Catastrophe - Dick Morris [27]
But if trickle-down doesn’t always work, irrigation does. The real key is to adopt policies that encourage the downward flow of wealth, as Bill Clinton did. The Earned Income Tax Credit, welfare reform, day care, college scholarships, and the like do exactly that.
And while the bottom 20 percent, taken as a whole, have had only small increases in their collective income, the congressional study makes it clear that there is a new bottom twenty percent each year as the formerly poor move up and new immigrants come in at the bottom. This churning, not a stagnant class structure, is typical of America.
But Obama’s approach is not to trickle down or irrigate, and certainly not to let a rising tide lift all boats. His policy is to undermine the wealthiest Americans by saddling them with heavy taxes, limiting their deductions, and undertaking a campaign of national vilification to subject them to universal obloquy. This approach won’t help the economy—and in the process it could sabotage both our economic growth and his own political career.
HOW OBAMA IS MAKING THINGS WORSE
Each week, President Obama seems to come up with another idea of how to transform the American economic system. He seems to be in a desperate hurry to churn out these proposals while he still controls Congress and before the continuing economic recession undermines his popularity.
Yet each time he makes a new proposal he changes the ground rules of the American economic system, introducing a new element of uncertainty into business decisions. It was exactly this kind of inconsistency and unpredictability that caused the Roosevelt recession of 1937–1939. Back then, businessmen didn’t know what the rules would be the next month, much less the next year. As a result, they prudently refrained from spending and investing, stymieing economic growth and recovery.
The same thing is happening now. In March 2009 alone, Obama proposed a major shift in the regulation of nonbank institutions such as hedge funds, brokerage houses, and insurance companies. He and Timothy Geithner, his Treasury secretary, spoke of the importance of regulating companies that are “too big to fail”—whose collapse would cause general economic mayhem. They implied that the federal government should be allowed to decide, on a case-by-case basis, which institutions fall into this category and be able to change the categorization whenever they feel the circumstances warrant.
How can a business operate when it doesn’t know whether it’s about to come under the government’s regulatory control? Will Obama’s bill pass? And if it does, what will it provide? A sound business procedure would be to make no long-term commitments to economic projects until these regulatory issues are resolved. The result would be paralysis at just the moment when we need these very businesses to take risks and move ahead—especially in the purchase of the so-called toxic assets held by our banking system.
The Obama plan injects a further element of uncertainty in that no business will really know if it is “too big to fail” and, hence, subject to another round of regulatory scrutiny. And what about the future? At what level of growth will a firm’s success be punished with such a designation? And what will that mean?
All these factors tend to freeze economic activity as businesspeople wait for the regulatory gavel to fall.
In late March, President Obama appointed a task force, headed by former Federal Reserve chairman Paul Volcker, to recommend sweeping changes in the tax code. The panel was charged with the mandate of making its recommendations by December 2009. The very breadth of Volcker’s assignment implies that huge changes are in the offing, potentially affecting every aspect of business and personal activity—adding to the uncertainty that is already