Clearly the Obama administration has not brought comfort to the markets in its initial weeks in office. The President and his team have also failed to bring clarity or coherence. Their massive agenda is not only ambitious, bold, and expensive, it is contradictory.
Take the President’s new budget proposal, for instance. In order to pay for the massive expansion of government spending, including $634 billion for health-care reform, Obama proposes to resort to the time honored populist tradition of “taxing the rich,” meaning families making in excess of $250,000. Despite the administration’s incessant cry that the government should prop up the housing market and increase home prices, the budget contains a provision that would reduce the amount of mortgage interest deductions “wealthy” families can take on their home payments. In other words, Obama would like to take the seemingly few remaining people in our society who can actually afford homes and reduce one of their biggest incentives for home ownership. Not surprisingly, the National Association of Realtors opposes the provision, saying it “will result in further erosion of home prices and home values.”
Similarly, the administration keeps talking about greasing the credit markets, encouraging banks to lend again, and driving down the costs of borrowing money, particularly in mortgage markets. However, Obama favors legislation that would allow bankruptcy judges to alter a bankrupt mortgager’s payments and cram down new terms on the creditor. Lenders may react by appropriately increasing mortgage rates that account for a greater risk premium in financing home purchases.
Obama and many of his Democratic allies in Congress are also remarkably haphazard in their approach to dealing with the automobile industry. They will likely shower billions of additional taxpayer dollars on the ailing Detroit companies. Yet, they want to enact onerous new cap and trade legislation that will hamper the industry, as well as grant states exemptions enabling them to impose their own more stringent emissions standards on automobile companies. Furthermore, while even elected representatives realize full well that the automobile companies need to make changes to return to profitability — specifically, they need to break free from the shackles of UAW driven labor costs — politicians think they can mandate the companies into making money by insisting upon green car production that the market has overlooked.
And what would a discussion of economic waywardness be without addressing the financial sector? The American taxpayer now has trillions of dollars at stake in the banking industry (although do not expect a dividend check anytime soon). We all know, or should realize, that we have a vested interest in seeing the industry recover, not only because a well-run banking sector is imperative to our economy but because of how much taxpayers stand to lose if banks fail.
But rather than encourage financial institutions to retain the best talent to help resuscitate the industry, Congress and the administration have imposed mandated pay scales that will in result brain drain. This is because the American Recovery and Investment Act of 2009 (ARIA) limits the relative size of bonuses for executives at firms that accept Troubled Asset Relief Program (TARP) funds. In addition, the ARIA limits the ability of banks to hire foreign workers holding H-1B visas. The provision, designed to encourage banks to hire American workers first, is just another anti-free market provision that will discourage banks from hiring the best employees.
It is also not the only way in which the Democratic government is engaging in misguided protectionism, while speaking the language of international cooperation. The ARIA requires domestic production of iron, steel, and manufactured goods for stimulus-funded projects.
Inconsistent is one thing; disingenuous is another. That, however, is the best way to describe the President’s new budget proposal. It is also the genius of Barack Obama, because while he recently proposed a $3.6 trillion budget that would increase the federal deficit to $1.75 trillion, he harps (with a straight face) about making “hard choices where to spend and where to save.” He talks about how this is “just the beginning of the cuts we’re going to make” and about “fiscal discipline.”
So are we saving and investing in the future? Well, not if you consider the $787 billion “stimulus” package Congress just passed at Obama’s urging or the massive budget he just proposed. Are we stimulating then? Not if you consider the massive tax hikes for the “rich” that Obama wants to fund his new programs.
Perhaps the only thing we can say about Obama’s plan is that it aims to redistribute. And it should do a damn fine job of spreading the misery around.