Sunday, July 4, 2010

Independence Day: Freedom from Failed Policies

President Obama was swept into the White House on a wave of hope and optimism. Mired in a devastating recession, the people wanted to believe that his prescription for “Change We Can Believe In” would be the recipe for economic recovery. Under his leadership, the government has intervened in all aspects of our economy, created new unfunded entitlements, and offered special interest incentives under the guise of stimulus. With celebrated fanfare, President Obama proudly proclaimed that his fiscal “stimulus” would create jobs, decrease the unemployment rate, and foster an economic recovery. Months later, what seemed to be a fledgling U.S. recovery has been exposed as nothing more than an unsustainable blip in economic activity fueled by deficit spending of an overly indebted nation. The Keynesian inspired attempts to substitute the government balance sheet for that of the private sector have accomplished little other than socializing private losses and bloating the federal debt.

  • The cash for clunkers and new homeowner tax credit have done nothing but subsidize inevitable purchases while pulling them forward creating a false impression that a rebound in demand had emerged. Unable to maintain these subsidies indefinitely, the government ultimately let them expire and sales promptly declined substantially as all potential buyers had rushed to beat the deadline. While sales activity will slowly normalize in the future, the programs did nothing to increase overall demand and simply distorted the market in an attempt to distort an inevitable correction.
  • More than $700 billion in government spending and tax breaks promoted under the guise of “fiscal stimulus” was supposed to lead to dramatic employment gains and an unemployment rate of 8%. Instead, the unemployment rate remains at a deceptive 9.5% while a more accurate measure incorporating the millions that have grown discouraged or have been dropped from the pool of potential workers suggests that true unemployment is 16.5%.
  • At a current $1.5 trillion annual budget deficit, the U.S. has little room for additional fiscal stimulus or government spending on productivity enhancing infrastructure.
  • Increases in regulation, taxes, economic uncertainty, and the threat of government intervention or persecution leads many businesses to exercise caution, horde cash, and curtail growth plans. It simply is safer not to hire new employees or expand production until the environment becomes more certain. Meanwhile, millions of Americans are chronically unemployed and the centers of economic power are migrating from the U.S. and Europe to China and other developing nations.

In order to emerge from the economic quagmire that has paralyzed this great nation, true leadership must emerge. We must be willing to openly acknowledge our prior excesses and allow markets to enforce necessary corrections without doomed attempts at intervention. At the same time, we must focus all of our energy on encouraging economic innovation and activity through reduced regulatory burdens, strategic infrastructure investment, and incentives for domestic investment and production. We need to encourage companies to think of the U.S. first for all levels of economic activity rather than embrace previous notions of an information and service economy with none of the fundamental manufacturing that leads to innovation and learning. Finally, we need to acknowledge the untenable promises of the Social Security, Medicare, and Obamacare entitlement programs and restructure them in a sustainable manner.

These changes will take courage, strong leadership, and an ideological flexibility. President Obama is clearly not up to the challenge, so let us hope that another more courageous leader will emerge from the ashes of the American economy and restore it to its proper glory.