Stanford’s John Taylor: Blame Obama Policies for 'Worst Recovery' Ever

Monday, 09 Apr 2012 02:02 PM

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The United States is stuck in the worst economic recovery ever and President Barack Obama's policies are largely to blame, says John Taylor, a Stanford University professor and a Treasury economist under President George W. Bush.

The U.S. economy normally snaps back from deep downturns, such as the one after the 1982 recession, but this time around, growth has been sluggish and unemployment rates high.

The Obama administration has spent hundreds of billions of dollars propping up the economy via fiscal stimulus measures, while the Federal Reserve has spent trillions injecting liquidity into the financial system with the aim of spurring more activity and hiring, a process known as quantitative easing.

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

However, unemployment rates were higher during the recession in the early 1980s, yet the economy bounced back to post growth rates of around 6 percent, well above today's quarterly rates of 3 percent or less.

"This is by any definition in American history, I'd say, the worst recovery we ever had. You want to try to look at the reasons for it, it seems to me it's policy," Taylor tells CNBC.

Unemployment rates would currently stand around 6 percent as opposed to today's rates of 8.2 percent if the country were recovering like it did in the early 1980s via less government policy and lower taxes, Taylor says.

"If we had a recovery like we had in '83, '84, unemployment would be about 6 percent, and you wouldn't have had so many people dropping out of the labor force."

The unemployment rate would arguably be much higher today if statisticians included those who quit searching for work and leave the labor force.

The 8.2 percent rate today reflects the percentage of those out of work but are actively looking.

Weak recovery, calls for tax hikes on wealthier Americans and increased regulation on the financial and healthcare sectors are all holding recovery back, Taylor says.

"I think these temporary policies, one little stimulus after another, and people don't know what's the future, and we have a big tax increase that people are talking about, all these regulatory changes, so if you go down the list here, there's a lot of things to drag the economy."

Doing nothing, however, wouldn't have helped the economy either, although better tax policies, such as making recession-era tax cuts permanent, would have helped, Taylor says.

Temporary tax cuts keep consumer demand at bay if households remain unsure if their taxes are going to rise.

"It would have made a big difference," Taylor says.

The economy added 120,000 jobs in March, far below expectations.

President Obama admitted the figures show the U.S. faces more potholes along its road to more sustained recovery.

"It is clear to every American that there will still be ups and downs along the way and that we've got a lot more work to do," Obama said, according to Reuters.

Republican presidential hopeful Mitt Romney says the data illustrates it's time for fresh ideas in the White House.

"It is increasingly clear the Obama economy is not working and that after three years in office the President's excuses have run out," Romney said, Reuters also reports.

Meanwhile, weak demand notwithstanding, companies are holding off on hiring as new technologies are replace human workers, while companies set up research and development operations outside of the United States to save on cost, other experts say.

"I think the demand headwinds are very stiff and the discussion was also talking about technology, the replacement of new labor saving technologies for labor, and not introduced into the equation of course was the technology was the globalization bogey," Stephen Roach, a former Morgan Stanley executive and current Yale professors, also tells CNBC.

Take technology icon Apple as an example.

"Apple, our greatest company, is a leader in innovation but creates most of its jobs offshore in places like China rather than in the United States, and you put it all together, you have a tepid employment outcome here and that then tends to reinforce the weakness in underlying private consumption in the United States."

Loose monetary policies are to blame as well, Roach adds, and that applies to Federal Reserve decisions made well before the crisis that fueled bubbles in the housing sector and elsewhere.

"The Fed played a critical role in creating an era of excess in the three to four years before this crisis," Roach says.

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here





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