Saturday, August 28, 2010

Obama and Biden's "Fun Stuff"

My four year old son came to me recently and showed me a picture of a toy he wanted. Attempting to be a responsible dad, I explained that it cost money, but he could try and earn it by doing some work around the house. He was thrilled to hear this. After sweeping every room at full speed, he ran to his mom and demanded his pay - one fresh dollar bill. Proudly, he showed me his spoils. "Now can I buy the toy?" he asked. "Well," I explained, "this toy costs more than a dollar. It probably costs at least ten dollars." Immediately, he walked into the other room. "Mom, can I have a ten instead of a one?"

After laughing and trying to explain that he needed to do the job about ten more times, I pretty much gave up. He'll get it, some day. Unfortunately, his economic understanding of the world is probably now more advanced than anyone in the Obama administration, including panels of professors and Nobel Prize winning economists. They only thing that separates them is something my son would envy, a legal printing press known as the Federal Reserve.

In a series of previous posts, I have endeavored to debunk so-called stimulus spending which is the absurd idea that the government should spend other people's money and that this spending somehow will lead to economic prosperity. In short, I argued that a dollar spent by the government is a dollar that will not be spent by someone else. The government is not a productive enterprise. It obtains funds through taxation, borrowing, or indirectly through the inflation of the money supply and simply redistributes these funds to others. "Stimulus" spending is at best a zero sum game and, in fact, profoundly destructive as it distorts capital markets and replaces productive spending, such as saving and investment, with consumption. Of course, consumer spending is its purpose, because in the Bizzaro World of Keynesian economics, saving is regarded as destructive.

A recent Time magazine article titled "How Stimulus is Changing America" attempts to give us some perspective on the massive stimulus spending undertaken by the Obama administration. The author explains that the program was originally predicated on Keynesian New Deal policies:

After Obama's election, Depression scholar Christina Romer delivered a freak-out briefing to his transition team, warning that to avoid a 1930s-style collapse, Washington needed to pump at least $800 billion into the frozen economy — and fast. "We were in a tailspin," recalls Romer, who is about to step down as chair of Obama's Council of Economic Advisers. "I was completely sympathetic to the idea that we shouldn't just dig ditches and fill them in. But saving the economy had to be paramount." ...They wanted a textbook Keynesian response to an economy in cardiac arrest: adding money to existing programs via existing formulas or handing it to governors, seniors and first-time home buyers. They weren't keen to reinvent the wheel.

The author does not address the efficacy of this plan in terms of economic growth because it has obviously failed (as a plan akin to digging ditches and filling them just might). Instead, he explores the actual goal of the stimulus: changing the composition of spending, i.e., diverting capital from productive uses to spending on idiotic government programs, a.k.a., "Obama's agenda":

[T]he battle over the Recovery Act's short-term rescue has obscured its more enduring mission: a long-term push to change the country. It was about jobs, sure, but also about fighting oil addiction and global warming, transforming health care and education, and building a competitive 21st century economy. Some Republicans have called it an under-the-radar scramble to advance Obama's agenda — and they've got a point.

Note that the author regards this agenda to be a prima facie value. Why? He doesn't say. What he is implying is that although the headline purpose of this kind of stimulus spending is growing the real economy, the actual goal is to change the nature of economic activity, i.e., change how your money is invested such that it is invested in projects the left deems to be unquestionable values.

[I]n the words of Vice President Joe Biden, Obama's effusive Recovery Act point man, "Now the fun stuff starts!" The "fun stuff," about one-sixth of the total cost, is an all-out effort to exploit the crisis to make green energy, green building and green transportation real; launch green manufacturing industries; computerize a pen-and paper health system; promote data-driven school reforms; and ramp up the research of the future. "This is a chance to do something big, man!" Biden said...

Note the premise here. Evidently, only government central planners really know how best to deploy capital. What would America's entrepreneurs do with $800 Billion? What could Apple, Microsoft, Pfizer, GE, Exxon, HP, Dell, 3M, Intel, etc. do with $800 Billion? We will never know. Instead, it will be allocated to "fun stuff" like "date driven school reforms", "green building", and the ever popular "research of the future." Why is this important? What are the alternatives? Who cares - this sounds good to Biden, and it is something big, man! The article explains how the great innovators of our age, Joe Biden and Obama, formulated their vision:

Obama and Biden also saw a golden opportunity to address priorities; they emphasized shovel-worthy as well as shovel-ready. Biden recalls brainstorming with Obama about an all-in push for a smarter electrical grid that would reduce blackouts, promote renewables and give families more control over their energy diet: "We said, 'God, wouldn't it be wonderful? Why don't we invest $100 billion? Let's just go build it!' "

Yeah, how about $100 billion?! Why not more? How about $800 Billion? Where does the money come from? Taxes? No, not possible. We'll borrow it. But, that will raise rates. Then print it. Turn one into ten...

Put aside the rampant fraud, absurd programs, and the unintended consequences for a moment. Note that under this brand of statism, it is upon just these kinds of whims that your hard earned money is spent. Investors, corporate executives, engineers, and consumers whose lives and fortunes depend on researching and developing sectors of the economy are disregarded. Small businessmen who pour their life and soul into their fledgling companies and toil to make a living are dismissed while their savings are taxed to pay for this debacle. Professional investors, whose livelihoods rest on their ability to deploy capital to its most productive use, are harassed and throttled. Yet, Joe Biden and Obama "brainstorm" over a few cocktails and decide a "smarter electrical grid" mandates the immediate theft of $100 billion from America's savings and Voila! Such delusions are the essence of the central planning mindset - the Philosopher King who knows what is best for you, your neighbor, an industry, the world. These law school angels from heaven who know how to organize an entire economy better than the sum total of businessmen, scientists, and consumers.

This point is critical to understand the liberal mindset. Often, people are shocked by Obama's seeming defiance of economic common sense. Virtually every day I will hear, "why would Obama do that? It doesn't make sense." Of course, they are presuming that Obama's vision of a "good economy" is their own, i.e., a free and thriving economy based on innovation, productivity, and wealth creation - an economy that produces unlimited opportunities and brings to life wonderful new products and services. That is not Obama's vision. His "vision" of a good economy appears to be one of a land littered with state sponsored communes energized by solar powered arrays, leviathan public hospitals operating off of digitized health records, and homes containing "smart-meters" wrapped in space age caulk.

Once, the socialists told us they could scientifically plan production and outproduce the chaos of capitalism. When that failed and socialism led to poverty and misery, they now tell us that capitalism produces too much and we have to go back to living like cavemen. While the left's concrete values change from one generation to the next, the one constant is the desire for power - power over the lives of others; the power to tax, regulate, and mandate every waking moment of an individual's life; to impose the most recent version of their lofty vision on the unwashed masses. Whether it is Mao's Great Leap Forward, Stalin's forced collectivization, Hitler's master race, or less murderous plans like FDR's New Deal, Johnson's Great Society, or Obama's stimulus, the left always has a Plan for you.

My son will work ten jobs to make the money for one toy. Don't count on Obama and Biden to work off $800 billion.


Perplexio said...

When I was growing up as a gift for one of my birthdays (or perhaps it was Christmas) my father got me a copy of Capitalism for Kids by Karl Hess. I don't know whether or not it's still in print, but if you can find a copy I recommend it for your son. The book seems geared towards 8-10 year olds-- not sure how old your son is but by your description he sounds a bit younger than that yet. If nothing else maybe reading it yourself might give you ideas on how to teach him about capitalism in a way that he might better understand it. Just a thought.

Doug Reich said...


Thanks. Capitalism is the natural system so kids get it even better than most adults. Only a "really smart" person could think taking stuff from other people who work and giving it to those who don't is a good idea!

Perplexio said...

But of course, Doug, because the "really smart" people are SO smart they know how to spend our money far better than we do!