By Peter Ferrara on 6.16.10 @ 6:09AM
He can’t imagine how anyone else could think differently.
President Obama’s June 2 speech at Carnegie Mellon University in Pittsburgh, reflected again in his Oval Office speech last night, provided a foundational statement for his economic policies, explaining how he thinks they have worked so far, and how they will bring back prosperity in the rest of his term. Both speeches reveal a man who quite expressly thinks economic growth and prosperity are created by more government spending, higher taxes, and more regulation, and who can’t imagine how anyone else could think differently.
In Pittsburgh, President Obama expressly credited the TARP bailouts of the financial sector, the federal bailout of the auto industry, and his trillion dollars in so-called stimulus spending for ending the recession and restoring economic growth. But this column explained last week that what we are experiencing is a natural, cyclical economic recovery that has been delayed and stunted by Obama’s outdated, counterproductive policies reaching back almost 100 years to the 1930s.
The average recession since World War II has been 10 months and the previously longest since then has been 16 months. But now, 30 months after the recession officially began in December 2007, unemployment remains stuck at nearly 10%, and the National Bureau of Economic Research, the official scorekeeper on the matter, says it can’t yet determine that the recession is over. Economic growth is less than half what it should be coming out of a recession this steep, and now there is talk we may be peering down the roller coaster into a double-dip recession.
With federal deficits and borrowing sucking over $3 trillion out of the economy in President Obama’s first two years, no wonder small and medium businesses can’t get loans and capital to create jobs. On top of that, President Obama’s regulatory tsunami and next year’s tax supernova are creating capital flight out of the United States, creating jobs overseas in the newly emerging economies instead.
The Buck Stops with Bush
Illogically, President Obama both claims credit for his stimulus deficit spending in spawning recovery, yet blames Bush for the deficit. For the record, President Obama’s budget projected a deficit of $1.6 trillion for this year, after a deficit of $1.4 trillion last year, while the deficit in Bush’s last year totaled $459 billion. If President Obama didn’t want his soaring, record shattering deficits, he should not have increased federal spending by 25%, and federal welfare spending by one-third, in just his first two years in office. This from the man who campaigned promising “a net spending cut.”
President Obama said in Pittsburgh about the deficits during the years of Republican control, “I always find it interesting that the same people who participated in these decisions are the ones who now charge our administration with fiscal irresponsibility.” The last budget adopted by a Republican-controlled Congress provided for a deficit of $161 billion in fiscal 2007. President Obama’s budget for this year provided for a deficit ten times as large at $1.6 trillion. That is why Rep. Jeb Hensarling (R-TX) accurately told Obama earlier this year, “The annual deficits under the Republicans became the monthly deficits under the Democrats.”
President Obama further demonstrates a disconnect from reality in discussing the causes of the financial crisis. He said in Pittsburgh, “We can’t compete as a nation if the irresponsibility of a few folks on Wall Street can bring our entire economy to its knees.” What brought the economy to its knees, actually, was the irresponsibility of a few folks in Washington.
Stanford University Economics Professor John Taylor carefully demonstrated in his book Getting Off Track that the root of the financial crisis was the wildly loose Fed monetary policies from 2001 to 2006, which actually kept real interest rates below zero for almost three years. The effect of that was to outright subsidize excessive risk taking and overleveraging, and wildly pump up the housing bubble. But that housing bubble actually started in the wild expansion of Jimmy Carter’s Community Reinvestment Act under President Clinton into the subprime mortgage market, wildly pumped up by the financial terrorist organizations Fannie Mae and Freddie Mac.
Deregulation and Wall Street malfeasance had nothing to do with causing the financial crisis. Claims to the contrary are left-wing propaganda misdirection ploys trying to redirect the blame from the government to the private sector. Deregulation actually enabled some commercial banks to ease the crisis by rescuing failing investment banks that nearly collapsed due to the misdirection of the above government policies. Overregulation contributed to the crisis by bludgeoning banking institutions into making bad mortgage loans, granting monopoly powers to rating agencies that labeled ultimately toxic subprime mortgage securities as AAA investments, and then forcing financial institutions to write the value of those securities down to almost nothing under “mark to market” regulations.
But President Obama continued with his disconnect from reality in Pittsburgh, claiming that he had resolved the causes of the financial crisis because “we’re on the verge of passing the most sweeping financial reform since the Great Depression. It’s a reform that will prevent another AIG. It will end taxpayer funded bailouts.” This is yet another Obama calculated deception, misdirection ploy, telling you the opposite of the truth. His financial reform bill actually institutionalizes taxpayer-funded bailouts, giving the government virtually a blank check to seize any financial institution in the country, not just banks.
Obama continued in Pittsburg regarding his financial reform bill, “From now on, instead of competing to see who can come up with the cleverest scheme to make a quick buck, financial institutions will compete to see who can make the better product and the better service.” But transparently there is nothing in his financial reg reform bill to indicate that from now on no one on Wall Street will be interested in making a quick buck. There is also nothing in the bill regarding the Community Reinvestment Act, or Fannie Mae or Freddie Mac, not to mention essential, fundamental reforms of the Fed.
Which means there is nothing in President Obama’s financial regulatory reform bill to address the causes of the financial crisis. What that bill will do is just accelerate capital flight from America.
Prosperity Through Soaring Taxes and Energy Costs
But the most glaring, even frightening disconnect from reality in President Obama’s Pittsburgh speech, amplified even further in his speech last night, is his idea that he is going to “build a new and stronger foundation for growth and prosperity” through soaring tax increases and energy costs. President Obama said in Pittsburgh, “From China to India to Europe…[t]hey’re making serious investments in technology and clean energy because they want to win the competition for those jobs…investments in research and technology, like clean energy, that can lead to new jobs and new exports and new industries.” President Obama explained his strategy for doing this, “But the only way the transition to clean energy will ultimately succeed is if the private sector is fully invested in this future — if capital comes off the sidelines and the ingenuity of our entrepreneurs is unleashed. And the only way to do that is by finally putting a price on carbon pollution.”
The phrase “carbon pollution” is itself a dramatic disconnect from reality. Carbon dioxide is a natural gas in the environment essential to all life on earth. Animals, including humans, breathe out carbon dioxide, and it serves as oxygen for plants essential for them to survive. Without carbon dioxide, there would be no plants, and without plants there would be no oxygen or food for animals. Indeed, note, humans are referred to as a carbon-based life forms, as is all other life on earth. So much for “carbon pollution.” Moreover, through most of the history of the earth, the concentration of carbon dioxide in the atmosphere has been many times higher than today. The phrase “carbon pollution” is carefully crafted to take advantage of the ignorant and gullible.
But the economics of President Obama’s prosperity through “clean” energy plan is even more transparently nuts than the science. Here is how it is supposed to work. First, the government provides enormous subsidies, just more bailouts actually, for businesses to pursue inherently unreliable and unworkable “alternative” energy sources such as wind and solar, the energy that powered the Roman Empire. It was the replacement of that old-fashioned energy by far more concentrated, powerful and reliable oil and natural gas, and later nuclear power, that enabled the industrial revolution, which is now out of favor with dreamy, unfocused, and illogical Western “elites.”
The U.S. Department of Energy reports that government energy subsidies amount to $0.25 per megawatt for oil and gas, $0.44 per megawatt for coal, $1.59 for nuclear, $23.37 for wind and $24.34 for solar. (Oil is actually not subsidized at all, but disfavored by punitive taxes.) And that was before President Obama’s “investments” adding up to an additional $80 billion per year in federal “alternative energy” subsidies.
These “investments” are not free. They already involve a costly burden dragging down the economy. But that is only the start. In addition, President Obama wants to impose trillions of dollars in effective new cap and trade taxes, an arbitrary chicken bone in the throat of our economic windpipe, an enormous, completely unnecessary cost. Those taxes will so sharply raise the cost of the traditional energy sources that actually power our economy, that when combined with the enormous subsidies for the “alternatives” of wind and solar, these alternatives will finally be competitive in terms of price, drawing private investment into their development.
This is how President Obama thinks he is laying the foundation for new jobs and prosperity. “Under my cap and trade plan, the cost of electricity will necessarily skyrocket,” he has explained. But imposing trillions of dollars in unnecessary additional burdens on the economy through skyrocketing energy costs, so that “alternative” energy completely dependent on corporate welfare can survive financially, is a good strategy for destroying, not creating, jobs. That is why in the economies where this has already been tried, which President Obama touts as models for America, the result has been a net loss of 2 to 5 jobs for every “green” job created, with the so-called green jobs actually mostly temporary. This is not a stronger foundation for growth and prosperity, but a lurch into national decline and falling standards of living.
The same radical disconnect is found in President Obama’s government takeover of health care. President Obama said in Pittsburgh:
This new foundation [for growth and prosperity] is also based on reforms…that will make health care cheaper…. We also know we can’t compete in a global economy if our citizens are forced to spend more and more of their income on medical bills; if our businesses are forced to choose between health care and hiring; if state and federal budgets are weighed down with skyrocketing health care costs. That’s why we finally passed health insurance reform.
But regulatory requirements mandating costly new benefits, expanding or adopting three new entitlement programs, imposing policies that will sharply increase the demand for health care while sharply reducing the supply, are good strategies for causing the cost of health care to skyrocket, not “make health care cheaper.” President Obama’s health care legislation, which the usually restrained Wall Street Journal rightly called “the worst bill ever,” will cause health insurance costs for younger families to skyrocket by 2 to 3 times, federal health costs to rise by more than the minimum officially estimated $1 trillion, and national health expenditures to rise rather than fall, again as officially estimated by the federal government itself.
It is true, however, that under President Obama’s health takeover plan, businesses will no longer be “forced to choose between health care and hiring.” Under the employer mandate, they will be forced to choose health care.
President Obama was also quite correct when he said in Pittsburgh:
Now, some of you may have noticed that we have been building this foundation without help from our friends in the other party. From our efforts to rescue the economy, to health insurance reform, to financial reform, most have sat on the sidelines and shouted from the bleachers. They said…no to investments in clean energy.
That is because if any Republicans had joined in helping President Obama pass any of these reform mutations, people like me would have joined with many others to subject the quislings to career-ending primary challenges.
Finally, President Obama derided in his Pittsburgh speech the theme of “the Ownership Society.” That theme has been used to denote policies to empower working people to build their own foundation for financial independence through directly owned, personal, savings, investment, insurance, and human capital developed through school choice freedom. We should not be surprised that a red diaper baby disparages ownership and property rights, a view central to socialist philosophy all the way back to Marx.
Instead, President Obama celebrated maximum government dependency based on maximum government spending, taxes, and entitlements, buying maximum votes for the New Left political machine. But just as the unmodernized, old-fashioned, tax and redistribution Social Security system he worships is today a bad deal for working people, his overall vision of the maximum welfare state would mean the end of the American Dream of world leading prosperity.
Winning the New Global Competition
President Obama was correct to note, however, the much stiffer global competition that America has been facing over the last decade from the newly booming emerging economies, from Brazil to India to Indonesia to China, and elsewhere in our globalized world marketplace. He rightly explained that “the ability of jobs and entire industries to relocate where there’s skilled workers and an internet connection has forced America to compete like never before,” which has given rise to “that sense that the American Dream might be slowly slipping away — that’s been around for some time now.”
But that new global competition leaves even less margin for error in our economic policies, requiring even more consistent free market policies for success. That is why the crash and burn of neo-socialist Obamanomics is going to arrive much sooner than even the smartest opponents expected.
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
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