The Lie of the Empty Factory

04/23/2012 11:21 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

The president of the United States has powers aplenty, but creating jobs isn’t one, no matter how often Romney and Obama claim it, writes senior editor Igor Greenwald.

Over the next six months, hundreds of millions of dollars will be spent on an advertising campaign built around a whopper of a falsehood.

It will be a fully bipartisan effort too, with Barack Obama and Mitt Romney in agreement that the president of the United States should be judged based on the state of the US economy. That state may be disputed, as each man’s fitness to improve it will also be, but the entire campaign will be fought as if the POTUS is a nationwide CEO and not a motivational speaker, mostly.

At times, the case could have been made. Franklin Roosevelt’s New Deal represented a peak of presidential power, marshaled against the worst economic crisis in the country’s history. The endlessly expiring Bush tax cuts are a lesser legacy, but still a reminder that, given a sufficiently pliant Congress, the president can borrow a lot of prosperity.

But this is not such a time. With Congress stalemated, there is no workable majority to rally behind a presidential agenda. The presidential veto can block legislation, but not advance it.

The president does have discretion in how the executive branch enforces the law and exercises its regulatory powers. But, contrary to what its opponents claim, the Obama Administration has exercised such prerogatives cautiously, restraining officials at the Food and Drug Administration, the Department of Education, and the Environmental Protection Agency from making rules opposed by corporations, to name just three reported examples.

On housing policy, the president has been frustrated and outranked by the acting director of the Federal Housing Finance Agency, the statutory overseer of Freddie Mac and Fannie Mae.

Even health reform, Obama’s signature legislative accomplishment, was pre-negotiated with the insurance and drug industries before it made its way through Congress.

Congressmen from both parties are deeply beholden to business interests, of course, more so than ever now that there no effective limits on political activity by corporations. The business lobby has been arguably even more effective at the state level, where most economic policies are made.

This is Mitt Romney’s economy more than it is the president’s. As the candidate favored by much of American business, he represents the interests with the strongest current sway over the economic and political landscape.

I don’t begrudge Romney his wealth or the jobs lost after leveraged buyouts by Bain Capital. But the contempt he showed for the average voter’s intelligence last week is another matter entirely.

Romney went to Lorain, Ohio, on the heels of a visit there by the president, and spoke in an idled gypsum factory to make his case that “Obama Isn’t Working.”

Obama had visited the factory in February 2008, when it was still making wallboard no one would need for years to come, to attack primary rival Hillary Clinton for supporting the North American Free Trade Agreement. In June that year, the factory closed, and Romney was saying last week that it’s Obama’s fault that it still hasn’t reopened.

Perhaps Obama could have ordered the Air Force to use the millions of vacant US homes for target practice; that might improve the currently poor demand for wallboard over time. Whereas Romney’s insistence that the housing slump should be allowed to run its course does not mark him as a wallboard booster.

The owner of the Lorain plant, by the way, followed a Bain & Co. script earlier in its history: a leveraged management-led buyout, followed by bankruptcy when the debt thereby incurred proved to be too much.

As late as early 2007, National Gypsum was still expanding production in response to burgeoning demand. To blame Obama for the subsequent downturn is to completely ignore the causes of the housing bubble and its consequences.

Then again, Obama has been taking credit for the economic recovery that would have taken place with or without him. He’s right to argue that denying aid to the automotive industry, struggling homeowners, or states and cities facing drastic cuts in services would have prolonged the pain. But perhaps a Republican president would have propped up the economy with another round of unaffordable tax cuts. And another Democratic president might have mounted a more aggressive rescue.

The president of the United States exercises almost dictatorial powers as commander in chief and guarantor of national security. The right to nominate federal judges gives him a chance to mold the judiciary in line with his ideology.

In contrast, the president’s powers over the economy are limited in the extreme, while the economy exerts undue influence over the his re-election chances. This turns every incumbent into a shortsighted cheerleader concerned mainly with shaping voters’ near-term perceptions.

Will Romney prove better than Obama at this game? Time will tell. But we’ll almost certainly lose if we play along.

Related Articles on MARKETS