Racine Town Hall with President Obama
President Obama has once again showed that he is in desperate need of a lesson in economic reality. I am referring to the latest instalment of ignoring economic reality by the President during his ‘town hall’ style speech, and question and answer session yesterday in Racine. The three main topics were economic stimulus, financial regulation and clean energy (with the President downplaying that the latter is mainly driven by his belief in catastrophic anthropogenic global warming). The underlying theme was that unregulated markets (aka Big Corporations) cause recessions, financial impropriety and environmental degradation and, thus, strong government action is needed.
At the base of the President’s fundamental economic beliefs appears to be the lack of a full awareness of the economic reality that wealth and prosperity are created by free people and free markets. This is the ‘fixed pie’ fallacy often believed on the Left. The key to the growth of wealth and prosperity for all Americans is entrepreneurial innovation and evolution. It is the minds of those who create new and better goods and services and ways of doing things for profit, subject to the pressures of competitors and consumers, that create and grow wealth and prosperity…not the poorly thought out actions of intrusive, self-righteousness, unaccountable, non-transparent and arrogant government. The President would do well to remember what the Founding Fathers intended government to do – ie to protect free people and markets from those who would initiate and inflict harm on other’s person and property…including from government itself!
Although he was certainly quite charming and likeable during his speech and the Q&A session, the President once again strongly highlighted his ongoing denial of economic reality and his embrace of economic mysticism.
The President’s original economic stimulus policies were aimed at creating between 3 and 4 million jobs by the end of 2010, and that unemployment would hit its high of 8% in 2009. Instead, unemployment peaked at 10.6% in January 2010 and only fell to 9.3% by May. The latest jobs and unemployment figures are scheduled to be released on July 2nd, and most economists are not optimistic. This pessimism, according to the Cato Institute, is mainly driven by businesses reluctance “to invest or hire because they’re concerned that the President’s Big Government agenda will mean higher taxes and more onerous regulation”. This is backed up by a recent National Public Radio poll which showed that only 37% of voters in Democrat controlled districts believed “President Obama’s economic policies helped avert an even worse crisis, and are laying the foundation for our eventual economic recovery” and as many as 57% believed “President Obama’s economic policies have run up a record federal deficit while failing to end the recession or slow the record pace of job losses”.
The President’s financial industry regulation is based on the flawed premise that the financial meltdown was caused by the greedy and misleading financial industry. Bad financial industry decisions and the like was largely the symptom not the cause of the financial meltdown. The Fed, government social engineering policies (eg Freddie Mac and Fannie May), and government over and poor regulation, was largely to blame. Of these, it is the Fed that is the real ‘elephant in the room’. The Fed is essentially a government mandated monopoly which essentially dictates the price of money (ie interest rates)…and, as central planners always do, they always get pricing wrong, with huge ramifications in the supply and demand of money throughout the entire economy! Like all central planners, the Fed suffers from the ‘we know what’s best for everybody else’ delusion. They don’t know what is best, nor could they (even in theory), as they will never have the proper information and incentives that decentralised consumers and competitive markets have. This line of thinking is backed up by great economists like Hayek, and by many recent studies by the Institute of Economic Affairs and the Ludwig von Mises Institute.
The government-driven clean energy revolution desired by the President, which uses Spain as its template, is based on wildly exaggerated expectations of the amount of jobs to be created and ignoring the predicted net job losses. As pointed out in a study last year by economics professor Gabriel Calzada of King Juan Carlos University in Madrid, “the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created.” These sorts of studies are, of course, not cited as part of the reason for resistance against this noble cause, instead the President alleged that clean energy has no powerful backers. A study sponsored last year by the Science and Public Policy Institute, entitled Climate Money, would suggest otherwise. This study, by only beginning to scratch the surface, showed that Federal Government expenditure alone in response to global warning alarmism was of the order of $79 billion…versus ‘Big Oil’ expenditure in support of global warming scepticism/realism of $23 million. It is very important to remember that the President’s push for clean energy is still largely driven by global warming alarmism, which is in turn driven by so-called science that continues to be shown, by the Heartland Institute and many others (citing such recent revelations as Amazon-gate, Climate-gate, Glacier-gate, and NASA-gate), to be at best wildly exaggerated and at worst fabricated. It is worth noting a typical self-contradiction of environmental policies reported last month by the Institute for Energy Research. They reported that “fossil fuel consumption and CO2 emissions are increased, not reduced, with the introduction of wind” and more specifically that “at wind penetrations of about 3% (as is the case in the Netherlands), the savings are zero, and at 5-6% (as for Colorado and Texas) the savings become negative, that is, emissions actually increase due to the presence of wind power”.
Let me remind the President of the major lever that the Executive, the Legislature and the Judiciary have of helping to improve the economic environment for economic growth – mainly through getting out of the way of free people and free markets, especially through seriously reducing government regulation like that recently passed in health, and that being attempted to be passed in finance and global warming (the latter including clean energy). A relatively easy way to start would be putting a freeze on further job-killing regulation (of any kind, be it stimulus, financial or global warming) and to start to get serious about subjecting any and all further regulation to proper, independent and transparent processes of benefit-cost analysis (BCA) centered around allocative and dynamic efficiency – which is by-and-far the best way to start to properly balance the often conflicting objectives of social justice, the environment and the economy. Perhaps the Government Audit Office could play some role in this, including in ex post as well as ex ante BCAs of regulations and regulators (eg the Fed, EPA, etc).
The President once again stated that we need to move forward not backward. Only embracing economic reality and letting go of economic mysticism can move us all forward. Of course, it will be the people of the greatest democracy in the world that will be the ultimate judge of all this come November and beyond!
By D. Brady Nelson
Special Guest Perspective for the MacIver Institute
D. Brady Nelson (email@example.com) is an Australian-American freelance economist with over 15 years experience in economic regulation and policy.