When he says he inherited serious economic problems. The Bush II Administration was an economic disaster, from No Child Left Behind, to massive increases in spending, the creation of a new prescription drug entitlement program, and the first stimulus bill following the financial crisis. Do not forget, however, that Obama asked for the job. Yea, he campaigned for the privilege of inheriting these serious economic problems.
President Obama cannot be judged by what his predecessor did, however, he can and should be evaluated based on his response to these problems. Like Bush II, the Obama Administration has been a disaster on economic issues. It was Obama who signed off on further socializing health care. Obama singed the massive fiscal stimulus bill into law. Obama is now talking about increasing taxes. Obama even reappointed Ben Bernanke for a second term as Chairman of the Federal Reserve. Although we cannot blame our present economic woes solely on our current president, we can blame him for his actions that continues to prolong the agony.
Showing posts with label Obama. Show all posts
Showing posts with label Obama. Show all posts
Thursday, August 11, 2011
Sunday, July 10, 2011
Corporate Welfare Corrupts Too
I
I have posted a number of times on the corrupting influence of the welfare state. Lest one should think that I merely have a vendetta against the poor, I am just as eager to condemn corporate welfare also. As John Stossell has noted,
While oil comampanies continue to receive $4 billion a year in subsidies, Stossell notes that other energy sectors are getting into the act. The Obama administration desires to direct billions in additional subsidies toward the construction of wind farms half owned by General Electric, the CEO of which happens to be "super-close" to President Obama.
The TARP program, to take another example, has rightly been characterized as "welfare for bankers." Not suprisingly, where there is money and power involved, there is corruption. One senator who voted for TARP put in a call for one of the banks in his constituency to get the TARP money.
You can tell a Congressman from a statesman by whether they are willing to eliminate income subsidies altogether or only for those people who they do not like. As the facebook statement by MoveOn shown above indicates, while those on the left rail against corporate welfare, they are eager to provide money taken from other people to be spent on government education, state bureaucracy, subsidized contraception and abortion, and rebroadcasts of British entertainment masquerading as educational television. At the same time, way too often those on the right champion the elimination of food stamp programs, while helping their friends in "big business.". In fact, all government welfare schemes regardless of who is getting the loot are coercive wealth transfers from the productive to the politically favored. As such they violate the Christian ethic of private property and, therefore, are to be condemned. The entire welfare state, not in part but the whole, should be eliminated.
I have posted a number of times on the corrupting influence of the welfare state. Lest one should think that I merely have a vendetta against the poor, I am just as eager to condemn corporate welfare also. As John Stossell has noted,In America today, the biggest recipients of handouts are not poor people. They're corporations.
The TARP program, to take another example, has rightly been characterized as "welfare for bankers." Not suprisingly, where there is money and power involved, there is corruption. One senator who voted for TARP put in a call for one of the banks in his constituency to get the TARP money.
You can tell a Congressman from a statesman by whether they are willing to eliminate income subsidies altogether or only for those people who they do not like. As the facebook statement by MoveOn shown above indicates, while those on the left rail against corporate welfare, they are eager to provide money taken from other people to be spent on government education, state bureaucracy, subsidized contraception and abortion, and rebroadcasts of British entertainment masquerading as educational television. At the same time, way too often those on the right champion the elimination of food stamp programs, while helping their friends in "big business.". In fact, all government welfare schemes regardless of who is getting the loot are coercive wealth transfers from the productive to the politically favored. As such they violate the Christian ethic of private property and, therefore, are to be condemned. The entire welfare state, not in part but the whole, should be eliminated.
Friday, August 6, 2010
Learn from History Indeed
Repeatedly supporters of the Obama Administration's health care reform have refered to the debate over medicare decades ago to show us that we have nothing to fear in our brave new world. In a bit of commentary in The Guardian, Sahil Kapur does so as he attempts to explain "How the US learned to love healthcare reform." He appeals to recent poll numbers that show an increase in the number of people who approve the plan compared to two months ago. He then seeks for reasons for this improved image.
In his explanation he uses the passage of Medicare as an historical analogy. Kapur cites conservative fears that passage of Medicare would result in creeping socialism and then notes that everything turned out okay, because Medicare is overwhelmingly popular. There is much to be learned from the history of 20th Century U.S. health care policy, but the lessons to take away are not what Kapur thinks they are.
The idea that health care is a mess only government can solve would be laughable if not so dangerous. It is true that the health care problem is not working itself out in the marketplace, but the reason is that we have a highly interventionist market for health care. Past government intervention to mitigate the problem of rising health care costs has resulted in a system in which the U.S. Government is already the number one purchaser of health care, and that is precisely the problem.
The history of health care in the U.S. is a quintessential case of progressive interventionism, most brilliantly explained by economist Ludwig von Mises. In his classic article "Middle-of-the-Road Policy Leads to Socialism," Mises explains that, whenever the state intervenes in the economy, negative consequences occur that are then used as a motive for even more intervention. What begins as an intrusion in a single market can grow until it incorporates an entire industry or even economy.
This is the story of health care in the United States over the 20th Century. As Vijay Boyapati notes in an excellent brief overview of the economics of health care reform, our current system didn't develop organically, as it were, from health care providers or employers responding to demand from consumers. It was the result of government intervention in labor markets. After World War II began, the U.S. government mandated wage and price controls. Employers who wanted to compete for the best employees, but were barred from offering them higher wages, began to provide their workers with health insurance. In 1943 a modification to the tax law was passed that made insurance provided by employers tax free. That set in motion our long march toward the present
As Mises' theory indicates, intervention begat intervention. Health care costs began to increase due to demand increasing faster than supply until there were calls to insure that retired elderly citizens could pay for treatment. In 1965 the government made things worse by expanding this system to everyone over 65 years of age with the creation of Medicare.This other government health care programs greatly increased the demand for health care services (the entire third party payer system we have does this) and government licensing and regulation reduces the supply. In an interventionist market like this, health care costs must go up. Government intervention in the market for medical services is primarily responsible for our situation. Even more intervention in our present direction will only make things worse.
It also turns out that claims that socialized medicine in the form of Medicare would lead to large constraints on our freedom were not far off at all. With the passage of Obamacare it is illegal for a person to simply not buy health care. If a person decides he would rather save his money or spend it in some other way, he will be fined. The state is now forcing us all to give money to a health insurance company or to pay the state. This is legalized theft. The government has become like old man Potter in It's a Wonderful Life. As George Bailey rebuked, "You're talking about something you can't get your fingers on, and it's galling you."
The lesson to be learned from history is that government intervention in health care is the problem not the solution. What the patient needs is not more interventionist poison. It needs the cure of a free market, where consumers will be more price attentive and health care providers will be more eager to provide higher quality care at lower costs.
In his explanation he uses the passage of Medicare as an historical analogy. Kapur cites conservative fears that passage of Medicare would result in creeping socialism and then notes that everything turned out okay, because Medicare is overwhelmingly popular. There is much to be learned from the history of 20th Century U.S. health care policy, but the lessons to take away are not what Kapur thinks they are.
The idea that health care is a mess only government can solve would be laughable if not so dangerous. It is true that the health care problem is not working itself out in the marketplace, but the reason is that we have a highly interventionist market for health care. Past government intervention to mitigate the problem of rising health care costs has resulted in a system in which the U.S. Government is already the number one purchaser of health care, and that is precisely the problem.
The history of health care in the U.S. is a quintessential case of progressive interventionism, most brilliantly explained by economist Ludwig von Mises. In his classic article "Middle-of-the-Road Policy Leads to Socialism," Mises explains that, whenever the state intervenes in the economy, negative consequences occur that are then used as a motive for even more intervention. What begins as an intrusion in a single market can grow until it incorporates an entire industry or even economy.
This is the story of health care in the United States over the 20th Century. As Vijay Boyapati notes in an excellent brief overview of the economics of health care reform, our current system didn't develop organically, as it were, from health care providers or employers responding to demand from consumers. It was the result of government intervention in labor markets. After World War II began, the U.S. government mandated wage and price controls. Employers who wanted to compete for the best employees, but were barred from offering them higher wages, began to provide their workers with health insurance. In 1943 a modification to the tax law was passed that made insurance provided by employers tax free. That set in motion our long march toward the present
As Mises' theory indicates, intervention begat intervention. Health care costs began to increase due to demand increasing faster than supply until there were calls to insure that retired elderly citizens could pay for treatment. In 1965 the government made things worse by expanding this system to everyone over 65 years of age with the creation of Medicare.This other government health care programs greatly increased the demand for health care services (the entire third party payer system we have does this) and government licensing and regulation reduces the supply. In an interventionist market like this, health care costs must go up. Government intervention in the market for medical services is primarily responsible for our situation. Even more intervention in our present direction will only make things worse.
It also turns out that claims that socialized medicine in the form of Medicare would lead to large constraints on our freedom were not far off at all. With the passage of Obamacare it is illegal for a person to simply not buy health care. If a person decides he would rather save his money or spend it in some other way, he will be fined. The state is now forcing us all to give money to a health insurance company or to pay the state. This is legalized theft. The government has become like old man Potter in It's a Wonderful Life. As George Bailey rebuked, "You're talking about something you can't get your fingers on, and it's galling you."
The lesson to be learned from history is that government intervention in health care is the problem not the solution. What the patient needs is not more interventionist poison. It needs the cure of a free market, where consumers will be more price attentive and health care providers will be more eager to provide higher quality care at lower costs.
Tuesday, July 27, 2010
Ortel: It's Impossible to be Optimistic About the Future
In this Tech Ticker interview by Aaron Trask, Charles Ortel, managing director at Newport Value Partners lists two reasons for his pessimism:
Note: This blog should not be taken as Democrat/Obama bash-fest. It is just a fact of life that presently Democrats are in power and they are the ones currently ratcheting up government intervention.
Nevertheless, the Bush Administration has a lot to answer for as well. The tremendous increase in the rate of growth in government spending began during the Bush Administration, not when Obama took office. The further centralization of education was the result of Bush's No Child Left Behind program. The first TARP bailout bill was a Bush initiative as well. Bush pushed for large increases in foreign aid spending. Before Obama, Bush was the great interventionist-in-chief.
As the Psalmist says "Put not your trust in princes, in a son of man, in whom there is no salvation" (Ps. 146:3).
- We're raising the cost of employment.
- We're encouraging companies to shift jobs offshore.
Note: This blog should not be taken as Democrat/Obama bash-fest. It is just a fact of life that presently Democrats are in power and they are the ones currently ratcheting up government intervention.
Nevertheless, the Bush Administration has a lot to answer for as well. The tremendous increase in the rate of growth in government spending began during the Bush Administration, not when Obama took office. The further centralization of education was the result of Bush's No Child Left Behind program. The first TARP bailout bill was a Bush initiative as well. Bush pushed for large increases in foreign aid spending. Before Obama, Bush was the great interventionist-in-chief.
As the Psalmist says "Put not your trust in princes, in a son of man, in whom there is no salvation" (Ps. 146:3).
Saturday, July 24, 2010
Of Gravy and Doughnuts
The government gravy still keeps flowing. On the same day that the Obama Adminstration forecast a record high annual budget deficit of $1.4 trillion (that's trillion! with a tr in front, not a b as in billion), President Obama called for the establishment of a $30 billion small business lending fund. The stated goal of the program "is to make sure the people who are looking for a job, can find it." The idea is that the government would invest $30 billion dollars in community banks who would then find it easier to loan to small businesses. It seems that the official line is that there is no economic problem that can't be solved by throwing billions of dollars at it.
It's understandable why the Administration might be advancing this particular policy. It is pretty clear from the data that the Great Recession was accompanied by commercial lending falling off a precipice.
Don't forget, however, that if commercial lending collapsed dramatically (although note that it is still greater than in mid-2006, not all that long ago), there is a reason for it. One thing holding lending back is the current regime uncertainty I've discussed before, fostered in part by the very budget deficits and government debt to which this program contributes. Another is the fact that massive malinvestment during the 2000s resulted in large scale capital consumption and financial institutions are still working on rebuilding their capital.
No matter how much we'd like it to be otherwise, capital cannot be created out of thin air. Capital goods don't come into being by clicking our ruby slippers together and chanting "There's no place like D.C. There's no place like D.C." No, capital must be accumulated through the allocation of real savings. Government loans and subsidies to small businesses merely give them the ability to bid the ownership of such goods away from their most highly valued use. It does not add to the capital stock, it merely redistributes the existing capital stock. We should never assume that investments made possible only due to government subsidies will wisely use the capital invested.
A case in point is the story of how the lives of inhabitants of a small Iowa town were forever made more dismal due to our friends at the Small Business Administration who were there to help. Many years ago this town had a lively doughnut shop that was one of the townspeople's favorite meeting places and served the best glazed fried cinnamon rolls on the planet. The firm maintained a profit because in addition to the retail shop it also daily serviced a very large account at the town's largest employer.
One day a businessman who owned a doughnut shop somewhere else received an SBA grant to also operate a wholesale doughnut bakery in town. Because of the grant, he was able to underbid the established firm for the account at the large employer. He won the bid and the other doughnut maker had to close up shop. A couple of years later the SBA grant to the second doughnut maker ran out and he was not able to profitably operate either. He had to shut down and the little town in Iowa was left with only holes where the doughnuts used to be. The moral of this true story is that whenever government intervenes with commercial subsidies, resources are misallocated from the point of view of society. Scarce land, labor, and capital goods were used less efficiently than they would have been without the intervention, and the community was left worse than before the government stepped in to support commercial activity.
It's understandable why the Administration might be advancing this particular policy. It is pretty clear from the data that the Great Recession was accompanied by commercial lending falling off a precipice.
Don't forget, however, that if commercial lending collapsed dramatically (although note that it is still greater than in mid-2006, not all that long ago), there is a reason for it. One thing holding lending back is the current regime uncertainty I've discussed before, fostered in part by the very budget deficits and government debt to which this program contributes. Another is the fact that massive malinvestment during the 2000s resulted in large scale capital consumption and financial institutions are still working on rebuilding their capital.
No matter how much we'd like it to be otherwise, capital cannot be created out of thin air. Capital goods don't come into being by clicking our ruby slippers together and chanting "There's no place like D.C. There's no place like D.C." No, capital must be accumulated through the allocation of real savings. Government loans and subsidies to small businesses merely give them the ability to bid the ownership of such goods away from their most highly valued use. It does not add to the capital stock, it merely redistributes the existing capital stock. We should never assume that investments made possible only due to government subsidies will wisely use the capital invested.
A case in point is the story of how the lives of inhabitants of a small Iowa town were forever made more dismal due to our friends at the Small Business Administration who were there to help. Many years ago this town had a lively doughnut shop that was one of the townspeople's favorite meeting places and served the best glazed fried cinnamon rolls on the planet. The firm maintained a profit because in addition to the retail shop it also daily serviced a very large account at the town's largest employer.
One day a businessman who owned a doughnut shop somewhere else received an SBA grant to also operate a wholesale doughnut bakery in town. Because of the grant, he was able to underbid the established firm for the account at the large employer. He won the bid and the other doughnut maker had to close up shop. A couple of years later the SBA grant to the second doughnut maker ran out and he was not able to profitably operate either. He had to shut down and the little town in Iowa was left with only holes where the doughnuts used to be. The moral of this true story is that whenever government intervenes with commercial subsidies, resources are misallocated from the point of view of society. Scarce land, labor, and capital goods were used less efficiently than they would have been without the intervention, and the community was left worse than before the government stepped in to support commercial activity.
Saturday, July 17, 2010
Unemployment Compensation Stimulates Unemployment
In his weekly radio address, President Obama, urged Congress to increase aid to the unemployed and small business. His rationale is right out of the Keynesian playbook of stimulating A. D. (that is Aggregate Demand, not in the Year of our Lord). Obama said:
The fact is, most economists agree that extending unemployment insurance is one of the single most cost-effective ways to help jumpstart the economy. It puts money into the pockets of folks who not only need it most, but who also are most likely to spend it quickly. That boosts local economies. And that means jobs.
"Most economists" does not include me. In fact, it turns out that it may not even include Larry Summers, one of President Obama's chief economic advisers. Summers co-authored a paper in 1995 explaining that increasing the duration of unemployment benefits merely increased the duration of unemployment.
The chart above from a piece by Keith Hennessey shows that workers get real serious about finding and accepting work right before unemployment benefits run out. The longer we extend the benefits, the longer we remove the incentive to find and accept work. One fundamental principle of economics is that you get more of whatever you subsidize. As is often the case, you get what you pay for. If you subsidize unemployment, you get more unemployment.
This is because it takes away one of the primary incentives for finding work. Paul's admonition was "If anyone is not willing to work, let him not eat" (2 Thes. 3:10). Now certainly not everyone in this current economic environment is unemployed because they are entirely unwilling to work. Massive malinvestment during the boom of the mid-2000s has led to the Great Recession, which requires a tremendous amount of capital restructuring and labor reallocation. Nevertheless, by extending unemployment benefits, we enable people to remain less eager to accept productive work that does appear. As it says in Proverbs 16:26
A worker's appetite works for him;
his mouth urges him on.
Extending unemployment benefits prevents the worker's appetite from encouraging him to obtain gainful employment, and it is productive employment that will truly stimulate the economy, placing us on the road to real recovery.
Thursday, July 15, 2010
Out of Sight, Out of Mind
Yesterday the President's Council of Economic Advisers released its quarterly report on the effects of Obama's stimulus plan, praising it for either saving or creating 3.6 million jobs. The highlights of the report include these claims:
What should we make of such claims? We would all do well to remember that shopkeepers are not better off after having their windows broken. What is missing from the report is any recognition that economic goods, including factors of production, are scarce even during a recession. There is no recognition that the funds spent by the state must be taken from someone.
As I have explained before, government spending can be funded by only three sources: taxes, borrowing, and inflation. Each has negative economic consequences that mitigate any positive benefits reaped by those who get the government money. At best such Keynesian fiscal policy merely robs Peter to pay Paul. In fact, due to the stimulus plan, scarce economic goods are being bid away from their most productive use, so the effects of such government spending is even worse than unhelpful; it is destructive.
We have no reason to believe, consequently, that there has been any net economic benefit from the stimulus plan. Certainly many people did take jobs funded by government money. The economic resources used by the recipients of the stimulus money, however, were merely bid away from their most highly valued alternative uses. Government spending does not create more factors of production out of thin air, it merely allows the recipients of subsidies to have an advantage in the market for factors of production. This actually hinders the adjustment process that needs to take place for our economy to get back to a more sound footing.
Let us not forget that work is beneficial only if actually productive, that is only if it is useful in making something people actually want. Certainly government bureaucrats tossing money hither and yon will stimulate some activity, but if people do a job that is only possible because the state took the money from someone else, this is not productive. This is merely wealth redistribution. What the economy needs are real jobs, and what the government is heralding is the creation of fake jobs.
To the extent that there has been any recovery and any jobs saved or created at all, it is most likely due to an increased saving rate.
Only real savings leads to capital accumulation, which is what can put us back on the path toward prosperity.
- The administration said 3.6 million jobs were saved or created through the second quarter of 2010, beating President Barack Obama's stated goal by six months.
- $100 billion of the $787 billion stimulus has been leveraged by private funds, expanding the amount invested into the economy.
- Outlays on public-investment projects like highway reconstruction increased by more than 50 percent between the first and second quarters. By June's end about two-thirds of the $319 billion in public investment funds in the stimulus had specific projects attached to them.
What should we make of such claims? We would all do well to remember that shopkeepers are not better off after having their windows broken. What is missing from the report is any recognition that economic goods, including factors of production, are scarce even during a recession. There is no recognition that the funds spent by the state must be taken from someone.
As I have explained before, government spending can be funded by only three sources: taxes, borrowing, and inflation. Each has negative economic consequences that mitigate any positive benefits reaped by those who get the government money. At best such Keynesian fiscal policy merely robs Peter to pay Paul. In fact, due to the stimulus plan, scarce economic goods are being bid away from their most productive use, so the effects of such government spending is even worse than unhelpful; it is destructive.
We have no reason to believe, consequently, that there has been any net economic benefit from the stimulus plan. Certainly many people did take jobs funded by government money. The economic resources used by the recipients of the stimulus money, however, were merely bid away from their most highly valued alternative uses. Government spending does not create more factors of production out of thin air, it merely allows the recipients of subsidies to have an advantage in the market for factors of production. This actually hinders the adjustment process that needs to take place for our economy to get back to a more sound footing.
Let us not forget that work is beneficial only if actually productive, that is only if it is useful in making something people actually want. Certainly government bureaucrats tossing money hither and yon will stimulate some activity, but if people do a job that is only possible because the state took the money from someone else, this is not productive. This is merely wealth redistribution. What the economy needs are real jobs, and what the government is heralding is the creation of fake jobs.
To the extent that there has been any recovery and any jobs saved or created at all, it is most likely due to an increased saving rate.
Only real savings leads to capital accumulation, which is what can put us back on the path toward prosperity.
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