Obama’s Radicalism Is Killing the Stock Market

It’s hard not to see the continued sell-off on Wall Street and the growing fear on Main Street as a product, at least in part, of the realization that our new president’s policies are designed to radically re-engineer the market-based U.S. economy, not just mitigate the recession and financial crisis.

By Michael Boskin
The Wall Street Journal
The illusion that Barack Obama will lead from the economic center has quickly come to an end. Instead of combining the best policies of past Democratic presidents — John Kennedy on taxes, Bill Clinton on welfare reform and a balanced budget, for instance — President Obama is returning to Jimmy Carter’s higher taxes and Mr. Clinton’s draconian defense drawdown.

Martin Kozlowski

Mr. Obama’s $3.6 trillion budget blueprint, by his own admission, redefines the role of government in our economy and society. The budget more than doubles the national debt held by the public, adding more to the debt than all previous presidents — from George Washington to George W. Bush — combined. It reduces defense spending to a level not sustained since the dangerous days before World War II, while increasing nondefense spending (relative to GDP) to the highest level in U.S. history. And it would raise taxes to historically high levels (again, relative to GDP). And all of this before addressing the impending explosion in Social Security and Medicare costs.

To be fair, specific parts of the president’s budget are admirable and deserve support: increased means-testing in agriculture and medical payments; permanent indexing of the alternative minimum tax and other tax reductions; recognizing the need for further financial rescue and likely losses thereon; and bringing spending into the budget that was previously in supplemental appropriations, such as funding for the wars in Iraq and Afghanistan.

The specific problems, however, far outweigh the positives. First are the quite optimistic forecasts, despite the higher taxes and government micromanagement that will harm the economy. The budget projects a much shallower recession and stronger recovery than private forecasters or the nonpartisan Congressional Budget Office are projecting. It implies a vast amount of additional spending and higher taxes, above and beyond even these record levels. For example, it calls for a down payment on universal health care, with the additional “resources” needed “TBD” (to be determined).

Mr. Obama has bravely said he will deal with the projected deficits in Medicare and Social Security. While reform of these programs is vital, the president has shown little interest in reining in the growth of real spending per beneficiary, and he has rejected increasing the retirement age. Instead, he’s proposed additional taxes on earnings above the current payroll tax cap of $106,800 — a bad policy that would raise marginal tax rates still further and barely dent the long-run deficit.

Increasing the top tax rates on earnings to 39.6% and on capital gains and dividends to 20% will reduce incentives for our most productive citizens and small businesses to work, save and invest — with effective rates higher still because of restrictions on itemized deductions and raising the Social Security cap. As every economics student learns, high marginal rates distort economic decisions, the damage from which rises with the square of the rates (doubling the rates quadruples the harm). The president claims he is only hitting 2% of the population, but many more will at some point be in these brackets.

As for energy policy, the president’s cap-and-trade plan for CO2 would ensnare a vast network of covered sources, opening up countless opportunities for political manipulation, bureaucracy, or worse. It would likely exacerbate volatility in energy prices, as permit prices soar in booms and collapse in busts. The European emissions trading system has been a dismal failure. A direct, transparent carbon tax would be far better.

Read the rest:


NYT: After March 6 Economic News, “2009 is Probably a Lost Cause”

Obama’s First Weeks: Economic Disaster, Socialist Agenda, Congressional Pork, Limbaugh Attacked, and “We Won”



3 Responses to “Obama’s Radicalism Is Killing the Stock Market”

  1. abner Says:

    First of all if Obama’s “Radicalism” is killing the stock market why has it been diving for the past lets see about 12 years when republicans have been in control and what they do is blame the democrats because they where to busy kissing Iraq’s ass to even notice our own stock market. ALSO either way the stock market is going to go down anyways so theirs no way to say that “Obamas Radicalism is killing the stock market”

  2. stophate Says:

    I think exposing all the criminals and greed has a lot to do with the lack of faith people have in Wall Street. Its time for a revamp. If people had faith in the leadership of these companies then they would be buying.

  3. Thomas S Says:

    Obama’s policies are making the economic downturn worse and far more severe. The Republicans held office up until there was a cyclical downturn in the economy, one that was not so sever, followed by a domino effect that was started by the collapse of Freddie Mac and Fannie May. The housing market collapsed because house prices began to level off and decrease in value. The collapse of Freddie and Fannie was largely the fault of the DEMOCRATS, who pushed for every American to get a loan even though they could not afford it. It was not the republicans fault that we entered into this mess specifically. Moreover it was republican policies and cutting taxes that grew the economy during Bush’s terms. Raising taxes in a recession as Obama is purposing is the worst thing to do and will hurt the economy. Obama’s policies such as spending three times more than Bush ever did, even though he was fighting two wars etc, in his first fifty days in office, is unsustainable! It is not all the republicans fault that the market slumped and it will be the democrats fault if an economic downturn turns into a recession. You need to wise up.

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