Is Obama ‘anti-free enterprise’?
“Obama doesn’t govern in an anti-business way, but in an anti-free enterprise way,” writes the Washington Examiner’s Tim Carney in an effort to add a bit more intellectual heft to Louisiana Governor Bobby Jindal’s recent comments.
This is a bit of an odd distinction Carney is drawing, and it mostly relies on this graph:
What you’re seeing there is new business formation. Starting in 2006, new business formation begins dropping. It falls in 2007, falls further in 2008, plummets in 2009, and bottoms out in 2010. It begins to rise again in 2011.
It’s a bit hard to read this graph as an Obama story. He wasn’t president in 2007 or 2008. It’s hard to hold him responsible for all that much that happened in 2009, when the economy was in the grips of one of the most convulsive downturns in our history, and his policies were just beginning to take effect. Then you’ve got 2010, which largely seems to be a continuation of the last few years, and in 2011, new business formation rises. So how does this prove Obama is anti-free enterprise again?
But Carney attributes the drop — or at least some of it — to Obama’s “regulations, bailouts, subsidies, and more tax-code complexity,” which he says have led to “a stultified and less competitive marketplace.”
Let’s be clear about the counterfactual here: Carney is saying that if Obama hadn’t bailed out the financial and auto sectors, subsidized so many businesses and passed so many regulations, we wouldn’t have seen that dip, or we would have seen less of a dip.
The graph Carney is using comes from congressional testimony delivered by Martin Neil Baily, a Brookings economist. So why does he think new-business formation has fallen? “The general weakness in the economy and the lack of demand growth,” he says, combined with “the reduction in home equity and restrictions on lending.”
There is simply no plausible argument that lending in 2009 and 2010 would have been looser, and home equity higher, if President Obama — and President Bush before him — had permitted the financial sector to be wiped out. Nor would demand have been higher absent the stimulus and assorted tax cuts Obama has passed in recent years. Carney’s preferred approach to the crisis would almost certainly have led to a much larger drop-off in new business formation then the Bush/Obama approach. Here’s another graph from Baily:
And here are Baily’s recommendations:
The best policy prescription for the economy today is for policymakers to agree on a plan to balance the budget, or get close to balance, over the next ten years. This plan should include a modest fiscal stimulus for 2012-I support the extension of the payroll tax cut for all of 2012-and a realistic framework for raising the level of tax revenues once the economy recovers and for controlling spending growth, particularly federal spending on health. If the President and Congress were to agree on such a plan, it would greatly enhance consumer confidence, business confidence and the stability of markets. Since the chances of this happening are very low, I would settle for the modest stimulus for 2012 and hope that reason prevails on the budget in 2013.
That’s Obama’s theory — and plan — in a nutshell. The problem for businesses — both new and old — is lack of sales, or demand. To boost demand, the government is going to have to spend, as businesses won’t spend if sales are down and households can’t spend till they dig out of debt. That is to say, the best thing for free enterprise and private enterprise alike is for the government to create demand so businesses can survive this period.
Now, perhaps Carney likes Baily’s graph but does not like his policy prescriptions. But now we’re in an argument between different people who believe in free enterprise and are trying to figure out how best to generate new businesses, and one of them thinks Obama has the right idea, and one of them doesn’t.
And that’s really my point in all this. There’s lots of reasonable disagreement over what’s the best policy for small businesses. But conservative elites like Jindal and, in this case, Carney, are working to convince their base that the Obama administration’s policies are animated by a dislike of, in Jindal’s telling, “private enterprise.” That is to say, we’re not having a technocratic debate about goals everyone agrees on, but an ideological debate of a kind we haven’t seen in this country since Eugene Debs was running for president.
There’s just no evidence for that. Obama’s policies throughout this recovery have been driven by a belief that Keynesian stimulus is the best way to stimulate the demand that both new and old businesses need to thrive. Most Republicans used to believe that — witness Bush’s 2008 “Economic Stimulus Act” — and they’ve turned on that belief during the last two years. Why they’ve turned on that belief is an interesting question. But Obama’s policies only make sense if you understand that his administration as trying to support businesses through this period, rather than if you imagine them as hostile to the very idea of business. The conservative effort to paint the Obama administration as somehow anti-private enterprise, however, doesn’t make sense at all, at least not as a description of reality.