Worth a Read: Henninger: Obama's Two Economies - WSJ.com

Henninger: Obama's Two Economies - WSJ.com

"WONDER LAND SEPTEMBER 15, 2011
Obama's Two Economies
For Barack Obama, the private economy is an intellectual abstraction.


Thus repeated Barack Obama on Monday, promoting his jobs plan: "Should we keep tax breaks for millionaires and billionaires?"

So said a news report Monday on the plan's tax details: "The largest chunk of Mr. Obama's tax package comes from limiting itemized deductions for families with more than $250,000 in yearly taxable income and individuals with more than $200,000, including those for home-mortgage interest, state and local property taxes and charitable donations. The White House says that measure would raise roughly $400 billion over 10 years."

There was more clarity in a previous presidency about the meaning of "is" than about Barack Obama's elastic definition of a millionaire. Another familiar part of the political background noise in politics is the president's animus toward something called "business." This is taken to mean he dislikes the undeserving fat cats of banking and corporate management. At this level, the president's American Jobs Act is progress: From its details emerges a clear understanding of Mr. Obama's beliefs about what he takes to be the engines of the American economy. How it works. How it grows.


For Barack Obama, the private economy is an intellectual abstraction.

For Mr. Obama, there is no such thing as the American economy. Instead, there are two Americas with separate economies—one public, the other private. The economy of the public sector—the money it spends and the direct or indirect recipients of its spending—is the real economy, the one that matters for the health of the country. Mr. Obama's second economy, the one most people think of as the private sector, is an intellectual abstraction. It's like the distant planets that astronomers regard as real but have discovered using mathematical calculations. It is believed that life forms exist in the private economy, but they do so as datapoints inside the White House Office of Management and Budget.

The plan's biggest outlays are the payroll tax cut and tax credit for new hires. Few owners in the private economy would have identified a 12-month break from payroll taxes or the credit as the best incentive for elevating long-term employment. The payroll tax cut's primary purpose is to enable an Obama mathematical abstraction known as the Keynesian multiplier.

By the way, the plan's third-to-last paragraph—call it the Rick Perry Footnote—says the $175 billion payroll tax holiday won't impact Social Security payments: "Social Security will still receive every dollar it would have gotten otherwise, through a transfer from the General Fund into the Social Security Trust Fund." This sounds like a Ponzi scheme.

Once past the tax-cuts-for-temps, the jobs plan drops anchor in the public economy. The "targets" of the plan's $447 billion of spending are industries and people who are or always will be dependent on payments from public budgets. The plan's parts operate almost entirely inside the public-sector ecosystem.

The primary categories of workers identified helped by the plan are teachers, police, firefighters, construction workers, "boiler repairmen." The plan would put people to work modernizing 35,000 public schools, repairing transit systems and airports, and developing "high-speed rail corridors." The $10 billion National Infrastructure Bank is a "government-owned entity," with the government guaranteeing loans due to "market gaps" for infrastructure financing. The American Jobs Act sounds like a jobs plan more for developing China than for the 21st century U.S. economy.

The plan asserts it will put people back to work "in key areas that are central to America's future competitiveness." Then it says it will allow the rehiring of teachers, police and firefighters "who have been laid off because of budget cuts." But people have been laid off in the other economy, too. This week Bank of America said it would lay off 30,000 people. Last month, HSBC bank announced massive layoffs. Stories abound of new college graduates living at home, unemployed. A study out this week from the Institute for Financial Literacy says college graduates have become the fastest-growing group of bankruptcy filers.

The Obama $0.5 trillion jobs plan reflects no recognition of the unemployed people connected to the U.S.'s most competitive and dynamic industries. Notwithstanding all that Democratic intellectuals such as Richard Florida have written about the party's future lying with sophisticated knowledge workers, these people fall outside the president's field of vision. Barack Obama (and his activist base) has talked nonstop about helping "the middle class," but it's clear this is a static, backward-looking notion of what makes up the American middle class.

Because Mr. Obama and his circle divide the economy into two parts, with the private economy merely a satellite orbiting the public sun, he has proven incapable of offering policies for the whole nation. A Whole America plan to lift both blue-collar and white-collar workers would have included some gesture toward a broad-based Bowles-Simpson tax reform, rather than wait for the debt panel to act. The plan's mention of reforming Sarbanes-Oxley (for small and new business only) merely promises to "work with" the SEC to "explore ways." A pipedream.

The American Jobs Act is a jobs plan for Barack Obama's America. The United States is a bigger country than that.

Write to henninger@wsj.com"