Monday, November 5, 2012

Obama's Worst Economic Mistake

This hasn’t been what you would call a gentle election. Neither candidate has flinched from hitting the other where it hurts the most. Where President Obama is most vulnerable is his track record on the economy, which leads me to the question: why doesn’t Romney talk about the worst thing Barack Obama has done to keep our economy sluggish and the recovery slow? No, it’s not the federal government’s credit downgrade, it’s not trillion-dollar deficits; it’s not even Obamacare. Obama’s biggest blunder has been creating the same thing that, eighty years ago, transformed a stock-market slump and would-be correction into the Great Depression itself: uncertainty.

Hardly a word to frighten children or old ladies. In a knock-down race like this one, it sounds like a very mild accusation for a candidate to focus onalmost like bringing a knife to a gunfight. Maybe that’s why we hear so little about it. Its effects, however, are as sure as the wind-driven tide that last week rolled into New York and New Jersey, burying everything under a deep layer of cold and slowly rising water. Uncertainty carries an influence that stifles the self-correcting nature of the economy and quells recovery before it can start.

To understand why, put yourself in the place of a job creator. You might be the head of a huge company deciding whether (or where) to expand, or you might be a one-person operation contemplating your first hire. You’re about to make decisions that will affect others’ lives for years to comewhere they’ll live, how satisfied they’ll be, whether their kids have insurance, etc. You want to know that you won’t have to turn around and fire them. The main question you’ll be trying to answer is “are these people going to make me more money than it costs me to employ them?” If you can’t answer that question to your satisfaction, you won’t create the jobs, or you’ll do it in a more certain environmentperhaps another country.

The same principle works in investment. When people send their money into the market, they don’t expect the government to give them guarantees, they just want to know the rules will be fair and that no one’s fiddling with the value of the money itself. If you suspect that the field is slanted against you, you’re going to sit on your money or seek greener pastures. You’d be a fool to do otherwise. Perhaps Jesus said it best: “For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it?” Without dependable measures of what might happen, nothing can be built.

No one disputes Obama inherited an economy in crisis, and everyone, if they think about it, has to admit that it’s not government that will get us out. Government employment and salaries have risen frightfully during this recession, but it can’t employ everyone, and government jobs don't create wealth. It can force people to invest (by spending tax money on businesses), but it can’t force investors to enter the market. Employment and investment are the engines that drive the economy, and government can exert only very limited control to speed up either one. Far more often, it slows them down.

So we agree uncertainty is bad, and the economy was in crisis. How did Obama make it worse?

First, his economic message showed no understanding of the real cause of the crisis. In an economy first brought to its knees by a housing crisis, then knocked out by criminal banking mismanagement, he announced his three top priorities for his first term: dealing with health care, education, and energy. Really?

Health care reform wouldn’t have been a bad idea for a secondary focus. It represents roughly 15% of the economy and is the cause of a disproportionate number of personal bankruptcies. As a minor part of an overall plan, fixing health care could truly have helped. Obama’s “solution,” however, wasn’t what any of the experts recommended. He did nothing to take health insurance out of the workplace, which would have protected workers’ coverage from the whims of their bosses. There was no initiative to remove barriers to competition across state lines which would let market forces lower prices (Obamacare creates 50 in-state exchanges), and he didn’t breathe a word about what could have been the real game-changertort reform. Instead, he engineered a program represented by a 2,000-page bill which has since expanded to sixty thousand pages of new regulations, which, instead of lowering the economic burden of health care, vastly expands it. Hospitals have no idea whether they’ll be able to obey the provisions of Obamacare, even if they want to, because there’s just too much to understand. Doctors are leaving the industry in droves, driven away by the prospect of being forced to do business Obama’s way. Health care: uncertainty number one.

Obama’s energy policy is even worse. Prevented from enacting industry-killing cap-and-trade legislation by Congress, he instead authorized his EPA to bring about similar regulations by its will alone. There has been no coal power plant built since Obama took officehe didn’t make it illegal for power companies to build them, he just said (proudly) that doing so “will bankrupt them.” In the world of oil, Obama opposed the construction of the Keystone pipeline, which would have created 10,000 jobs and increased domestic supply. Election pressures forced him to partially change his tune, but who knows how long his “evolving” stance will last? He imposed a moratorium on drilling permits, then consistently lied about when it would end. He bragged about keeping his “foot on the throat” of BP as punishment for their oil spill (I looked in vain for the “foot on the throat” section in Article II). In natural gas, He has opposed new production, favoring the repeatedly discredited narrative that fracking leads to contaminated water supply. In every case, the uncertainty faced by energy companies has increased to the point where electricity and natural gas prices have sharply increased, and gasoline prices have more than doubled in four years. There is one sector of the energy industry that is far more secure than four years ago: green energy companies with high levels of donation to Obama’s campaigns. Solyndra, Tesla, Fisker, A123the list goes on and oncollectively representing billions of dollars of grants and loan guarantees. Unfortunately for the President, these companies lacked the common courtesy to wait until their benefactor was out of office before looting the till and going belly up. Obama said, under his plan, that energy prices would “necessarily skyrocket.” He has been as good as his word. Energy: uncertainty number two.

The final boondoggle of Obama’s first term plan was education. In spite of overwhelming evidence showing that dollars spent per child has had little correlation with performance, Obama fought to raise bloated federal spending even more, expanding the size and scope of the Department of Education. This new money largely goes to teachers’ unions, which people are increasingly coming to recognize as the real problem. By feeding this beast, Obama is guaranteeing himself the support of millions of deluded Americans, while denying them the choices they deserve and that their children so desperately need. Education: uncertainty number three.

So, Obama’s first term priorities were poorly chosen and poorly handled, but this alone wouldn’t have prolonged the recession. Education, health care, and energy weren’t the most urgent economic issues, and their economic effects, while real, are felt in the long term. Even if well handled, they wouldn’t have been the pathway to a quick recovery. What did Obama do about the breakdowns at the root of the crisishousing and finance? Not much. He did pass the Dodd-Frank bill, which has been a mixed bag at best. It’s not that everything in it is destructive, but it does more to reward big banks than to protect consumers. For proof of this, just look at the list of Wall Street investment banks endorsing (and even contributing to) the legislation. As for housing, Obama’s solution is to reinflate the bubble. That’s right: after complaining that banking interests, in bed with government, destroyed our economy, Obama has doubled down on more of the same. Fed chairman Ben Bernanke is buying mortgage-backed securities with printed money. Home loan rates are even lower now than they were in the record-breaking troughs of the last decade. The difference is, this time, everyone recognizes the danger of too much government intervention, and home prices have failed to recover. Housing bubble reinflation: uncertainty number four.

Speaking of the Fed, it’s worth noting that we are now in our third round of what has been euphemistically dubbed “quantitative easing,” a monicker which helps the Obama-friendly media avoid uttering the hurtful phrase “printing money.” The money is loaned directly to the Treasury at a faster and faster rate. This is all in service of the stated goal of the Fedto keep rates around zero percent for the foreseeable future. Sure, low rates can help arrest the freefall of housing prices (they can also be great if we want record deficits). But, when you’re picking investments, are you tempted by rates of less than half of 1%? Where does all this printed money go? Where it always goesinto the pockets of those with the best lobbyists, who were able to help draft the 2009 stimulus bill or other pork projects. When will all of this inflation catch up with us? Impossible to say. Currency manipulation: uncertainty number five.

Obama, and the Democratic Congress over which he has presided, have never once passed a budget, certainly a government’s first financial responsibility. The budgets the White House has proposed are so unrealistic, no onenot even a single Democratvotes for them. Without a budget, no one can attack his economic priorities, because he literally has none. At the same time, no one who deals with government can reliably plan for the future. No federal budget: uncertainty number six.

The final insult of Obama has been on the institution that has historically been the greatest safeguard against uncertainty: the rule of law. Obama has flouted laws on several occasions, showing that they could be ignored when it suited him, and always in service of his donors. He brags about “saving” the auto companies, but what did he do except rewrite bankruptcy law on the fly? In a normal bankruptcy (such as that advocated by Mitt Romney) bondholders would have been first in line for satisfaction, and other creditors, like unions, would be forced to renegotiate certain liabilities. Instead, Obama substituted workers’ pensions as the first priority (as long as they were part of the Democrat-supporting United Auto Workers union). This sounds charitable on the surface. However, as Romney said at the time, a bankruptcy would have allowed the car companies to move forward without the business-shattering burden of generations of unrealistic concessions to the unions. Instead, it was the bondholders that took a bath, forced to accept a distasteful deal by the President himself. Now, GM and Chrysler have to work much harder to borrow moneywho would trust them?and when they finally do succumb to the liabilities that they no longer have the chance to shed, what will then become of the union pensions he broke the law to save? Obama can rest easywhen the auto-bailout piper finally has to be paid, it won’t be his problem anymore.

Also against the law: the “settlement fund” obtained by holding BP’s feet to the fire after their oil spill. Rather than let the normal legal processes take their course, he personally oversaw the transfer of 20 billion dollars into the supervision of his administration, to avoid troubling a judge or jury to determine damages or awards. This isn’t the act of someone who sees himself as the President of America. It’s the act of a king, dispensing justice and favors with equal alacrity, according to his personal wisdom and unquestioned power. The same thing happened with his own signature law: the Obama administration has granted hundreds of Obamacare waivers to business—a tacit admission that the law’s onerous provisions are killing jobs, but also that knowing the right people in Washington is a principle higher than law. There are many other examples, but these should suffice to show the vanity and hubris of this administration. Undermining the rule of law: uncertainty number seven.

Mitt Romney has a simple plan to fix the economy: simplify the tax code, removing deductions and lowering rates, so that people pay the same amount while doing less guesswork and complex math. Repeal Obamacare, end energy subsidies and simplify regulations, replace Ben Bernanke as soon as possible, and turn educational priorities away from teachers’ unions and towards children. Enact reasonable and timely budgets. Above all, renew the profound and necessary respect that our chief law enforcement official has for the rule of law.

Obama says Romney’s ideas will create greater deficits, but Obama’s figures are carefully crafted to ignore both economic and human reality. President Romney will cut the uncertainty caused by overreaching government. If Romney wins on Nov. 7th, the economy will breathe a collective sigh of relief, which, after his inauguration, will lead to rapidly increasing growth. Of course it willthe American economy has always rewarded certainty with prosperity. This will result in our government collecting more revenue even as it charges lower tax rates, an outcome well supported by history, mathematics, and common sense.

We’ve borne the costs of uncertainty long enough. It’s the most dispensable government policy there is. Let’s bring back an environment where the engines of our economy, employment and investment, can reliably “count the cost,” and get America back to work.

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