Obama and the economy

The more financial guarantees a person gives you, the lower the opportunity for independence that will be offered.

Presidents are the fortunate (or unfortunate) benefactors of timing. Economies have a business cycle somewhat independent of who’s in the White House or how long they’ve been there. Economists work to smooth out the volatility of the business cycle, but clearly managing an economy is more of an art than a science. Obama may be the fortunate benefactor of this business cycle. We're headed up. It just so happens that an incredibly unpopular Congress may have the opportunity to work with a controversial White House to appear the hero for bringing our nation back to prosperity. The truth is, every transaction leads us make bring us closer to a balanced economy, in large part, regardless of which party is in power. Barack Obama just doesn't have anything to add.

Our economy can be fixed by a combination of four simultaneous movements. First, government will need to spend money on goods and services that are necessary and will address real needs (not just spending for the sake of spending). Second, those with a propensity to save and invest need to not be punished and discouraged from to saving and investing. Third, those with real welfare needs should be assisted, not just by more government handouts but by balancing government handouts with incentives and opportunities to get off welfare. Finally, we need to reduce our national debt. Deficit spending has it's place, but borrowing our way to prosperity is the same as trying to lift ourselves up by our boot straps. Eventually we’ll lose our balance and fall on our face.

(There is a fifth option, and that's to enforce our tax laws, removing incentives for employers to hire illegal aliens, but that's a topic for another post.)

Unless we raise taxes (contradicting the second point) or cut benefits (contradicting the first and third points) we must raise our level of production. Naturally, we do that by figuring out what we’re better at than the rest of the world and selling it to them or identifying what import we can compete with and replace it with a US product. Either way, we need to make more than we spend. Sound easy? Of course not!

Obama’s answer is to raise taxes and raise welfare. Certain segments of the population will have a few more dollars to spend, but those will be at the expense of others. The number one way rich people got rich was by keeping more of what they earned than Uncle Sam could take. Accountants and bankers make tons of money protecting the wealth of the affluent. Why do I bring this up? Because I don’t know a lot of people who work for broke people. In fact, most of the people I know work for rich people. Don’t we want them spending and investing their money. Punishing them for being better at capitalism will only hurt us. We'll see an increase in black markets and tax shelters decrease in taxes.

For all the schooling that Obama has done, he seems to have missed these fundamental economic theories. Since I like to form my own opinion rather than trusting strangers, I went to the Obama/Bidden “Blueprint for America” on the economy.

$1000 energy rebate for “windfall profits on excessive oil company profits.” The obvious question should be, since when do we tell people/companies in this country they make too much money. Better question, who’s to say what too much is? I’m not talking about price gouging. I’m talking about a someone being punished for making too much money. How does that work? When we talk about energy, our minds go to gas prices, but when you buy a gallon of gas, do you know who gets paid? In ascending order, you’re paying for the crude oil (which is set by the global market), Federal, state, and city fuel taxes, and refining capacity (which is a constraint caused by lobbyists for environmentalists). That’s not to say that the oil company doesn’t make profit. ExxonMobil made a profit margin of 7.6% in 2007, just slightly above the profit margin of 5.8% for all U.S. manufacturing. Wow! Look out for the wind.

“Making Work Pay” to provide tax relief for 95% of American workers. This puts a greater burden on the other five-percent of American workers, the five-percent that pay the most. For some perspective, the top 10% of tax payers pay 70% of the bill, the bottom 40% don’t pay Federal income taxes, and the bottom 50% only pay 10% of the tax bill. Under this plan, the US Treasury starts cutting checks to all those who pay little or nothing in taxes and collect more and more from the few people who do pay the bill.

Create the American Opportunity Tax Credit: an additional $4000 annual credit for college education. Marylhurst University, a private university just outside of Portland, charges $349 per credit hour. Portland State University charges $109 per credit hour. Why does Marylhurst charge three times as much as PSU? Is it because it’s just that much better? Are the instructors that much better? Are the programs unique? Are the facilities more expensive? What makes the cost of one credit hour at MU three times as much as PSU? PSU (and the rest of our education system) is already heavily subsidized by the tax payers. Obama’s additional tax credit would cover the cost of another 36 credit hours per year at PSU. That’s great for me but why should the rest of the country pay more for my education? It's great for the individual receipinat but not so great for the people who would other wise use that money to stimulate the economy.

He wants to create a universal mortgage credit so home buyers can deduct the interest from their home loan in addition to taking the standard deduction and adjust bankruptcy laws to allow home buyers to forceably renegotiate the terms of their mortgage which will cause serious problems in the secondary market. He thinks he can prevent future mortgage crises through investigating mortgage fraud and creating another form the borrower’s have to sign and pretend to care about. The Truth-in-Lending Disclosure already does what his HOME score proposes. Creating a Federal crime for mortgage fraud is a nice idea but its already a crime at the state level and most associated crimes are already illegal that the state and Federal level. Again, more nothing.

The list goes on and on, and basically the Obama/Bidden plan is just rhetoric. It's pages of programs that showcse his lack of innovative and disregard for our budgets. I’m not saying that they’re nice ideas. I like the idea of you paying for my college, incentives for green jobs, strengthening infrastructure, and fair trade, but at the end of the day, this will be a repeat of the 2006 Democratic revolution in the Congress where we were promised the world and they only managed to raise the Federal minimum wage from $5.15/hour.

Regardless of who inherits our economic woes, they’ll be looking at a 2009 budget deficit in excess of $500 billion! They’ll be forced to renege on campaign promises. So, even though I certainly would enjoy having college paid for, the interest on my mortgage paid for, and all the other wonderful giveaways Obama’s trying to buy our votes with, it’s not government's job to cater to my every whim. We already receive hundreds of billions of dollars in welfare and it’s bought us a $10 Trillion debt and $45 Trillion unfunded liabilities. We have to prioritze our spending more carefully. Trickle-down economics works. The problem is that 95% of people don't know how to manage money so will always end up with more month at the end of the money no matter how much free stuff they get.

You have to ask yourself, if you don't stand up when government wants to take away what others have earned, who's going to stand up for you when they come knocking on your door?