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April 19, 2009

Obamas Speech Bodes Ill For the US Economy
by Gerard Jackson

Not only have Obama's economic policies "been designed to increase aggregate demand, get credit flowing again to families and businesses, and help them ride out the storm" but they will also "make sure such a crisis never happens again." Not a single economist of any political persuasion stepped forward to affirm his statement. And no wonder. Nearly all of these economists have argued that the business cycle is inherent to capitalism.

Therefore the best one can hope for is to implement fiscal and monetary policies that will help to smooth it out. (Unless, of course, you intend to socialise the economy). So now Obama has abolished booms and recessions by inaugurating a "New Era". (This sounds eerily familiar). So how is the genius going to do it? With "five pillars that will grow our economy and make this new century another American century". Let's now enumerate them:

1. New investments in education that will make our workforce more skilled and competitive;

2. New investments in renewable energy and technology that will create new jobs and industries

3. New investments in health care that will cut costs for families and businesses;

4. New savings in our federal budget that will bring down the debt for future generations.

5. More regulations for Wall Street that will reward drive and innovation;

Lies, ignorance, snake oil and outrageous hypocrisy, just the stuff that America's one-party media lap up when it comes from a democrat. Education does not make a workforce competitive. Once again: entrepreneurship drives an economy and savings fuel it. Paralyse these forces and no amount of education -- no matter how defined -- can save a society from abject poverty.

The idea that the more a country spends on education the more capital it will accumulate is utterly absurd. Now for some figures. The chart below came from page 15 of School Resources and shows that spending per pupil rose from $2,235 in 1960 to $7,591 in 2000. (It is now more than $10,000 per pupil). During the same period the pupil-teacher ratio fell from 25.8 to 16.

And what was the result of this massive increase? An appalling decline in educational standards. The only beneficiary of taxpayers' largess has been the teachers' unions who also happen to one of the Democrats' biggest donors. Taxpayers' dollars are fed to the unions and then redirected back to the Democrats. (I guess this is what Dems means by recycling). The truth be told, Obama no more cares about children then I do about cockroaches. Proof: He is closing down Washington DC's voucher school system that benefited black children by giving them a chance to escape slum schools run by incompetent teachers. And why did he do it? Because the teachers' union didn't like the competition. Needless to say, his own children are being well catered for. Yep, the man's a saint. Someone who really cares about the little people.

Obama's proposed "investments in renewable energy and technology" is a recipe for dissipating hundreds of billions of dollars in capital. These so-called investments are grossly inefficient. This is because they suffer from horrific diseconomies of scale. The more and more you expand them the more costs will rise. This problem is insurmountable because it is due entirely to the fact solar energy is highly dilute -- as well as irregular -- meaning it requires large collecting areas. There is absolutely no way round this fact. (A ten-year-old with a calculator could figure this out). Any attempt to implement this policy would amount to economic suicide.

What is not generally understood, even among economists, is that there exists a production structure which is built up of complex stages of production consisting of heterogeneous capital goods all of which are coordinated by the structure of relative prices. Obama's energy proposals would cause havoc in the structure and shorten it significantly. The result is what economists call capital consumption. Ordinary people call it falling living standards. So while this genius is planning to impose a suicidal energy policy on the country he is also shutting down oil exploration and banning new wells.

As for healthcare, if anyone believes for a moment that a state run hospital system administered by bureaucrats and lorded over by the likes of Barny Frank and his pals (remember Fanny Mae?) will provide a superior service to what is already available deserves everything he gets. To begin with, nothing is free. In this respect medical services are no different from hamburgers and plasma TVs. In the second place, universal healthcare is impossible. It implies that you can get all the healthcare you need when you need it. This assumes the absence of scarcity.

A final point on this question is that the those who would con you into accepting this system have no intention of using it themselves. You don't really imagine that any of those lefty Hollywood celebrities who are drooling all over Obama are going to queue up with hoi poloi to see the emergency room surgeon, do you? The same goes for Kennedy, Clinton, Obama, Frank, Pelosi and the rest of that gang of economic vandals.

Sure there are problems in medical care but handing it over to a bunch of politicians is not going to solve them.

Pillar number four really is funny. Here he promises to bring about "new savings in our federal budget that will bring down the debt for future generations". This is from the man who gave America a $1.8 trillion deficit, the biggest in its history and more than three times Bush's deficit. What's more, because of Obama America now faces massive deficits as far as the eye can see. If Obama continues with this reckless policy America's national debt will reach 100 percent of GDP by 2018. On top of that Americans are facing an increase in federal spending as a proportion of GDP of 25 per cent to 38 per cent.

This irresponsible spending and borrowing is driven solely by a mercantilist belief that the state should be as powerful as possible, meaning Democrats whose only raison d'etre is political power. And this joker has the gall to Americans that his banana-republic spending spree will "bring down the debt for future generations". The only reason why the vast majority of Americans are unaware of this economic illiterate's fiscal depredations is that the country's corrupt media are doing everything in their power to suppress debate. Hence their vicious assaults on the nation-wide tea parties. As we say down under: "That bloke is so crooked he cannot even lie straight in bed". But then again, I am of the opinion that Obama could -- with the greatest facility -- lie from any position.

If anyone doubts the view that Obama entertains the belief that all good things come from the state then his opinion that he can regulate Wall Street in to being innovative should disabuse them of the notion that Obama is both well-informed and well-educated. The state consists of nothing but a bunch of politicians whether or not they are gangsters or corrupt Democrats from Chicago. Innovation and invention is the product of the individual mind not a set of bureaucratic rules enforced by party appointees. Only someone completely ignorant of the history of technology could think otherwise. Rather than give a brief lesson in the subject allow me to refer the reader to several informative works:

A Short History of Technology: From the Earliest Times to A.D. 1900, T. K. Derry and Trevor I. Williams, Dover Publications, 1993

The Economic Laws of Scientific Research, Terence Kealey, Macmillan Press LTD, 1996

The Mediveval Machine: The Industrial Revolution of the Middle Ages, Jean Gimpel, Pimlico 1993.

The Sources of Invention, John Jewkes, David Sawers, Richard Stillerman, Macmillan & Co. LTD, 1958

Ordeal by Planning, John Jewkes, Macmillan & Co. LTD, 1948

A History of Mechanical Inventions, Abbott Payson Usher, Dover Publications, Inc. 1982

Technical Change: The United States and Britain in the 19th Century, S. B. Saul, Methuen & Co LTD, 1976

Science Technology and Economic Growth in the Eighteenth Century, A. E. Musson, Saul, Methuen & Co LTD, 1972

Forbes: Greatest Technology Stories, Jeffrey Young, John Wiley & Sons, Inc. 1998

Then there is Fernand Braudel's monumental three volume work:

The Structures of Everyday Life: Civilization and Capitalism, Volume 1.

The Wheels of Commerce: Civilization and Capitalism 15th-18th Century, Volume 2.

The Perspective of the World: and Capitalism 15th-18th Century, Volume 3.

(All three volumes published by Phoenix Press, 1988. Unfortunately, Braudel, a former Marxist, was not a very good economist. Nevertheless, these works are of considerable intellectual value.)

This is an enormous field and no one person can be expected to know it all. However, it is painfully clear that Obama and his staff are completely and criminally ignorant of this subject. (That those politically bigoted dunderheads in the media are equally ignorant is only to be expected). Only a fanatical socialist could study this literature and come to the conclusion that a bunch of politicians (gangsters in the case of North Korea, Cuba and Venezuela) and bureaucratic committees could possibly surpass the genius of the inventor and the gifts and insights of the entrepreneur.

Now while Obama was busy promising to regulate the business cycle out of existence his little mate Bernanke has been extremely busy trying to ignite another boom-bust cycle by implementing one of the most reckless monetary policies in US history. Is it any wonder that those of us with some training in economic history can only lament what is in store for the US under this arrogant ignoramus who is now its president.

Gerard Jackson
BrookesNews.Com

Gerard Jackson is Brookes economics editor.

Copyright © 2005-2009 Gerard Jackson

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