His Serene Loftiness gave a major speech up at George Mason University in Fairfax last week during which he warned us that failure of Congress to approve another "stimulus" package to assuage the currrent economic crisis could result in a recession extending for years, and urged his Democrat colleagues to present the $850 billion bill for his signature not later than 31 January. In a continuation of my remarks last week, I have several observations about Mr. Obama's plan and its supposed urgent nature.
- National governments have several ways to raise money. They may simply print more of it, they may increase tariffs on imports, they may increase taxes or they may borrow the money. Printing money is easy, it avoids increasing the public debt or risking a public backlash over taxes, but it also decreases the currency's value and risks inflation. Increasing tariffs shifts the burden to foreigners which is pretty good if you're a politician, it also avoids the dangers of public anger over increased taxes and inflation, but raising the kind of money desired might be problematic, what with treaty obligations and all. Increasing taxes carries no danger of inflation and likely results in the amount of money desired being raised, but it's extremely unpopular to the point of dangerous: See the Congressional elections of 1994 or the voters' rejection of Bush 41 when he broke his pledge not to raise taxes. Borrowing money doesn't risk inflation or voter outrage, it results in the desired amount being raised and the pain of repayment is postponed, all very attractive inducements to politicians who want to spend more money but who want to keep their seats, the same inducements that persuade ordinary citizens to live on their credit cards. But the consequences of national governments borrowing money can be catastrophic. Because there is no immediate cost to spending on credit, governments are tempted to live that way, becoming complacent, adopting a spendthrift lifestyle until there is nothing left to borrow and everything comes crashing down. As of this writing, the United States government owes $10.6 trillion or over $37,000 for every man, woman and child, legal and illegal in this country. Mr. Obama proposes to borrow $850 billion more at the very beginning of his Presidency and use that money to "stimulate" the sluggish economy. In reality, borrowing such a vast sum will act as a sedative to the economy since the government is taking money out of circulation, money badly needed in the private credit markets that Mr. Obama says he wants to help, and blowing it on its own purposes. The national debt is increased, the percentage of the annual budget devoted to repaying that debt and its interest is increased and in effect, the borrowed money amounts to a de facto tax increase that further interrupts the recovery Mr. Obama claims to be seeking, definitely not sound fiscal strategy.
- As part of the $850 billion boondoggle, Mr. Obama wants to provide $350 billion worth of "tax cuts" to lower- and middle-income families, the people who voted for him and his liberal Democrat allies two months ago. The problem is that the bottom fifty percent of American wage earners pay less than 4% of all Federal income taxes, presenting us with a logical dilemma: How can the government provide income tax relief to people who pay no taxes? That might be difficult to answer if you aren't Barack Obama, but for him, it's easy - it's redistributing income. You see, his offhand comment to Joe the Plumber during the campaign was too telling and he intends to write $350 billion in welfare checks to his friends, be financed mainly by people who voted against him. (The top ten percent of wage earners pay over 65% of all Federal income taxes.)
- The Emperor of the Americas would also like to spend $500 billion or so to repair infrastructure and clean energy projects with the intent of converting America into a Green Republic. However, 98% of our vehicles are powered by fossil fuels and 70% of our electricity comes from the same, so it seems hugely illogical to spend such a huge sum on "clean energy" when the market has largely rejected the same. But if the point is to placate the rabidly Leftist environmental lobby and to feed fat construction projects to pro-Democrat unions, then you can see why Mr. Obama finds this plan so attractive.
- The $120 billion stimulus package approved in Spring 2008 had virtually no effect. Half of the $700 billion Wall Street bailout package approved in October 2008 has been spent but the country has lost over one million more jobs regardless. Undeterred by facts, Mr. Obama is prepared to throw another $850 billion worth of borrowed money at the problem, which seems illogical because it is illogical.
So what are we to make of Mr. Obama, the Democrats and the financial geniuses who advise them? For starters, their strategy has nothing to do with returning the country to long-term prosperity but everything to do with implementing liberal dogma:
- The market is fundamentally unfair and government intervention is necessary to correct it.
- Rather than allow the market to correct itself naturally which might cost hundreds of thousands of union jobs and many low-wage, bad-credit homeowners their homes, the government should spend a colossal amount of money for a temporary fix knowing that their Republican rivals will be stuck with the check.
- The tree huggers and the unions are traditional Democrat constituencies. The government should spend whatever it needs to spend to help them and screw the consequences.
And people used to ridicule Ronald Reagan for cutting taxes in the middle of a recession...like that's just plain crazy.
Source: http://www.irs.gov/pub/irs-soi/04in06tr.xls
Source: http://greeninc.blogs.nytimes.com/2009/01/08/obama-speech-pushes-clean-energy/
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