Yesterday, the Wall Street Journal editorial board launched a broadside against the Obama administration’s economic plans, ludicrously asserting that “after five weeks in office, it’s become clear that Mr. Obama’s policies are slowing, if not stopping” economic recovery. Furthermore, the Journal claimed that Obama’s budget was “a declaration of hostility toward capitalists” that caused the stock market to dive, because of its proposed tax increases on the wealthy and corporations.
Office of Management and Budget Director Peter Orszag appeared on CNBC today to fire back at the Journal:
I think the criticism is just wrong. I don’t think capitalism is founded on the theory that the only thing that drives economic performance is the top marginal tax rate or the right way of promoting competition is to funnel billions and billions of dollars to corporations.
As Ben Armbruster pointed out yesterday, the theory that Obama’s budget caused stocks to sink “carries little weight,” as the market peaked in October 2007 and has been falling ever since. Investors are reacting to dismal earnings projections and record losses from companies across the board.
And Orszag is absolutely right that economic performance depends on a lot more than the top tax rate. The Center for Budget and Policy Priorities noted that, even with Bush’s tax cuts for the wealthy, “growth rates of GDP, investment, and other key economic indicators during the 2001-2007 expansion were below the average for other post-World War II economic expansions.” The Bush economy “registered the weakest jobs and income growth in the post-war period,” and “household income growth was negative for the first cycle since tracking began in 1967.”
In the end, a market-centric approach gives an extremely limited view of how well policies are working. Investors would probably love it if Obama announced that he was going to exchange dump trucks full of money for all of Wall St.’s toxic assets and the markets would shoot up accordingly. Does that make it good policy? Clearly not. There has to be a balance between Wall St.’s interest and the public interest, and as this crisis has shown us, those interests can be wildly at odds with each other.