A president’s most valuable asset—with voters, Congress, allies and enemies—is credibility. So it is unfortunate when extreme exaggeration emanates from the White House. … President Obama says “every economist who’s looked at it says that the Recovery Act has done its job”—i.e., the stimulus bill has turned the economy around. That’s nonsense. Opinions differ widely and many leading economists believe that its impact has been small. Why? The expectation of future spending and future tax hikes to pay for the stimulus and Mr. Obama’s vast expansion of government are offsetting the direct short-run expansionary effect. That is standard in all macroeconomic theories.
Boskin makes a convincing case that Obama’s own advisers are more grounded in reality than the president. He provides a number of examples, including this:
On his recent “Recovery Tour,” Mr. Obama boasted, “The stimulus bill prevented the unemployment rate from “getting up to … 15%.” But the president’s own chief economic adviser, Christina Romer, has estimated that the stimulus bill reduced peak unemployment by one percentage point—i.e., since the unemployment rate peaked at 10.1%, it prevented the unemployment rate from rising to just over 11%. So Mr. Obama claims that the stimulus bill was several times more potent than his chief economic adviser estimates.
Perhaps the most serious disconnect concerns the impending expiration of the 2001 and 2003 tax cuts, which will raise the top two income tax rates and the rates on dividends and capital gains. If these growth inhibiting tax increases occur—about $75 billion in tax increases next year, $1.4 trillion over 10 years—there will be serious economic damage.
In the most recent issue of the American Economic Review, Ms. Romer (and her husband David H. Romer) conclude that “tax increases are highly contractionary … tax cuts have very large and persistent positive output effects.” Their estimates imply the tax increases would depress GDP by roughly half the growth rate in this so-far-anemic recovery.
As Boskin argues, these untruths don’t bolster confidence. Quite the opposite. Investors and employers hear this stuff and conclude that the White House is clueless and erratic. It doesn’t matter whether Obama is intentionally misleading the public or has become so insulated from “bad news” that he doesn’t realize how far he has strayed. But someone in the White House needs to pull him aside and say, “Enough, Mr. President.” It would do him and the country a world of good.