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Obama economics: More government means more growth

Robert L. Ehrlich says the president's response to a failed stimulus is to double down on it

Robert L. Ehrlich Jr.

8:00 AM EST, January 20, 2013

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There is an old but rejuvenated movement in the country these days. It's a far-left take on Keynesian economics: a school of thought intent on raising taxes and expanding the public sector — as a way to jump-start the economy.

Yes, you read that correctly. The progressive intelligentsia (with a recent assist by the Congressional Research Service) are all hot and excited by the prospect of higher taxes on upper-income taxpayers, the better to spur economic growth.

The model is supposed to be the Clinton era, wherein income tax hikes coincided with strong economic growth, a surging stock market, and three consecutive years of a federal balanced budget. (Seems these adherents forget about the Clinton-era cut of almost 30 percent on capital gains, but I digress.)

The underlying rationale: Pumping more money into the public sector spurs economic growth through public investments. If that theory sounds a lot like the arguments in support of the $1.1 trillion Obama stimulus, well, that's exactly what it is.

But that massive stimulus has proved to be a bust; many of the hard-core unemployed have stopped searching for work, as unemployment has hung around 8 percent; and some economists are predicting yet another recession if profligate federal spending is not addressed in the short term. Sure seems like a long time ago since Joe Biden was promising 9 million new jobs if only those old supply-side Republicans would get out of the way.

Despite this state of affairs, the unreconstructed progressives at the White House will continue to sell the Kool-Aid of "high taxes and a large public sector equates to high growth" for as long as they control the reins. And the president is a willing cheerleader. Remember this quote from the 2012 campaign,

"… The private sector is doing fine. Where we're seeing weaknesses in our economy have to do with state and local government. Oftentimes cuts initiated by, you know, governors or mayors who are not getting the kind of help that they have in the past from the federal government and who don't have the same kind of flexibility as the federal government in dealing with fewer revenues coming in. … If Republicans want to be helpful, if they really want to move forward and put people back to work, what they should be thinking about is how do we help state and local governments …"

What some saw as a rhetorical misstep was actually a reaffirmation of the "higher/higher" hypothesis. And now, a second term roadmap is in play.

Step one was the recently concluded fiscal deal, wherein the president used his strong hand to make an already progressive federal income tax code even more progressive (witness the return of the 39.6 percent tax bracket, new limits on deductible expenses on upper-income earners, and a new 20 percent capital gains rate).

Step two will take place in March at the next fiscal cliff showdown. The president is on record with his baseline approach: no new spending cuts without new taxes. It's as if any dose of budget cutting on one end must be made up for by additional dollars into the federal Treasury on the other. This is no way to make progress in paying down the debt. Remember the new paradigm: More government equates to more growth — and don't worry so much about all that debt ($16.455 trillion as of Thursday evening).

Last week's presidential press conference may have set a record for Executive Branch hubris, as the man who crucified President George W. Bush for pushing a debt limit increase in 2006 (and who voted against it) excoriated the GOP leadership for daring to tie the sacrosanct debt vote to additional spending cuts.

The last 31/2 years have seen sluggish growth, historically high unemployment rates, low consumer confidence and an additional $5.4 trillion added to the national debt. All this despite a $1.1 trillion stimulus, a Fed that has pumped in excess of $2 trillion into the economy, interest rates close to zero, low inflation, labor peace, and a slimmer, more efficient private sector with trillions in excess cash to burn.

The bottom line: The left's dangerous love affair with ever-higher taxes and public sector expansion is a formula for economic "malaise." Sad to say, that's not the only thing going on in Washington that reminds me of Jimmy Carter.

Robert L. Ehrlich Jr.'s column appears Sundays. The former Maryland governor and member of Congress is a partner at the law firm King & Spalding and the author of "Turn this Car Around," a book about national politics. His email is ehrlichcolumn@gmail.com.

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