Monday, June 6, 2011

Bullets or Wizards?

Several years ago political correctness came to the NBAs Washington Bullets who became the Washington Wizards. That transition is even more appropriate today when I see headlines like "To keep his job, Obama needs more jobs" coupled with "Has the Fed run out of bullets?" If Obama could transform bullets into wizards, he might get re-elected. Actually it is a sad commentary - and probably an incorrect one - to say that despite a record of consistent failure and incompetence, Obama is re-electable. A president that has given us unprecedented government spending, additional regulatory burdens, socialized healthcare, burdensome and often stupid legislative initiatives (Dodd-Frank, Obamacare, cap and trade), hundreds of czars and czarinas finds his re-election hinging only current unemployment rates? Give me a break. However, he can get re-elected and fairly easily. Most observers admit that Obama seems likable - if you like aloof snobs with a great smile. Here's how he can be re-elected. First he admits that his administration is staffed with Keynesians who believe - despite the evidence - that government can get the economy out of a recession. So all his policies were driven by that belief. However, the competing school of macroeconomic thought believes the opposite: government spending drives out private investment and reduces employment; increased regulation adds cost to employing people and also reduces employment; the legislative initiative of Obamacare also increased the cost of employment and reduces employment; the threat of cap and trade and Dodd-Frank have increased uncertainty and reduced employment; the Federal Reserve has monetized the national debt by directly buying Treasuries to support the increase government spending with the results of driving interest rates to zero, pushing capital offshore, devaluing the dollar and weakening the dollar as a reserve currency. So Obama should say "Keynesianism has failed. It is obvious that none of this has worked to get America working. As a matter of fact it has done the opposite. So it is now time to try something different. It may just be a theory because it has really never been tried in this country. Although politicians on the right have paid lip service to it, they never implement it because it reduces their power. What is it? Its the free market." Obama should say, "From this point forward, I will suspend Obamacare, cap and trade, and put a moratorium on Dodd-Frank. I will sign the free trade agreements with Chile, Columbia and Korea. I will move to reduce government spending back to 19 percent of GDP. I will reduce Federal employment across the board at each agency by three percent per annum for the rest of my term. I will introduce legislation to make it illegal for the Fed to monetize the national debt except in the case of a national emergency. I will adopt all the provisions of the bipartisan Bowles-Simpson committee on social security reform, medicare/medicaid, discretionary spending and income tax reform. I will eliminate for the rest of my term as president the capital gains tax and the corporate income tax. And lastly, we as a grateful national will eliminate the Federal income tax for all active duty military personnel." I guarantee you that if Obama said these things and implemented them, regardless of the outcome he would be re-elected in a landslide.


Anonymous said...

Dr. Black, where can I read evidence explaining why government spending does not propel an economy out of a recession?

H.A. Black said...

The basic concept is called "crowding out". Here is a link to get you started