Posted by: bkivey | 5 November 2012

Barack Obama: Four Commentaries

Commentary Two: Barack Obama is economically illiterate.

One of the defining characteristics of the United States is the free-enterprise economy. People are free to engage in the commerce of their choice within broad limits, and the proper role of government is to provide the structure under which that can take place. No serious person believes that there should no government, and rational people realize that there are some things that can only be done by government. Political disagreement centers over the degree to which a central government should be involved in the economy, not whether it should be involved.

Like most Progressives, Mr. Obama and his advisers are Keynesians. The salient concept of Keynesian economics is the idea that government should take an activist role in the economy. Keynes argued that government should engage in counter-cyclical policies: increasing spending during downturns, and reducing spending during upturns. The problem is that politicians don’t cut spending during good economies, they just spend more as tax revenues increase. This isn’t unique to Mr. Obama or the Democrats; both parties are guilty. When times are good, the increased government spending takes up a smaller percentage of the GDP, so the effect is less noticeable. When time turn bad, and Keynesian economists favor increased government spending, that spending comes on top of the already increased government outlays that have built up during the times of plenty. It’s an economic death spiral.

Candidate Obama was very free with other people’s money during his first campaign:

“Since the Earned Income Tax Credit lifts nearly 5 million Americans out of poverty each year, I’ll double the number of workers who receive it and triple the benefit for minimum wage workers.  And I won’t wait another ten years to raise the minimum wage – I’ll guarantee that it keeps pace with inflation every single year so that it’s not just a minimum wage, but a living wage.

13 February 2008

The Earned Income Tax Credit (EIC) doesn’t lift anyone out of poverty. It sends money to people with families who make under a certain annual amount, and people collecting it aren’t usually paying federal taxes. I’ve known people who paid $0 in federal taxes who have received checks for thousands of dollars under the EIC. Once the money is gone, those people are still poor. That money has to come from somewhere, either from people earning money, or borrowing.

Minimum wage was never intended to be  a ‘living wage’. A ‘living wage’ is what you receive when you have something worthwhile to offer. Just showing up for work doesn’t count. And increasing the minimum wage reduces opportunities for the unskilled, who need those opportunities most.

Demonstrating a breath-taking cognitive dissonance, candidate Obama had this to say about the federal deficit:

“The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion dollars for the first 42 presidents — number 43 added $4 trillion dollars by his lonesome, so that we now have over $9 trillion dollars of debt that we are going to have to pay back — $30,000 for every man, woman and child.

That’s irresponsible. It’s unpatriotic.”

3 July 2008

So increasing spending is laudable, but increasing the national debt is ‘unpatriotic’? Anyone who could make two completely contradictory statements like those cannot possibly have the faintest idea how a free-enterprise economy works, or how government obtains funding.

Mr. Obama did address the federal deficit early in his term:

“Today I’m pledging to cut the deficit we inherited by half by the end of my first term in office,” Obama said. “Now, this will not be easy. It will require us to make difficult decisions and face challenges we’ve long neglected. But I refuse to leave our children with a debt that they cannot repay, and that means taking responsibility right now, in this administration, for getting our spending under control.”

23 February 2009

Let’s see how that worked out. First, the federal debt in constant dollars:

And as a percentage of GDP:

Federal spending and deficits for the Bush and Obama administrations:

Yes, Mr. Obama has been cutting the hell out of those deficits. It’s worth noting that while the FY2009 budget would have been passed under the Bush administration, that budget included many of the ‘bailout’ programs, and that the Senate hasn’t passed a budget since 29 April 2009.

Mr. Obama again addressed the deficit in early 2011:

“Now that the worst of the recession is over, we have to confront the fact that our government spends more than it takes in. That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same.”

26 February 2011

Still waiting.

Candidate Obama complained that

“. . . the typical family income has dropped by $1,000 over the last seven years. “

13 February 2008

In June 2009, the median family income was $53,508, down from $54,917 in December 2007. As of June 2012, the median family income was $50,964, a drop of over $2500 in only three years.Inflation has further eroded purchasing power:

The large upswing in the GDP growth rate is due to the federal stimulus funding, just as the Keynesian’s predicted. However, GDP growth is rapidly slowing, while the inflation rate continues to rise.

Funding the federal stimulus package required an enormous amount debt, $800 billion, in fact. Financing this debt puts upward pressure on inflation, further eroding the dollar. This new debt, plus the enormous increase in federal spending, and the lack of political will to reduce expenditures, were key factors in the US having its credit rating reduced from AAA to AA+.

To recap:

US credit rating from 1917 to 25 August 2011: AAA

US credit rating since 25 August 2011:AA+

Wealth Redistribution

Mr. Obama is a big fan of taking from producers and giving to non-producers:

“My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody … I think when you spread the wealth around, it’s good for everybody.”

13 October 2008

“I just want you to be clear – it’s not that I want to punish your success – I just want to make sure that everybody who is behind you – that they’ve got a chance at success too.”

14 October 2008

There is a place for social safety nets in a free economy. Life isn’t always fair, and even the most industrious people can suffer setbacks. Mr. Obama’s problem is that he apparently views the economy as fixed in size: if someone has a lot of money, there will be that much less for someone else, and it’s the job of government to ‘fix’ that.  The fact is that another person’s wealth has no bearing whatsoever on your ability to make money. I have never in my life heard of a rich person putting a gun to someone’s head and taking their money. Government does that on a daily basis. If you think that’s overwrought, consider what happens if you don’t pay your taxes. People with guns will show up at your door and put you in jail.

Mr. Obama has never made a secret of his fondness for central planning:

“We’re not, we’re not trying to push financial reform because we begrudge success that’s fairly earned. I mean, I do think at a certain point you’ve made enough money. But, you know, part of the American way is, you know, you can just keep on making it if you’re providing a good product or providing good service. We don’t want people to stop, ah, fulfilling the core responsibilities of the financial system to help grow our economy.”

April 2010

Were I an English major skilled in the art, I couldn’t have made that paragraph any more condescending. You don’t begrudge success that’s ‘fairly earned’? Well, that’s a relief. You think at a certain point ‘you’ve made enough money’? Who the hell are you, or anyone at any level of government, to decide when I’ve been successful ‘enough’? Maybe I’ve decided that your $11.8 million net worth is more than ‘enough’.

The ‘core responsibility’ of business isn’t to ‘grow our economy’ or fund government. The core responsibility of business is to make money. Period. If the economy grows, that’s a beneficial side effect. In Mr. Obama’s world, businesses and citizens exist solely to fund a government that exists to dictate to businesses and citizens how they should operate. Rather than Adam Smith’s ‘invisible hand’, Mr. Obama and his fellow travelers prefer the heavy hand of central planning.

The Redskin Rule

If the Redskin Rule holds up, Mitt Romney will win the presidential election.

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