Diary

Obamulus Economics and Its Fallacies

Recently, President-elect Obama has openly reversed the course of Ronald Reagan’s “government is the problem” and even Bill Clinton’s “the era of big government is over.” He has given us insight into his short-fuse plan for government intervention into the economy based upon huge deficit spending. All the while, trying to garner support from voters in a campaign style message relying on the prediction of catastrophic economic failure and spreading panic.

In a speech given at George Mason University, the President-elect stated, “Unless Congress acts within the next few weeks on his economic stimulus package, he said, “Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.”

Banking on his own popularity and the American people’s fears about the economy, Obama, is gambling that these two factors will open the door for his $1 trillion stimulus package. According to Rasmussen Reports, 54% of voters believe a government economic recovery plan is needed.

Bloomberg.com reports that David Axlerod, Obama’s chief political adviser, and Jim Margolis, his campaign media adviser, are busy shaping up the verbiage that will assist in the passing of the stimulus package. After researching focus groups they determined using words like “recovery” and “investment” will make the overtly expensive and expansive package even more palatable to voters.

The Obama team has even prepped the battle field much like they did during the campaign, relying on virtually the same tactics and strategies. However, his actual plan for short fused “stimulation” of the economy leaves much to be desired. Banking on an infant industry like green-tech, infrastructure rebuilds, expansion of 600,000 government jobs, limited tax rebates, insane spending, etc. is hardly the course for real economic recovery. In fact it will only exacerbate the problem.

Congressional Quarterly reports, via the Congressional Budget Office, that the deficit for FY 2008 is already at $1.2 trillion, this does not include Obama’s plan for spending another trillion or so. It is hard to fathom his claim that simply doing nothing will create a worse debacle than a $2.2 trillion deficit for FY 2009. In effect, this will create another bubble of sorts, only it will be made up of government spending and borrowing which will inevitably burst. What will happen when the only entity which the private sector and taxpayers can turn to has collapsed? How will engaging in the most massive spending flurry for a problem, that is no where near as bad as the Great Depression, solve this?

The jobless rates for December have just been released and now we are sitting at 7.2% unemployment rate, nationally. Obama has gone form promising 2 million new jobs, to creating 3 million jobs, to saving the jobs he was once going to create. John Ward of the Washington Times does some simple arithmetic which puts things in perspective, at our present rate it is more than likely we will reach 5 million jobs lost. We are still gain 2 million unemployed Americans if his plan even works. Just shifting your talking points in a speech to match the days problems isn’t solving the issue.

None of his ideas, or more correctly the ideas of his economic advisers, deal with the problems at hand; misguided government monetary policy and financial regulation -which created the wrong incentives-mismanagement of government-sponsored enterprises, and enabling of the government by the American people. The government needs to clean up the mess which they helped create, while the constituency needs to understand it is going to have to tighten its belt while things get better. A shifting in the paradigm of financial thought within the government, as well as the everyday population, is the first step.

There are a myriad of ideas, that have been presented, which tackle our economic crisis. From the CATO Institute, cut the “payroll tax,” or at least lower it, for employees and employers for two years. This without a doubt will increase our present deficit, but, it would allow the recovery to happen more quickly. Severely cut our “corporate tax rate,” this would be one incentive for companies to move or stay in the US, creating more jobs in the long term. Simply reinforce investor’s confidence by having Mr Obama state that he will not raise the “capital-gains tax,” and again, maybe even look a lowering it. This would help market confidence return and spur investments.

Right now banks are withholding money and not giving out credit to businesses or individuals. However, they are expecting these same people to pay down their debt. When this happens it forces a contraction of the economy. By leaving money in the hands of consumers and business, you circumvent this from happening. The Heritage Institute’s, Center for Data Analysis, predicts that through massive tax cuts and incentives we would, “Increase employment by a half million jobs in 2009 and by a million jobs in 2010, and create 3.6 million jobs over the period 2009 through 2012.”

We have to remember that the government does not create jobs nor does it correct economic downturn. What it does do is get in the way by increasing its sphere of control and mismanagement, exacerbating already existing problems. The economy, if allowed, will correct itself and fostering an environment of risk taking, investing, and savings is what will bring us through. Not wanton and irresponsible government spending.