ATLANTA— Declaring that the economic situation in the United States is only going to “get worse,” Barack Obama this weekend announced in an interview his plans to initiate the biggest public works project in the United States since the construction of the interstate system in the 1950′s. For my part, this is the first confirmation to me that Mr. Obama is a “spend” liberal. Now it’s only a matter of time before we see Mr. Obama the “tax” liberal.
Republicans for the last few decades have run against Democrats by telling Americans they will be “tax-and-spend” liberals. But really it has been a long time since we had one of those. Bill Clinton and Jimmy Carter both had at least some reticence to spend excessively. Lyndon Johnson in the 1960′s was probably the last big-time, free-wheeling, big-spending liberal. Now Barack Obama has taken on that mantle. By painting the economic situation as perhaps more dire than it really is, Mr. Obama is able to announce a big-spending, Keynesian liberal solution to the crisis- one that may ultimately have a $1 trillion price tag (a price tag to match his ego!).
I think Mr. Obama is doing this for a two-fold reason. One is a genuine concern for the economy and a belief based on discussions with his economic advisers that this will be beneficial. I disagree that this will be good (as I will describe more fully below). But I will grant that he has at least partially good intentions. I remain convinced that the other reason, however, is his desire to leave his own personal impact on this country in a very quick, very real way. Much like George W. Bush quickly embraced the opportunity for glory as a “war president” early in his administration, Mr. Obama is greedily seeking to embrace being a “Great Society” or a “New Deal” Democratic president – a big mover whose lavish spending will be felt and seen for generations to come (for better or for worse).
Taken individually, much of what Mr. Obama is proposing sounds good. Better bridges and roads. Electronic access to medical records. Government agencies fueled off of alternative energy. All worthwhile goals. But all at once? And for such a massive expense- paid for by your tax dollars and mine? Here are five quick reasons I think this will be a disaster in the long-term:
1) It will sink our country further into debt. As I have argued since before the election, Mr. Obama has virtually NO REGARD for the federal deficit. The deficit will likely expand to around $1 trillion for the upcoming fiscal year. What are the consequences of a continued deficit? Long-term, it will push interest rates for the government ever higher- consuming more of the federal budget and perpetuating further deficits. Further, as the government prints more money to fund these obligations, it could precipitate future inflation.
2) Because the incentives are to employ as many people as possible, the plan has no incentives for efficiency or cost-saving. In fact, the government has every incentive in this plan to spend as much money as possible to “create and sustain” jobs. As the government overspends for labor and supplies, they further waste our tax dollars and again provide tinder for future inflation. Remember, Lyndon Johnson told us in the 1960′s that we were big and rich enough to have both guns and butter. He then signed into law MediCare, a program that is currently unfunded to the tune of $34 trillion. Further, his era of big spending ultimately precipitated a miserable decade in the 1970′s that saw runaway inflation frequently over 10% per annum.
3) This will invariably consume and direct a substantial amount of human and fiscal capital to a narrow array of industries. This will have the effect of picking winners and losers. Investors will follow the dollars- betting heavily on companies and industries that stand to benefit from this package to the detriment of industries that Mr. Obama scopes out of his plan. This could impact growth in other industries (and jobs as well). Such plans are not good for the balanced health of our economy.
4) Last I checked, the job losses in this recession are from a broad array of industries. Conversely, the jobs Mr. Obama hopes to create are more blue-collar and likely lower paying. I am not sure how this will be such a good thing in as advanced an economy as our own.
5) And finally – mark my words there will be corruption scandals to go along with this. Contracts awarded based on favortism. Government fraud and theft. You name it. With this many dollars rolling through the system, how couldn’t there be?
Most projections indicate that apart from any stimulus, the United States economy should begin to see a turnaround by late 2009 or early 2010. That is a long way off- but that is not forever off. I am a big believer that we need to let this recession ride out. It will turn around- I promise you! Weaker companies and poor performers should be allowed to fail. The economy is cleansing itself, recapitalizing and positioning itself to recover more strongly. To have the government continue to step in massively to pick winners and losers will only delay and exacerbate this process. By incurring so much debt, the government guarantees higher taxes for all of us in the future to pay for all of these excesses. Those taxes, in turn, will dampen future growth.
I remain convinced that Mr. Obama is setting the ground rules for serious future inflation. It is part of the reason I did not vote for him. Gold demand is already creeping higher and some are projecting a massive loss of confidence in government debt that could tinder huge inflation in the future.
TennesseePaul
Stephen VanNuys
Brooklyn Daniel
The Freedom Thinker
A sore loser … daydreaming about nightmares …
Thanks for dropping by Gilmour. Actually, this post isn’t really about being a sore loser. I pretty much resigned myself to the McCain loss back in early October, once it was clear he was not really capable of putting together a consistent message on the economy.
This blog post is just about calling them like I see them. I’ll grant you I could be really wrong here. Maybe I’ll put a post out here in a couple of years saying I was wrong, should my analysis be wrong. But I feel fairly confident in my take on this plan at this point in time.
I’m just afraid all of us are going to sore losers once the government has partially nationalized significant sectors of our economym (auto, health care, finance, etc.) and printed tons of US dollars to pay for it all. There’s a reason we have a higher standard of living than most countries in the world and it is most certainly not because we have had substantial government ownership and involvement in significant industries. We have to return to our faith in our (largely) free markets.
I see … unfortunately the so-called ‘free market’ is a mere ideological day-dream … there’s no free-market when farmers are heavily subsidised … there’s no free-market when our borders are closed for those willing to work in our country … there’s no free market when government coffers are the main life-line of so many private enterprises … what you call free-market is nothing but an unsubstantiated ideological piece of ‘Americana’ … that’s fine for chest-thumping patriotism but useless and highly misleading as to what concerns our everyday life.
And … I almost forgot … there’s no free market with all these bailout schemes steaming up and down our economy ….
Gilmour- not sure what tack you are heading down here, as to whether you are advocating another economic framework over and against the free market framework or whether you are just trying to burst my bubble on my belief that we have (largely) enjoyed a free market in America. But I’ll address both.
I agree we do not have the purest form of free market here in America. No one does. We have a tax code that already redistributes wealth, we have heavily regulated industries, a centrally controlled financial system (through the federal reserve), the subsidies you mention, etc. Those certainly don’t make us a pure free market system. But I would argue compared to much of the rest of the world, we have a (largely) free market system. We respect private property rights, we are extremely open to foreign investment, we (largely) are supportive of free trade with other countries, etc. The “pure” free market undergirded by the rule of law will always remain an ideal that I think we should continue to strive toward- not because it is perfect, but b/c I remain convinced it is the best system for incentivizing the production and effective allocation of scarce resources.
But I agree with you – these bailouts show cracks in the system. I’ve been arguing against them from the time they started back in September. That’s what I was implying in my post- that I think they are evidence we are losing faith in the system that has brought us our prosperity. I am hopeful after this mess is over, we restore our markets and that the government extracts itself from the economy.
As to free markets themselves, looking out at the world, it seems rather obvious to me that the countries that have been more market oriented are the most prosperous. I would love to hear some evidence to suggest otherwise. As an example, China has made its rise b/c in the late 1970′s Deng Xiaoping started reforming the oppressive Maoist ideology that had ruined China. He began introducing more market-oriented reforms. China is far from a perfect market, but it is no small wonder that their economy rocketed off subsequent to his rule, based on his reforms.
Btw- I always enjoy the discussion!
Gilmour has a great name. My feelings on the US and the world as a “true” free market is well-known. It don’t exist and it won’t ever happen. If you pollute the idea of capitalism – you fuck it up.
So you are actually hailing something that does not exist … and worse, when fit, you carefully forget how incomplete it is. The point is that the basic idea in capitalism is perfect and could theoretically expand wealth and equalize society based on eficiency and adaptive capabilities … but that is not what happens. You can even dream about it if you keep your focus on the isolated and equally theoretical ‘individual’ … but all that primitive-adam-smith-hocus-pocus has been completely wiped out when manufaturing ventures surrendered to the financial capital and became industries … somewhen around the closing of the 1800′s and the begining of the last century … From then on, the dream was over … so you’re really trying to convince me of the existence of something that doesn’t really exist …
Interesting missive VanNuys.
Gilmour: You say free market capitalism doesn’t exist and then turn around and point to the current economic system, which it appears everyone agrees is not pure free market capitalism, as proof that free market capitalism fails its theoretical goals. Perhaps I’m misunderstanding?
I’m reading through these comments and I can’t find where anyone attempted to prove the existence of pure capitalism, or purely free-markets; actual systems or markets which meet the theoretical models.
So are you attempting to disprove the merits of theoretical capitalism by using as example the current economic system, which you and VanNuys agree is not a pure free-market?
I never said that capitalism did not exist … my previous argument disputes the existence of the so called “free market” … and all these world wide bailout schemes just prove me right …
Ah then I was misunderstanding a bit. But I’m still not seeing where anyone posited that a true free market exists. I see where it was implied that, of all the economies in the world, the US economy is the closest to a free-market. But I’m not sure anyone here would suggest that the US economy is a perfect example of pure free markets. Or pure capitalism. Or a pure democracy for that matter.
Yeah … you really did misunderstand me a bit too much … but recalling what our host claimed at the begining of this conversation, quote:
First of all: capitalism has nothing to do with democracy … murderous dictatorships, our former allies (Saddam Hussein included), embraced capitalism just as well.
Secondly: There’s no such thing as pure capitalism when fat-cats saving schemes spring all over the place … We are just a capitalist society … period … and not very good at it too … without the cold war we stand on equal conditions with all the other players … and we just can’t handle it …
Thirdly: Yeah, we do have an open economy sort of … but not as open as the British or the Chinese economy … which tend to be extremely regulated … at least when compared to us.
Fourthly: Contrary to general beliefs, capitalism is not a natural born enemy of regulations … in fact, regulations civilized capitalism …
Fifth: There’s no free market when borders are patrolled to keep away foreigners willing to sell their labor force and skills … when farmers are heavily subsidized … when illegal workers are better kept illegal … that doesn’t smell like free market to me … at least not as Adam Smith envisaged …
We have to return to our faith in our (largely) free markets
Perhaps our host will clarify. I took this to mean that the US markets were more free than any other market… or, another way of saying it: the US market is largely free, but not entirely.
capitalism has nothing to do with democracy
I agree, which is why I made no such assessment. I merely stated that The US is not a true democracy.
There’s no such thing as pure capitalism
This is in essence what I was saying, but merely applying it to the US: But I’m not sure anyone here would suggest that the US economy is a perfect example of … pure capitalism
but not as open as the British or the Chinese economy … which tend to be extremely regulated
I’m not sure what you mean by “open” in this statement, especially when it appears you are implying an extremely regulated market is “open”. Could you expand on this?
capitalism is not a natural born enemy of regulations
I would not disagree with this either. Similarly it could be said, liberty is not a natural born enemy to law. Laws civilize liberty. Otherwise total liberty would be anarchy.
There’s no free market when borders are patrolled to keep away foreigners willing to sell their labor force and skills … when farmers are heavily subsidized … when illegal workers are better kept illegal … that doesn’t smell like free market to me … at least not as Adam Smith envisaged
The US, just as many other countries, has a fine line to walk in the defense of it’s borders and the allowance of migrant workers. I don’t believe that the majority of the “illegal labor” coming into this country is truly stripping jobs from the US citizens. I think these jobs are of the nature that US citizens do not necessarily want or for pay which US citizens would find acceptable, which in turn opens up a market for the “illegal labor”. But the farm subsidies are a tough battle as they are largely in support of more relaxed open boarders for the “illegal labor”. I do see why some would fight to keep it illegal. Once legalized the labor would fall under minimum wage laws and would become increasingly more expensive.
Gilmour – you make some interesting points. And I hear you in some of them. But where you say catagorically that there is “no free market” where x, y, z is true is a little bit much. I agree there is no pure “free market.” But I think there is a freer market here than many other places, although the freedoms are distorted for many of the reasons you give.
I thought I’d post to clarify the comment of mine that you quoted.
But first, I confess I have never read Adam Smith directly. If the manner in which you are portraying his thinking is correct, then he sounds almost anarchical. I would lean more towards what you might be suggesting in your fourth point in post #12 above
in that I agree that regulations are necessary in any orderly economy or society. It is fact of life that human nature is such that we are prone to excess, to greed, to fraud, etc. A perfect or pure “free market” economy can never exist similarly to how a perfect human society can never exist. Nonetheless, on both, I believe they are worthy of being striven towards. And I believe societies which honor and respect greater rather than lesser human and individual freedom are stronger and more innovative long term. I think the 20th Century provides ample examples to prove my point here.
What I meant in my quote earlier is that I do not believe our basic US prosperity has come as a result of heavy government regulation and involvement in our economy. I would welcome you proving otherwise from US history.
I think our greatest periods of prosperity have been when the government has backed off and come closer to the “free market” model (albeit I will grant you not perfectly- that is what I meant when I put the “largely” in parantheses).
The past 25 years prior to the recent credit crisis were an unprecedented period of economic growth in this country- and they were generally characterized by lesser regulation and government invovlement in the economy (emphasis on the word “generally”). Interestingly, areas where the government did meddle too much during that period are also areas that are at the root of our current crisis (government pushing Fannie Mae, Freddie Mac and others to expand home ownership through increased subprime lending; too much easy monetary policy in the middle part of this decade, etc.).
Nonetheless, I think the government’s more hands off approach allowed for individuals and corporations to compete freely, innovate and help us be at the forefront of the internet revolution, technology boom, etc.
In the end, TP interpretted me correctly, I am not trying to convince anyone that a pure free market exists here or anywhere. I’m just saying the closer we come to the ideal, the better off we tend to be.
Finally – if you’ve got some good posts on your blog where you clarify your points you are making above further, by all means post links to them here. I’d love to read more about your perspective.
Adam Smith was not thinking on the complex and overwhelming economy we call ‘capitalism’ … even his concept of monopoly had nothing to do with our understanding of the word … Adam Smith battled against the royal grants of sectorial monopolies, something that also happened during Imperial China … the special commercial privileges granted by royals and emperors alike … So yes, once upon a time, Smith’s ideas were not just the embodiment of individual freedom but a true collection of revolutionary ideas … but that was ages ago … the world changed since 1700′s …
Mr. VanNuys – The past 25 years of deregulation (ie: corruption) have put us right where we are right now witnessing the collapse of not only our entire financial system, but the world’s financial system and exactly why the real estate market, etc. are in complete collapse.
Before this is over the last 25 years of wealth creation and then some will have been completely erased and with them millions of jobs and America’s standing in virtually every way imaginable here and around the Globe so what’s your point?
Lastly arguing to prove who is the purest idealogue in times of historical collapse is the occupation of fools, which is exactly what the writers on this BLOG are blind idealogues and as such fools.
Gilmour Poincaree – These guys are completely blind to the nightmare realities swirling around them, don’t waste your time.
Mr. VanNuys – The past 25 years of deregulation (ie: corruption) have put us right where we are right now witnessing the collapse of not only our entire financial system, but the world’s financial system and exactly why the real estate market, etc. are in complete collapse.
Before this is over the last 25 years of wealth creation and then some will have been completely erased and with them millions of jobs and America’s standing in virtually every way imaginable here and around the Globe so what’s your point?
Lastly arguing to prove who is the purest idealogue in times of historical collapse is the occupation of fools, which is exactly what the writers on this BLOG are blind idealogues and as such fools.
Gilmour Poincaree – These guys are completely blind to the nightmare realities swirling around them, don’t waste your time.
JimAnderson: Thanks for reading and commenting. So you think the stock market will return to it’s value of 25 years ago? That’d put the DOW at about 1,250 points! Incredible. I’d love to read some economist who have put forth this idea, that the entire gains of the last 25 years would be completely wiped out. Could you post some links to such articles?
Your denial will not stop reality.
“Denial”? I’m interested in what you have suggested and I’m asking for more material to read on the matter. I would love to read more concerning this idea that the stock market stands to lose 7,250 points (85% of it’s current value).
Maybe you have heard of google?