He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under the first President Bush. He is a graduate of Harvard College and Harvard Law School. He is author of The Obamacare Disaster, from the Heartland Institute, and President Obama's Tax Piracy, and his latest book: America's Ticking Bankruptcy Bomb: How the Looming Debt Crisis Threatens the American Dream-and How We Can Turn the Tide Before It's Too Late.
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But keeping with his unwavering theme as the unrelenting opposite of Reagan in every way, what President Obama told us in his State of the Union (SOTU) this week can be most accurately summed up as “Government is not the problem, government is the answer.”
Please, print out the transcript and read it in black and white. It is all about higher taxes, to fund higher spending, and more federal regulation. And that is supposed to lead us at last to the promised land of restored economic growth and prosperity. But all that is anti-growth, not pro-growth. Obama has it ALL backwards. Hence his worse than sorry economic record.
The speech reflects the fundamental problem in Obama’s thinking, and in his entire Presidency and Administration. He has consistently promised the nation from the beginning to restore economic growth and prosperity. But President Obama has no actual concept of economic growth, and its causes, and effects. That is all absent from his thinking. As it is in the Marxist philosophy on which he was weaned from birth (a matter of public record, including in his own writings).
Thus, President Obama said in the SOTU, “It is our generation’s task, then, to reignite the true engine of America’s economic growth: a rising, thriving, middle class.” But this is exactly backwards. A rising, thriving middle class is an effect of economic growth, not a cause of economic growth.
President Obama is stuck on the idea that we can all spend our way to prosperity. “The rich” may spend a lot. But that is not how they got rich.
Obama’s Throwback Keynesian Economics
Obama’s confusion is the result of his throwback, retro, Keynesian economics from the pre-Reagan era, which is the idea that increased government spending and bigger deficits drive economic growth and prosperity. If the economy is lagging, the government just spends some more, and runs a bigger deficit, and that increases “aggregate demand.” The private economy will then produce more to satisfy that increased demand, hiring more workers, and bidding up wages, and happy days will be here again.
That thinking reflects an absence of understanding of basic double entry bookkeeping. If the government spends more, where does the money for that increased spending come from? Either from increased borrowing, or increased taxes, which both take an equal amount of resources and spending out of the private economy as they finance increased government spending, or from printing more dollars, which just creates inflation (devaluing private spending by an equal amount). The result is a net drag on growth, as the private economy spends money more productively and efficiently than the government.
Demand is insatiable, and can never be inadequate in a market economy. If the demand for any product or service is not strong enough, the price of the good or service will fall, until demand equals supply. The people can never spend more than they produce. And they will never spend less, for they will either consume or save every dime that they earn (produce). The consumption goes into consumer spending, and the savings goes into capital spending (which is actually what makes us richer and more prosperous).
Obama was busy learning Marxist economics in the 1970s (literally), and missed the final failure and thorough discrediting of Keynesian economics at the time. Obama has been sold to us as a progressive, forward looking thinker. But he is actually taking America back to the thoroughly failed economics policies of the 1970s, and even the 1930s, and so ultimately to the same results. Obama does not appear to know that even academic liberals no longer believe in such pure, unreconstructed Keynesianism. But his ignorance is hurting all Americans. This is why his so-called “stimulus” from February, 2009, failed thoroughly, just wasting nearly a trillion dollars, and adding that much to the national debt.
This same Keynesian “stupidity” (I have explained above why that word does apply here) is reflected in Obama’s hysteria over the sequester cuts. Obama said in the SOTU, “These sudden, harsh, arbitrary cuts would jeopardize our military readiness, they’d devastate priorities like education and energy and medical research. They would certainly slow our recovery and cost us hundreds of thousands of jobs.”
Only a retro, Rip Van Winkle, Obama zombie would believe any of that. The sequester cuts would reduce government’s drain on the private sector, and leave more for the real capital investment that does drive economic growth, prosperity, jobs, and rising wages. Too bad it is not at least 6 times as much, as Paul Ryan will propose in his 2014 budget coming out next month.
The fearful sequester will cut just $85 billion out of total federal spending this year of at least $3.6 trillion otherwise. For numerically challenged Democrats (redundant), that is a budget cut of about 0.2%. Even with the sequester, federal discretionary spending alone will still be $60 billion more than in 2008, which is still an increase of 10%. As for the defense cuts, as Investors Business Daily reported on February 12, “[Obama’s] first budget in early 2009 proposed spending $14 billion less this year on defense than is currently budgeted under the sequester.”
What this all means translated into plain English is that Obama and the Democrats are flat out opposed to any spending cuts (outside of national defense, which they think only warmongers are for).
Classic tax reform, as Reagan achieved in the bipartisan tax reform of 1986, involves reducing loopholes, credits and deductions, in return for lower rates. But as President, Obama has pursued just the opposite — tax deform — expanding loopholes, credits and deductions, and raising rates. See, e.g., additional welfare refundable tax credits, corporate welfare “green energy” tax credits, Obamacare, and the comprehensive Obama tax rate increases last January.
And in the SOTU, it was more of the same, as Obama called for “hundreds of billions of dollars” in further tax increases “by getting rid of tax loopholes and deductions for the well-off and well-connected.” He added, “Now is our best chance for bipartisan, comprehensive tax reform that encourages job creation and helps bring down the deficit.” But even under Keynesian economics, that tax increase of “hundreds of billions of dollars” will only further slash jobs, and increase unemployment.
Obama does not understand that it is lower tax rates that promote economic growth and prosperity, by enabling producers to keep more of what they produce, and thereby increasing incentives for more production, which is what really drives economic growth and prosperity (not more spending). Tax credits, especially refundable tax credits as he has preferred, are just tax welfare, and do nothing to increase incentives for greater production, economic growth, and prosperity.
But Obama will have intellectual competition over real tax reform this spring and summer, as Ryan will propose in his budget in March classic tax reform with reduced loopholes, credits and deductions “for the well off and connected,” and maybe for some freeloaders as well, in return for reduced rates, for both individual and corporate taxes.
Ways and Means Committee Chairman Dave Camp will then move such tax reform through his committee, and then the entire House will adopt it. Such tax reform would truly promote job creation, economic growth and prosperity, and help bring down the deficit, through the increased revenues and reduced spending that result from economic growth. That is what happened when Reagan and responsible Democrats did it in 1986.
If President Obama and the Senate Democrat majority disagree, they can vote what they want through the Senate, and then a compromise can be worked out in Conference Committee. But they will assuredly do nothing on tax reform, because they don’t want to vote for what they really want, still more counterproductive tax increases, in the light of day. That is why “Now [is not] our best chance for bipartisan, comprehensive tax reform,” and again nothing will get done.
Regulatory Power Grab
Obama pursued a further fantasy in the SOTU, saying, “But for the sake of our children and our future, we must do more to combat climate change….Now, the good news is, we can make meaningful progress on this issue while driving strong economic growth.” Obama threatened, however, “But if Congress doesn’t act soon to protect future generations, I will.”
Obama’s threatened regulation will drive up the cost of energy sharply, which would effectively be yet another destructive tax increase on the economy, especially on the energy intensive manufacturing he also touted in the SOTU. That will only further destroy jobs, depress wages, increase poverty, and contract economic growth.
That reality is why such global warming regulation is actually totally dead internationally. The formerly third world countries with rapidly emerging economies, such as China, India, Brazil, joined by Russia, and other growing countries, have made clear in power grabbing United Nations confabs that there is no way they are going to compromise their growth over such politically correct Lysenkoism.
Their scientists know that the only significant effect of increased CO2 in the atmosphere has been to improve global agricultural output, as CO2 is plant food, or oxygen to plants. Global temperatures have not varied with CO2, but have followed instead the varying patterns of natural causes, such as solar activity, and ocean temperature cycles.
That is why there has been no increase in global temperatures for more than 10 years now, and the most reliable and relevant atmospheric temperatures monitored by satellite show only a marginal temperature increase throughout the entire 35 year record. The scientific case for global warming is based on United Nations global temperature models that have not been validated, and increasingly vary from real world temperature trends.
Obama talked in the SOTU of “the dangerous carbon pollution that threatens our planet.” But CO2, a natural substance essential to the survival of all life on the planet, can no more be called pollution than oxygen can.
This is all definitively explained in the 856 pages of the 2009 Climate Change Reconsideredand the 411 supplemental pages of the 2011 Interim Report, published jointly by the Heartland Institute and the Nongovernmental International Panel on Climate Change NIPCC. There is no better, more reasoned, dispassionate, scientific discussion of global warming anywhere. Check it out yourself, if you dare. The only people who say they believe in global warming are those who want to believe in it, because they believe in the more centralized government power they think it justifies.
Other passages in the SOTU can only be ascribed to Calculated Deception. President Obama has proved that what he does have a keen understanding of is what the average person does not know, and what he can count on the Democrat party controlled press, they call themselves “the mainstream media,” to not tell them.
So Obama said in the SOTU, “Already, the Affordable Care Act is helping to slow the growth of health care costs.” But the truth is, as the left-leaning Kaiser Family Foundation has reported, since Obamacare was enacted, family health insurance premiums have soared by an average $3,000 per family. Yet, during his 2008 campaign, and when he was selling Obamacare to the country, Obama told us his reform plan would reduce slash health insurance premiums by an average $2,500 per family. I knew that was Calculated Deception from the moment I first heard it.
And that is just the beginning. As IBD reported yesterday, “Aetna, for one, expects premiums to shoot up 20% to 50%” after Obamacare is fully implemented in 2014. And remember Obama’s guarantee that if you like your health plan you can keep it? Well, tens of millions are expected to lose their current employer health plan after Obamacare is fully implemented in 2014, whether they like it or not.
Another form of masterful Obama Calculated Deception is the out of context stat. Obama said in the SOTU, “After years of grueling recession, our businesses have created over 6 million new jobs.” Is that good? Obama offers no context to tell us.
The recession lasted for only the first 6 months of Obama’s first term. Yet Obama still has the worst jobs record since the Great Depression, even though the American historical record is the worse the recession, the stronger the recovery.. Unemployment under Obama stayed at or above 8% for longer than at any time since the Great Depression. Today, almost four years after the recession ended, there are still more than 3 million fewer Americans working than in November, 2007, more than 5 years ago! That also has not happened since the Great Depression. Even though America’s working age population has grown by 11.4 million since then.
Obama also said in the SOTU, “A growing economy that creates good, middle class jobs, that must be the North Star that guides our efforts.” So where the hell has that been during your entire first term, Mr. President? Real GDP growth during Obama’s entire first term has been less than 1%, at 0.8%, again the worse of any President since the Great Depression. Indeed, less than half of any other President since that time, as Jeffrey H. Anderson explained in IBD on February 13. Even President Bush produced more than twice as much real economic growth during his poor second term. Even Jimmy Carter produced 4 times as much.
Moreover, in the last quarter, the economy was actually contracting again. Indeed, it contracted by 2.5% if you use the definition of the CPI that prevailed before President Clinton changed it.
In addition, real median household income has declined over 8% since Obama was elected, the equivalent of losing one month’s income annually, with a greater decline after the recession ended. So where are these good, middle class jobs, if that is your North Star? Name one thing you have done, Mr. President, to create those good, middle class jobs? Everything you have done has had just the opposite effect.
Obama also said during the SOTU, “Nothing I’m proposing tonight should increase our deficit by a single dime.” That is literally true. Haha, you sucker.
Obama Blind Spots
Totally missing from Obama’s SOTU is any discussion of the monetary debauchery pursued by the Fed, which started under Bush, and like every bad policy Bush pursued, has only accelerated under Obama. That dollar debauchery sharply discourages the capital investment that is the foundation of economic growth and prosperity, because investors do not want to be paid back in declining dollars, depreciated by rising inflation, with their investments threatened by the busts following the resulting bubbles.
Nowhere has Obama proposed any sort of reform of the runaway Fed, with its discretionary monetary policy that has not worked, and can never work.
Also not seen in the SOTU were any specific entitlement reform proposals from President Obama, even though such entitlements threaten to drive government spending ultimately to 100% of GDP. President Obama said he would commit to Medicare reform that would achieve the same savings as the Medicare reform proposed by the Simpson Bowles Commission.
But he again did not endorse that Simpson Bowles reform, or propose any other Medicare reform, or any other entitlement reform, now in the fifth year of his Presidency. Is that leadership? Or is that hiding from America’s real problems? All Obama has done on entitlements has been to make the problem worse with Obamacare.
But even conservatives and Republicans are not getting the real opportunity of entitlement reform. And Obama zombies are content with the self-satisfied, silly idea that Republicans just want to cut entitlements to ribbons and let children and seniors starve, or the sick suffer or even die for lack of medical care.
The real entitlement reform opportunity is that with basic, fundamental, structural reforms, that change the way the programs operate, and the governing incentives, seniors and the poor would enjoy better benefits, while government spending and the costs to taxpayers are radically reduced. And such reforms are already proven to work in the real world.
The 1996 welfare reforms proved that the poor can enjoy higher incomes, while the taxpayers would save trillions, if those same reforms based on fixed, finite, block grants of the federal funding back to the states, were extended to the 200 or so additional means tested entitlement programs for the poor, with broad discretion for the states to reform the programs. The poor would also enjoy much better health care if the same were extended to Medicaid, with estimated CBO savings of nearly $1 trillion or more.
Allowing working people the freedom to choose personal savings, investment and insurance accounts to provide at least some of their Social Security and Medicare benefits can eliminate the deficits in those programs entirely, with seniors ultimately enjoying higher benefits, and choosing their own retirement age, with the biggest resulting reduction in government spending in world history.
Replacing Obamacare with Patient Power reforms like broad based Health Savings Accounts would actually reduce health costs, while providing health care for all, unlike Obamacare, while saving nearly $2 trillion over the first 10 years alone.
These reforms, which I will discuss further in a future column, would all contribute to the economic growth and prosperity as well. But Obama’s backward looking, Ostrich act is denying the American people these enormous benefits of positive entitlement reform.
The Pied Piper and his Zombies
But what conservatives and Republicans have to understand is that much, perhaps half, of the country is in a trance over Obama’s rhetoric, and for them that is all they need, results to the contrary notwithstanding. They are totally vulnerable to Obama’s manipulative propaganda. Logic and reality are not going to reach them, until they crash hard into it and wake up. We can only hope that happens sooner rather than later.
For we cannot survive as a nation half rational and half emotionally unhinged, especially in a democracy. How else can we explain the same folks moved to near insurrection over President Bush placing wet towels over the face of three terrorists (waterboarding), which gained the intelligence leading to the much celebrated killing of Osama bin Laden under Obama, but raising barely a peep when Obama chooses instead to deliver to American citizens hellfire missiles shot from drones, with no due process of law? Democracy was designed on the assumption that the voters would be rational, not zombies in a trance over manipulative rhetoric.
It is the very people who have most supported Obama the most who have suffered the most under him. The poor, with more Americans in poverty today than in the more than 50 years that Census has been tracking poverty. African-Americans, with depression level unemployment during Obama’s entire term in office.
Hispanics, with double digit employment that whole time as well. The young, who can’t get work to start their careers. Will America wake up before Obama transforms this formerly freest and most prosperous nation in the history of the world into just another banana republic?
[First published at Forbes.]