Why the Obama way is good for the economy


There has been and will continue to be much discussion about whether the re-election of President Obama and the defeat of Governor Romney is good or bad for the economy and the stock market. Many will point to the market correction immediately after the election results as an ominous sign, though others might attribute the market action to events in Europe – specifically the suggestion that the German economy, the final economic stalwart in the European Union, is starting to experience evidence of weakness.

I share many Americans’ concern about the deficit, our growing national debt, and our lackluster economic recovery subsequent to the 2008 financial catastrophe. However, I do not accept that Governor Romney’s plans would have been an improvement on the current Administration’s approach. Rather, they would have made things significantly worse.

President Obama has aligned himself with contemporary economic theory that suggests economic activity in production is responsive to consumer demand for those products. In other words, we do not produce widgets in a free enterprise system unless people are currently demanding widgets.

Businesspeople are not stupid. If we lower taxes for those “job-creators” they are indeed financially better off, but if they are widget producers they will not increase production because they have more money in their pockets. Rather, they’ll search for places to invest that money for greater return.

Obama’s approach has been to put money in the pockets of consumers, not producers, by cutting taxes and providing jobs for them in the form of the American Jobs Act. By stimulating demand by putting money in the pockets of consumers, producers will find themselves looking to expand production in response to the growing demand for their products.

If we are prevent the wild-west approach to financial products and services – -think about the explosion of unregulated credit default swaps (CDS) and derivatives — more, not less, regulation is required from government. President Obama was right and Romney was wrong in this regard.

Mitt Romney and the Grover Norquist-pledged Republicans have been committed to dealing with the budget deficit by cutting “entitlements” from Medical Assistance for the poor, Medicare for the elderly, to educational grants for the young.

The utility of “austerity” programs to treat economic weakness has and continues to be tried in Europe as demanded by the ECB of countries like Spain, Greece and Italy, and has only made the economic problems larger – with ever-growing ranks of unemployed.

Traditional economic theory in this case, as explained by Keynes, requires government spending to fill in for the failing demand.  Instead of supporting such stimulus programs, the Republican Party has obstructed and interfered with efforts to get our own economy moving.  Fortunately, they have failed at stopping the bulk of these programs, but have slowed our own recovery by blocking the American Jobs Act and the Farm Bill in Congress.

Republicans have chosen to deny the science of Global Climate Change being a human-contributed phenomenon as is accepted by scientists worldwide. It appears that they have done so because oil company benefactors that finance their campaigns prefer an administration that avoids carbon taxes and instead subsidizes oil exploration and Oil Sand Pipelines that would only add to our global warming crisis.

Fortunately President Obama and his Administration have made some moves towards switching financial incentives to energy development that preserves our planet and doesn’t add to the destructive and irreversible effect of global warming. Climate change, as evidenced by the savage effects of Hurricane Sandy, is no joking matter. Nor are rising sea levels. Global warming is bad for the economy and bad for the markets.

Mitt Romney tried to sell America on the disproved voodoo economic theory that tax cuts for wealthy people and increased defense spending would improve our deficit and reduce our debt.  In reality, tax revenues would decrease with a 20% cut in taxes and increasing defense spending is plainly irresponsible in an environment of constrained budgets.

The last time that was tried was under President George W. Bush, and the current deficit is much a product of that as well as his pursuit of an unfinanced and unnecessary Iraq War.  Most economists will tell you that reaching a balanced budget will require economic growth, and both increased revenues and decreased spending.  In other words, a compromise of all of the approaches.

I do not need to explain how adding 31 million Americans to the roles of the medically insured will add to economic activity in America.  They will be empowered to buy drugs they need, medical devices and services required, and will be themselves better equipped to contribute to our economy.

I do not need to explain how undermining Social Security through privatization will decrease our seniors’ economic well-being and increase the risk of poverty among the elderly.  I do not need to explain that switching from Medicare to a voucher system will eventually end up with many seniors going uninsured unlike our current contract with our elderly.

America is experiencing massive economic disparity, with growing wealth among the very wealthy.  A week middle class results in weak economic activity. It is not “socialism” to just ask that we restore upper income marginal tax rates to their pre-Bush levels.  Higher tax rates under Bill Clinton did not keep this economy from producing millions of jobs and a budget surplus.

It was the unpaid for tax cuts and unpaid for military adventurism and financial deregulation that led to our financial mess. Tax rates are at a 50 year low and the job facing this country requires us to have a well-financed government that can address social and economic needs.

The sky isn’t falling, America. President Obama and the Democratic Party will be good for average Americans and will seek to offer opportunity to those not in the middle class through education and opportunity, and not seek to reward those not needing additional rewards through tax cuts for those already succeeding. Indeed, the rich will do better in a growing economy. The stock market is known to do better when we have a Democratic President.

The first term was good for investors. I am looking forward to four more years.

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Robert Freedland
Robert Freedland
Robert has over 40 years of investment experience and is a full-time optical surgeon. He uses his expertise in the medical field to help select healthcare stocks.