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Brooks Wilson's Economics Blog: Barro on Obama’s Policy Objectives

Tuesday, August 31, 2010

Barro on Obama’s Policy Objectives

Robert Barro, a creative and influential Harvard economist, published an opinion article, “The Folly of Subsidizing Unemployment,” that makes several interesting points besides the point made in the title.  Barro faults the Obama administration with being more concerned with transforming the American economy than ending the Great Recession.  He writes
In general, the current administration has been too focused on expanding government, redistributing more from rich to poor, and stimulating aggregate demand. I have previously criticized the stimulus package as cost-ineffective. In particular, whatever tax reductions were in the package did not involve the cuts in marginal income tax rates that encourage investment, work effort and productivity growth.



Now the administration wants to kill the 2003 income-tax cuts, at least the parts that reduced marginal income tax rates for high-income earners and for all recipients of dividend income. This proposal is particularly disturbing because the 2003 law was George W. Bush's main economic achievement; unlike most of Mr. Bush's policies, this one was well-conceived and effective.
I agree with Barro’s criticism.  To the extent that a president can influence economic activities, I believe that influence should be directed toward ending the recession without compromising long-run growth, not changing America.  I also believe that economic evidence suggests that the presidency has limited means to combat recessions and that President Obama’s main objective may not be to end the recession but to change American. David Kennedy, a Stanford historian and author of Freedom from Fear, a book about the Roosevelt administration, and a guest on EconTalk, offers the opinion that Roosevelt’s main objective was not to end the Great Depression but to fundamentally alter the American economy to improve the welfare of the poor and reduce economic risk.  Kennedy said,
There’s a deeper story; I’m going to try to develop a little thesis. I think I can make a case that Roosevelt's top priority was not ending the Depression as soon as possible. His top priority was to use this moment of political, sociological, ideological disruption, malleability, to accomplish reforms that he had thought well before the Great Depression came along that were necessary to make modern American life viable.


A single word that sums up that objective that is in the title of the single most famous piece of legislation that comes down to us from that era, the Social Security Act.  Security is unmistakably the touchstone and core of everything he wanted to accomplish: take the risk out of old age, mortgage lending, securities trading--or at least reduce the risk in all these sectors; and to make American life across the board for individuals and institutions more predictable and less susceptible to these wild ups and downs that had been characteristic of the American economy since the early 19th century, since the United States had entered the early industrial revolution era.


He got a lot of that accomplished. He established the Securities and Exchange Commission, passed Unemployment Insurance, created Fannie Mae, and created the Federal Housing Authority.  Those things worked well for half a century.
Perhaps future historians will not judge the Obama presidency on the effectiveness of the programs he instituted on ending the Great Recession but on how he transformed American by extending health coverage to the poor, improving diets, expanding “green” energy while simultaneously limiting the use of fossil fuels. 

21 comments:

  1. Danielle Zimmerman1/9/10 6:15 PM

    I agree with Barro's criticism. There is no question that if individuals and business' are taxed at a higher rate, they will not invest in their business' and they will not spend money. It is easy to understand that unemployment will increase if the tax breaks are not continued.

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  2. Chelsie Ellison2/9/10 7:17 PM

    I agree with Barro;s criticism of Obama wanting to change the economy and not end the recession. From what I understand Obama wants every business personally owned or government owned to be equal and make the same amount. He wants to take more money away from personal business such as Coca-Cola and give to a governemt owned business like GM motors. He wants to recive more money from big business so he can expand the number of jobs owned by the governement so he can make more money. He wants to make the economy fair. LIFE IS NOT FAIR! I thinks those who work hard for their money should reap the benefits of their hard work and not have it taken away and given to another business that didn't try as hard as they did. My dad told me a story about a professor having all his students fail. He said some of the students were complaining that they failed the test while others passed with flying colors.He told them he would make it fair and average out all the grades on the next test. So the next test comes and a couple of students make A's, next few made B's, and the rest failed. Well the grade averaged out to an 85. The students who did well weren't happy about this and the students who didn't work hard were thrilled. The next test comes and the students who normally try didn't because they already knew the outcome wasn't going to be good because of those students who don't even try. So everyone failed the test and the next tests and ended up failing the class. This is a true definition of socialism. The government making everything fair for the poor and unfair for the rich. With this no one will try because they know they won't get their benifits of hard earned money. Our economy will end up failing just like the class did. We won't experience freedom if we are socialist The government will have control over our lives and businesses. They will always be there to stop those who are falling and those who are rising. So we will always be the same.

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  3. Erica Caffey2/9/10 7:20 PM

    I agree with Barro's criticism. I belive that the main authority should be aimed toward ending the Great Recission rather than trying the change America. I also believe it would be absurd for the administration to cut the 2003 Tax Relief Act seeing as it lowered the tax rate and improved the economy.

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  4. I believe that Barro is correct in the fact that Obama needs to realize that if we keep getting further and further into debt with other countries, one day they could all ask for it back and we would soon be working for countries such as China, Saudi Arabia and Japan. Also in the long run I think that private sector job creations and ending this recession are more important and worthy
    of our attention than "changing America." Our future generations simply cannot afford the president's "changing America."

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  5. I agree with Barro's views. Extending unemployment program's duration borderlines and compassionate and foolish. I see Obama's desire to care for the less fortunate people, which is great, but simply handing things to people never helped people change their lives. If you give things to people, they will most likely squander their gifts, but if you empower them by providing avenues for success and change then you give them a new life (if they want it). Instead of changing America's welfare system to mirror that of England's and other European nations, why not provide help with guidance and incentives towards economic independence? I'm sure majority of American's are upset about all the government hand-outs. No one will disagree that the less fortunate need help, but many tax-payers are discontented by all the hand-outs.- Jonathan Patterson

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  6. Leticia Coronado5/9/10 4:02 PM

    I agree with Barro's point regarding the extension of unemployment benefits and how this can cause inefficiencies in employment. I also agree with his point regarding the termination of tax benefits for high earners and dividends to an extent. Your comment about Obama's presidency being remembered for his green initiatives and health insurance for the poor is most likely accurate, which is not a bad thing.

    His article goes on to explain the current unemployment issue further but fails to ask the basic question, where would all those unemployed go for work? The simple answer is anywhere to do whatever, but we all no this is much easier said than done.

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  7. Mary Beth Green5/9/10 5:08 PM

    I agree with Barro’s criticism. Obama is helping the poor and making the rich and middle class pay for their taxes. It is not fair for those who work hard to make their money and just lose it to pay for someone else. So we are taxed to pay for the poor, when the poor don’t have to do anything and they are benefitted.

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  8. Barro in my opinion is correct. The curent tax reductions are beneficial to our economy because as the business owners retain the money they have made it enables them to expand and furthermore create more jobs, which improves our economy. Business growth gennerates more tax revnues. Using that money, not to spend it on our social structure but to fix our economy with the creation of more jobs, lowering the unemployment rate.

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  9. Johnathan Gidney5/9/10 7:54 PM

    I agree strongly on Barro's opinion. Lets fix the problems we have now, and then move on to changing America.
    I'm sorry but if I get to stay at home all day, sleep in, than wake up and play x-box all day.. NOT WORKING AND GET FREE MONEY and ISURANCE how does this motivate me to get my myself up and find a job?

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  10. Christina Manzanares5/9/10 8:09 PM

    Christina Manzanares said...

    I completely disagree with Barro. I would say that Obama is trying to change things for the better. He is trying to change the economy and the country. He cannot instantaneously fix the catastrophic problems that the person before him made after eight years. I think it is quite fair to put taxes on the rich considering the fact that the rich have not been paying taxes for the last ten years. It is now time for them to begin to assume the burden like everybody else. The economy needs to cut back on wasting our natural resources because pretty soon we won't have any more. We are now using more than the environment can create. There is a major problem with how we are living today. We take too much from the environment. Obama is trying to reduce the destruction of the environment. There are many ways we can create jobs with new technologies that conserve energy and reduce the use of fossil fuels. The environment was just fine until we began to pollute it. In a few years Obama's economic policies will begin to produce jobs and reduce the deficit.

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  11. Christina Manzanares5/9/10 8:11 PM

    I completely disagree with Barro. I would say that Obama is trying to change things for the better. He is trying to change the economy and the country. He cannot instantaneously fix the catastrophic problems that the person before him made after eight years. I think it is quite fair to put taxes on the rich considering the fact that the rich have not been paying taxes for the last ten years. It is now time for them to begin to assume the burden like everybody else. The economy needs to cut back on wasting our natural resources because pretty soon we won't have any more. We are now using more than the environment can create. There is a major problem with how we are living today. We take too much from the environment. Obama is trying to reduce the destruction of the environment. There are many ways we can create jobs with new technologies that conserve energy and reduce the use of fossil fuels. The environment was just fine until we began to pollute it. In a few years Obama's economic policies will begin to produce jobs and reduce the deficit.

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  12. Maddie Morris5/9/10 9:09 PM

    I agree with Barro in the sense that Obama is trying to change America rather then end the Great Recession. Yes, America could use a change and starting with ending the Great Recession would be a great step in the right direction. Unemployment WILL increase if the tax breaks are not continued.

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  13. I do agree with Barro and what he has to say I think that we do need to fix what is happening now with the Great Recession and worry about everything else later down the road. Obama is helping the poor but he need to be focused on all of America. We need to stop looking so far into the future and worry about our problems now.

    Brett Graham

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  14. Travis corley5/9/10 11:28 PM

    I Agree with barro. Obama is focusing on key elements of America rather than america as a whole. While some people are being helped other people are asking... What is he doing for me? Creating an angry criticism against obama

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  15. Jennifer Dombrowski6/9/10 2:12 PM

    I agree with Barro's criticism of Obama wanting to change America instead of ending the Great Recession. Obama is helping the poor and making life harder for the middle class people that actually have a job and pay taxes. It would be crazy for the Administration to cut the 2003 Tax Relief Act since it helped the economy by lowering the tax rate.

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  16. Andy Salinas6/9/10 9:40 PM

    I agree with Barro in that it is ridiculous to take away perhaps one of Bush's main economic achievements(the 2003 law regarding income-tax cuts for the middle to upper classes). Obama is all about CHANGE. What change? For the upper class people's wealth to be redistributed among the lower classes who I am sure are loving the checks in the mail. Who wouldn't?

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  17. Jaclyn Salinas6/9/10 11:28 PM

    I agree with Barro about how Obama and his administration have been too absorbed with redistributing more from the rich to the poor. Obama is slowly taking away the "american dream." The hard working individual that puts the time, effort, hard work, and not to mention money into their education and training into becoming a successful individual will slowly decrease as the insentive for becoming successful.. dimenishes. A socialist economy is NOT the answer. Obama wants to make our economy fair.. well, LIFE isn't fair. Stop trying to change America, and focus on ending the Great Recession.

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  18. I agree with Barro. With Obama is trying to do away with one of Bush's arguably best economic policies in a manner not beneficial to our recovery from the recession, our economic growth will not be encouraged. All Obama seems to be doing with the economy is shuffling money around to various groups that "need it" because they were unable to stay afloat through the trials and tribulations of the 2008 financial crisis. This isn't fostering growth at all. It's just burning through what we already had to work with.

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  19. In my opinion I believe Barro is wrong in criticizing Obamas attemps to change the country. Obama genuinely is trying fix what has been wrong for so long. And we as citizens should value that effort more. The ideas that he has could well work. Making the higher society pay more to estabilize the poor is good because if they don't help that community then who will? Obama is trying to bring change and we should give him credit for that.

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  20. I agree with Barro in that we do need to fix the Great Recession. That all the change that Obama is trying to do, is just hurting the middle class. Which I believe that the middle is backbone a strong society, and that Obama is just ruining what Bush did by try to redistribute the money of the people who actually work for a living. This isnt helping us grow i beleive its just hurting us

    Michael Cox

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  21. I agree with Barro on the subject of extending the unemployment benefits. But I dislike the fact of Obama wanting to change the healthcare system, in my view this will make the healthcare system inefficient.

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