policies that generate a virtuous cycle of innovation, vibrant economic expansion, and more opportunities for people. Economic freedom is strongly linked to innovation and business initiatives that cumulatively lead to greater economic vitality for all.
As the findings of the 2010 Index demonstrate empirically, today’s successful economies are not necessarily geographically large or richly blessed with natural resources. Many economies have managed to expand opportunities for their citizens by enhancing their innovation capacities that are among the chief engines of economic prosperity.
Unfortunately, our economy’s dynamic innovative pulse is slowing in the presence of ever more bloated government.
No doubt that the vigor of our ongoing recovery depends on private businesses that will flourish with greater economic freedom. However, many small and large firms are currently postponing spending decisions and projects until they see more clearly government’s latest intentions. Others are put off by anti-business rhetoric that demonizes those whose profit-seeking is the very foundation of investment and job creation.
It is time to put back our country onto the right course. In preparing for his second State of the Union address this Wednesday, President Obama should be reminded of how to best spur innovation, not throttle it. The tool of choice—economic freedom—requires only an understanding that the people, expressing their wishes freely in the market-places of America, know better than any central planner or government bureaucrat what they need to get moving again.
Forget the war on terrorism, the war on drugs, even the war on poverty. President Obama seems to have declared a new war, a war on banks. It was launched last week with the proposal of a “bank tax,” supposedly meant to get TARP bailout money back to taxpayers (although it would leave out firms such as General Motors that actually owe most of the money). It continued yesterday with the President’s proposal of new bank regulations — limiting what banks can invest in as well as limiting to total size of financial institutions.
There’s not much to recommend either proposal. Neither would do much to avoid another financial catastrophe. In fact, by limiting the scope and size of an institution’s investments, there’s a good chance that they would make the system less, not more, stable.
And it isn’t just the president’s opponents who are skeptical. Reportedly, Treasury Secretary Tim Geithner, along with White House economic advisor Larry Summers, fought hard internally against the proposals, arguing that they would unnecessarily damage the international competitiveness of the financial sector. But, they, apparently, were overruled.
The reason isn’t hard to see. Despite (or perhaps because of) the potential damage to financial firms, the politics of a war on Wall Street must have been irresistable. Who likes bankers anyway? What better way to pump up sagging poll numbers than to pick a fight with them? The President all but said as much, stating: “So if these folks want a fight, it’s a fight I’m ready to have.”
The dangers of the regulations, and — perhaps more — the virulence of the populist rhetoric, sent the markets into a tailspin yesterday, with the Dow losing 213 points yesterday and another 216 today. It’s unclear exactly what effect the drop will have on White House strategists, however. The goal, after all, was a war on Wall Street, so couldn’t have been surprised that Wall Street recoiled. And on the Left the new hard line against the capitalists was greeted with applause. France also congratulated Mr. Obama, saying they were glad to see him following their lead, although it wasn’t clear how welcome that embrace was).
But will the average American side with the President? Certainly, there’s lingering resentment against banks in the wake of the TARP fiasco. And reports of big bonuses this year certainly won’t win banks any popularity constests.
But there’s reason to believe Americans won’t be led so easily. Bankers as a whole certainly aren’t loved, but polls show politicians coming in even lower. And outrage over bonuses and other abuses is concentrated on those using taxpayer money.
Second, the ultimate judgment on Obama’s policy will be the results. And, however populist, a policy that hurts the economy, and reduces jobs, won’t win brownie points.
Lastly, despite the President’s assertion that his plan would assure that “[n[ever again will the American taxpayer be held hostage by a bank that is too big to fail,” American’s will likely take that — as they should — with more than a few tablespoons of salt. Not only are the new reforms unlikely to ward off future bailouts, but but the other financial reforms now pending in Congress would actually make them more likely. And the Administration’s insistence that the TARP program itself continue won’t help the message.
The Administration’s bank war is a fairly transparent attempt to score political points at the expense of good policy. The good news is that Americans should see through it.