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Obama's feeble apologia for the economy

The US president's open letter encapsulates the wrongheaded and obstinately held thinking that has brought the US and world economies to a near halt

Steve Forbes
Published: Nov 18, 2016 06:38:12 AM IST

Obama's feeble apologia for the economy
President Obama has written an “open letter” of several thousand words to The Economist about capitalism, immigration, the economy and the economic areas on which his successor should focus.

The whole thing encapsulates the wrongheaded and obstinately held thinking that has brought the US and the world economies to a near halt. The duration of the stagnation—and the feeling that there really is no end in sight—is breeding increasingly ugly politics.

The essay also has its share of Obama’s trademark disingenuousness that has fanned the political divisiveness that he so piously denounces. For instance, he declares that “capitalism has been the greatest driver of prosperity and opportunity the world has ever known.” Yet as President of the US, the bastion of free enterprise, he has successfully pursued a socialist agenda that has Karl Marx applauding from the grave.

Smart socialists years ago recognised that government doesn’t need to seize “the means of production” to control the economy. Instituting sweeping and intrusive rules and regulations that make the survival of whole industries and companies dependent on the whims of government bureaucrats is sufficient. Finance is the lifeblood of an economy, yet banks have been subjugated by the Dodd-Frank Act. Regulators are also using that legislation to try to rope in insurance companies, mutual funds and any other entities that deal in finance to garner more control for Washington. The Federal Reserve has engaged in a regime of credit allocation that has led to the credit malnutrition of small and new businesses. With no authority it has given itself a bond portfolio totaling some $4.2 trillion.

We also see what the horrific so-called Affordable Care Act is doing to health care, which encompasses almost 20 percent of the economy. Fossil fuels have been under relentless bureaucratic attack. Colleges and universities jump to attention whenever a Washington agency sends a mere “advisory” letter; such letters have been used to gut due process regarding all sorts of alleged offenses, the result of which stifles free speech and promotes thought control. For-profit educational institutions have been targeted for extinction. The Internal Revenue Service continues to suppress groups deemed hostile to Big Government. Obama never misses an opportunity to advance his goal of federal control of local law enforcement. Even the internet—the most dynamic force in modern time precisely because it’s been free from government control—is being brought to heel with 1930s-style Federal Communications Commission regulation. And on and on it goes.

Is it any wonder that for the first time in memory the creation of new businesses lags the closing of existing ones? Or that the economic recovery from the sharp 2008-09 downturn has been the worst in US history?

Obama's feeble apologia for the economy
US President Barack Obama speaks about the Patient Protection and Affordable Care Act during an October visit to Miami Dade College in Miami, Florida
Image: Kevin Lamarque / Reuters

Despite the most serious and unrelenting attempt in our history to give the economy a socialist overhaul, the President’s wordy missive states that “the economy is not an abstraction. It cannot simply be redesigned wholesale and put back together again without real consequences for real people.” Yes, and you can keep your doctor, too.

Regardless, Obama’s real feelings about free markets come through: “Economists have long recognised that markets, left to their own devices, can fail. This can happen through the tendency toward monopoly and rent-seeking. ... More fundamentally, a capitalism shaped by the few and unaccountable to the many is a threat to all.”

Free markets don’t fail. Bad government policies fail. Every major economic disaster has at its source government error. A global trade war triggered by the US Smoot-Hawley Tariff, followed by enormous tax increases, gave us the Great Depression. Our destruction of the gold standard gave the US the horrific inflation of the 1970s. The deliberate weakening of the dollar in the early part of the last decade and other regulatory mistakes begat the housing and commodities bubbles that led to the 2008–09 crisis. Barack Obama and the Federal Reserve’s nonstop anti-growth policies have stifled economic life since 2009.

Obama rolls out an old trope from the 1960s about the alleged crisis of rising expectations. “Just as the child in a slum can see the skyscraper near-by, technology allows anyone with a smartphone to see how the most privileged live. Expectations rise faster than governments can deliver and a pervasive sense of injustice undermines peoples’ faith in the system.”

Governments don’t create wealth—people do. If governments don’t stand in the way, free markets always turn scarcity into abundance and luxuries into commodities. Take the smartphone Obama mentions. The original cellphone —with only a voice feature—cost $3,995 30 years ago. Today a feature-rich mobile device costs less than a twentieth of that.

After patting himself on the back for mythical economic successes, Obama asks the question, “So where does my successor go from here?”

His answer is to prescribe more of the same—just as doctors of old, when their patients became more ill, prescribed more bleeding. More taxes; more government spending (which Obama now calls “fiscal expansion”); more regulation (which Obama euphemistically labels as “better oversight for a range of institutions and markets”), including mandatory paid leave for parents and guaranteed sick days; more subsidies; more unemployment insurance; more government-funded job training; a higher minimum wage (which, as states and cities that have already instituted this are discovering, ends up killing jobs for the least skilled); and stronger and bigger unions (ignoring how they helped undermine such legacy industries as steel and autos).

Obama throws in some new beauties, such as “providing wage insurance for workers who cannot get a new job that pays as much as their old one” and “preventing colleges from pricing out hardworking students.”

Naturally, like most politicians and economists these days, Obama believes that economies are like machines and can be controlled by a “proper” mix of monetary and fiscal policies. That’s bunk. What the US and most other countries need are structural reforms in taxes, spending and regulation.

Free market economies will enable more and more people to achieve an ever higher standard of living and a richer quality of life if governments don’t get in the way. Obama and his ilk want us to believe that the choice is between an always expanding government and anarchy. But think about automobiles. We need commonsense “rules of the road.” We don’t need government telling us what to drive, when to drive or where to drive.
Un-Greating Britain
Prime Minister Theresa May, who took office in Great Britain in the aftermath of June’s Brexit vote, is no Obama-esque socialist. But she’s pursuing policies that will afflict her country with the kind of economic stagnation that’s plaguing so much of the rest of the world.

Before Brexit Britain’s economic performance had been something of a happy outlier, thanks to tax cuts, a vigorous paring back of government bureaucrats and a monetary policy that was less anti-growth than that of any other major central bank.

Now the PM seems ready to toss all of that away with a binge of government spending, more regulation and—bewilderingly, for a country so dependent on trade and skilled foreign workers—a mindlessly restrictive immigration policy. These self-inflicted wounds will overwhelm the Bank of England’s recent encouraging moves to enable banks to do more lending to businesses, which would generate more economic growth.

The smallness of almost all of today’s global leaders’ thinking is astonishing—and dangerous.

Steve Forbes is Editor-in-Chief, Forbes