Obama’s Terrible Stimulus

During the recent presidential election, I found myself unfortunately defending Barack Obama from charges that were absurdely false (ex. Obama’s a foreigner, Obama’s a Muslim, Obama’s a terrorist) than demonstrating how absolutely terrible an Obama presidency would be for country and for individual liberty. Fortunately, Obama is demonstrating through his policy proposals how dangerous he is. The first example of his dangerous presidency is his so-called “stimulus” plan.

Obama calls his economic “recovery” plan the “American Recovery and Reinvestment Plan”. His plan calls for a series of new spending programs on everything from roads (to nowhere) to “green collar jobs” to another series of tax rebate checks.

Why is Obama’s plan terrible?

Obama’s plan is terrible for many reasons. The first obvious reason is that the country really cannot afford any new spending after blowing at least $8.4 trillion (in an overall economy of $13.8 trillion and shrinking) in bailouts for Bush and Paulson’s friends in the financial sector. The second reason is that very little of this new spending is actually permitted in the U.S. Constitution. The Federal government cannot “invest” in “green collar jobs” or any other type of jobs for that matter. The Federal government has no Constitutional role in education spending (which is another part of Obama’s “plan”). Thirdly, the areas where you can argue a legitimate duty of the Federal government, highway construction, is prone to abuse and wasteful spending through the earmarking process (which is the currency for corruption).

What about Obama’s tax cuts?

The tax cuts are probably the worst aspect of the plan. The left, including Barack Obama, were absolutely right to oppose the Bush tax cuts in 2001 and again in 2003. The Bush tax cuts were short sighted and were flawed economic thinking. Most importantly, the Bush tax cuts were paid for by borrowing instead of cutting spending. Which leads me to Obama’s tax cut plan which allows businesses to write off up to $250,000 in losses in 2009 and will give another rebate check of $500 for singles and $1000 for families. Obama suffice to say is not proposing any spending cuts (which are desperately needed if we are going to avoid a Weimar Germany-style financial collapse through hyperinflation) to pay for these reckless and irresponsible tax cuts.

Tax cuts are not good for individual liberty unless government spending is reduced along with it. Instead what usually happens is the LBJ-Bush-Obama economic theory which is we can cut taxes (temporarily) to appease the mob while we can borrow our way out of any financial shortfall the government finds itself in. When taxes have to be raised to pay for borrowing, the tax increases are higher than the money actually returned in the tax cut.

Overall the Obama “stimulus” plan is result of over 70 years of terrible economic thinking in the US which brought us “New Deal” type of mild socialism on the left and “supply-side” borrow and spend on the right.

The only viable economic alternative is the free market where role of government is limited to protecting the borders from invasion; enforcing laws protecting life, liberty, and property from force and fraud; and generally not much else. This is the only alternative to what’s facing us (lost liberty, hyperinflation, and the road to tyranny).

I’m one of the original co-founders of The Liberty Papers all the way back in 2005. Since then, I wound up doing this blogging thing professionally. Now I’m running the site now. You can find my other work at The Hayride.com and Rare. You can also find me over at the R Street Institute.
  • wut?

    Leaving things up to the free market economy is the same thing as saying “f*** this, i’m done, maybe the problem will fix itself”. Thats not a plan. You could elect a stop sign as president and it could do that.

  • http://doublethinkblog.blogspot.com Jono

    wut don’t be such a pessimistic fool.

    I’d rather have a stop sign as president than Obama or Bush. Even better would be a president who understands the limits and bounds placed on his power by the constitution.

    Government interventions into our everyday lives easily do more harm than good. And much is achieved through the free market. You organise your life, your property and your work through your own efforts, not because the government tells you what to do.

    It is the same forces that would end this recession shortly and sharply and allow labor and capital to move to more productive enterprises rather than being tied down in huge bail-out packages to banks and auto-makers, and massive government debt to be repaid by future generations.

    If you want a Greater Depression, which lasts for decades, than vote for more government interventions.

  • http://doublethinkblog.blogspot.com Jono

    Actually wut, I’m not finished criticizing your comment.

    You are trying to marginalize supporters of the free market and capitalism as being an extreme view that suggests:

    *Any attitude that opposes government intervention doesn’t want to try to fix a problem*.

    Actually its rather the opposite.

    Let me marginalize the socialist attitude with a more correct phrasing.

    *The only way to solve a particular problem is to empower government to deal with it through force and coercion and to avoid the voluntary interactions and exchanges that would be made by free individuals and enterprises*

  • Akston

    Maybe an important question to ask folks following the media trend of blaming “free markets” for the current recession/depression is to ask where they think the productivity of the country comes from. How does America produce? What is the government’s role? What should it be? Is this written down anywhere? Does it have any limits?

  • Paul

    My $500 is going right back to my investment portfolio. Such a pittance; I hope that, collectively, my money can be put to good use.

    Gloom and doom everywhere, can we have some bread and circus? I’m getting bored with TV.

  • wut?

    The free market is run by companies. There are two ways in which money may flow in a company, in or out. Money flows in from consumers and out through the workers. Obviously a company wants to cut down money spending as much as possible while promoting sales.
    But guess what, the workers and the consumers are actually the same people *gasp*. If there is no regulation the free market, what the companies begin to do is lower wages while increasing prices. This continues until the workers can no longer afford the products on the market.
    But oh no, what happens to the poor companies? Well, as they lose money, their stocks fall.

  • wut?

    So workers are laid off, consumers can no longer afford products, surplus products on the market means that companies lose money, stocks plummet, companies fail, unemployment skyrockets.

    This is called a depression, and this is what happens when there are no reasonable regulations on how companies in the free market can do business.

  • http://pith-n-vinegar.blogspot.com/ Quincy

    But guess what, the workers and the consumers are actually the same people *gasp*. If there is no regulation the free market, what the companies begin to do is lower wages while increasing prices. This continues until the workers can no longer afford the products on the market.

    Nice crackpot theory. When has it ever actually happened that way?

  • http://www.thelibertypapers.org/author/tarran/ tarran

    Quincy, wut has given us Henry Ford’s theory of wages in one easy lesson! ;)

    wut, your explanation of how a free market economy works is about as correct as Aristotelean physics.

    First, you have entrepreneurs who try to predict what people wish to consume in the future and spend money now to meet those future needs. They purchase stuff that other people have made, and also purchase labor services from workers to transform the things they have purchased into these goods. Some entrepeneurs take as inputs to their processes not the products produced by other entrepeneurs but natural resources such as oil, or ore as inputs.

    Entrepeneurs compete with each other for labor. If a guy will earn $10.00 more per hour by hiring an additional dishwasher, he will be willing to pay up to $10.00 – some desired profit margin in wages to a dishwasher. If all the available dishwashers are being paid $5.00 per hour, he will offer one of them more money in an attempt to get a dishwasher that was working for someone else.

    Thus, the upper limit on wages is the marginal product of the worker.

    The lower limit is how little workers are willing to work for. Of course, when workers see other workers earning more, they tend to try to earn the same amount by switching companies/trades. As a result, in a free market, the cost of labor tends to move toward the upper limit, the marginal revenue product.

    This trend is exacerbated by the development of capital goods. A diswhasher who heretofore only had access to a bucket or rag can wash fewer dishes than one with access to running water. That guy in turn can be outdone by a guy with access to a spray nozzle on the end of a flexible hose. Put in an automatic industrial dishwasher, and that one guy can easily wash 100 X the dishes that he could with only a bucket and a rag.

    Increases in productivity tend to lead to increases in marginal revenue product since the market clearing price of the additional production is not sufficiently lowered to offset the income generated by selling more units. Thus, as new devices get invented, workers tend to get paid more because they become more valuable.

    The notion that workers can’t afford what is being produced is kind of laughable. That is because once a good is produced, the price will not be set by the cost of production, which is a sunk cost, but by the market clearing price, which is the price at which all the units are sold, which is the scenario where the seller maximizes his income from unloading his stock.
    See Brad’s wonderful post on the subject.

    Nah, free markets are actually pretty stable. I hold to the view that these boom bust cycles are the product of fractional reserve banking, and exacerbated by Central Banks’ attempts to prevent little busts (which lead to malinvestments growing – eventually creating big busts).

  • http://pith-n-vinegar.blogspot.com/ Quincy

    tarran –

    And Henry Ford was a bit of a crackpot. Hence crackpot theory. ;-)