Obama's Spend, Tax and Borrow Policies Will Wreck the U.S. Economy 32 comments
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If Obama's oratory was matched with economic wisdom, leavened with a sound knowledge of economic history, America would have nothing to worry about. Unfortunately Obama is a profoundly ignorant man who shares the statist's contempt for economics, an attitude that will have fearful consequences for the US economy. His ideological mindset is exemplified by his supreme indifference to the state of the markets. The Dow had its worst February since 1933 and, as of this writing, stands at 7,062.93. And this happened after he had given the public another oratorical masterpiece, proving that though you can fool a large number of people for a long time you cannot fool the markets. They listened and then they sold him short.
So what did the markets evidently understand that millions of Americans don't? For starters, his spending package is a monstrous piece of legislation that will do grave damage to the US economy. Furthermore, it is not even a stimulatory program in any meaningful economic sense. It is loaded with pork designed to advance the interests of the Democrats and the country and future generations be damned.
Literary hundreds of thousands of condemnatory words have already been written about Obama's economic incubus. Nevertheless, many more are necessary if Americans are to be made aware of its destructiveness. Obama lied when he said that millions of American will not suffer from the costs of increased taxes because these will be levied on the "rich", those earning $250,000 or more. In fact, there are two lies here. His super rich friends like Buffett and Soros will be able to avoid his taxes. What this means is that his taxes on the so-called rich are really taxes on getting rich. They are taxes on investment and entrepreneurship. Ultimately they are taxes on capital accumulation, the process that raises living standards.
I am forever trying to remind people that it is not governments - and certainly not the likes of Obama and Axelrod - but entrepreneurs that drive growth and it is savings that fuel it. The link between the two is indissoluble, though largely overlooked. Now Obama intends to strangle both through the use of higher taxes, more regulations and vastly increased government spending. This means that those who do not pay federal taxes at the moment will nevertheless pay heavily for his feckless policy of spend, regulate, tax and borrow.
By doubling the tax on capital gains he will be confiscating billions of dollars that were destined for investment. Most people simply do not understand the role that capital gains play in fuelling investment, even though it is investment that increases real wages by raising the ratio of capital to labour which in turn intensifies the demand for labour. (Republicans need to get this fact across to the public). The lower the real demand for labour, the lower real wages will be. But in Obama's left wing universe this is called "fair", even though it does not include his rich pals.
By attacking savings, he reduces the opportunity for entrepreneurship. As venture capital shrinks - thanks to capital gains taxes - so will the number of profitable investments that can be undertaken, regardless of the number of willing entrepreneurs. (This is something that Reagan fully understood).
His cap and trade policy is not just an additional tax on production but a savage attack on capital accumulation. By diverting hundreds of billions of dollars into solar and wind power he will be dissipating capital while simultaneously destroying masses of fixed capital, particularly among energy intensive industries and coal-fuelled power stations. (I am assuming that he is serious about implementing this program.)
His regulatory policy will price coal-fuelled power stations out of business. That's a mass of capital gone for a start. The so-called green alternatives that he intends to subsidise have insurmountable technical and economic inefficiencies that result in massive diseconomies of scale. What this means is that these wind and solar farms suffer from increasing average costs, meaning that the more you produce the greater the unit costs of production will be. The opposite holds for centralised power stations.
Even well informed critics of Obama's crushing energy policy have not grasped the severe damage it would do to the country's production structure. The idea that this could be overcome with subsidies is laughable. Imagine what would happen to aggregate demand once his politically imposed energy costs had devastated production. It would make for a good disaster movie.
Debt must be paid. That's why it's called debt. Governments borrow in order to spend. But when they spend they divert goods from other uses. It follows that the more governments spend the more of a country's resources they divert. This means that companies find themselves having to bid more and more for resources as government spending increases. This would still be the case even if this spending ended up as welfare payments and thereby raised the demand for consumer goods.
As I have already said, capital accumulation is what raises living standards. Only by producing more can we consumer more. But we can only invest by reducing the rate of consumption. In short, to invest means to give up present consumption in favour of greater future consumption. This is precisely what our venture capitalist does when he lends money to an entrepreneur instead of blowing it on another mansion and a score of vintage cars.
As for the debt, it is paid through taxation. Hence a double whammy from Obama's reckless spending binge: higher taxes now and - if Americans are lucky - future living standards that will be lower than they would otherwise have been. If they are unlucky - and this did happen in Argentina - living standards will drop.
The only ones who will be able to defend themselves from Obama's economic depredations will be his super rich friends, most of whom appear to loath America - why else would they support policies that seem guaranteed to bring the country to its knees?
Obama's defenders are utterly adrift for a sensible defence of his assault on the economy. The best they can come up with is the financial crisis. Well as the thuggish Rahm Emmanuel carelessly said:
You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before.
Obama and the rest of the power-hungry Democrats and their filthy rich supporters are using the crisis - and there really is a crisis - to try and impose on America irreversible economic policies, the same sort of policies that wrecked the UK economy and ignited riots throughout Europe. Nevertheless, knee-jerk Keynesians and mindless Democrats parrot the line that without this massive spending the economy would sink into a depression.
Point out that these policies have never worked at any time or place, and they will reply that they weren't really tried. For instance, William Cheney, chief economist at Boston's John Hancock Financial, said that Roosevelt's initial policies boosted the economy and that it only regressed after he cut spending. Absolute nonsense. It was Hoover and Roosevelt's policies that kept the US in depression. As for the downturn, he would be referring to the 1937-38 crash that sent unemployment rocketing from 14.3 per cent to 19 per cent.
From the following table we can see that from 1936 to 1937 government spending fell by 2.3 per cent while the index for real manufacturing wages jumped by 10.6 per cent. With factory employment index set at 1936IV=100, Vedder and Galaway found that in the first quarter of 1937 the index stood at 103.6 and hourly money wages at 103. By the second quarter of 1937 the unions had driven the money wage index up to 114.5, an increase of 11.7 per cent, causing the employment index to plunge to 84.9, an 18.1 per cent contraction. (Ibid. 136). No matter which way one looks at the data the link between inverse movements in the unemployment rate and the real wage are inescapable.
| Year | consumption | Jobless | purchases | |||
| 1934 | 66.0 | |||||
| 1935 | 73.3 | |||||
| 1936 | 83.8 | |||||
| 1937 | 91.9 | |||||
| 1938 | 86.1 | |||||
| 1939 | 92.2 |
*These figures were taken from New Deal Policies and the Persistence ofthe Great Depression: A GeneralEquilibrium Analysis by Harold L. Cole and Lee E. Ohanian. Richard K. Vedder and Lowell E. Gallaway used productivity-adjusted wage rates to demonstrated the link between unemployment and wage rates that exceeded productivity, Out of Work, New York University Press, 1997. This book tackles movements in real wages from 1900 to 1989.
One should also note the fact that personal consumption never fell below 72.7 per cent of GDP. So if consumption drives the economy why didn't these consumption rates lift the economy out of the depression? I'll give you a clue. It's business spending that keeps the economy moving, not consumer spending, 'too much' of which can lower living standards!
Obama's massive spending binge is built on a myth - one that could have the severest consequences for American living standards.
A number of people have commented on the hypocrisy of Obama and his rich supporters, whose attitude is one of "do as I say and not as I do". Critics do not realise that this is characteristic of leftists. They always exempt themselves from their own strictures. I call this behaviour the Mikoyan syndrome.
Anastas Mikoyan was a communist agitator in oil refineries at Baku Batoum that were owned by an industrialist called Zubalov, Mikoyan led strikes, protests and organised study groups. One can think of him as the pre-Soviet equivalent of a "community organiser". However, once the Soviets grabbed control of the state he took Zubalov's mansion for his own, including the servants, cracked down on strikes, shot protestors, banned study groups that questioned the party's authority and sent their organisers to labour camps. He was justified in doing this because - like today's Democrats - he believed that anyone who challenged the Party was evil or stupid. I regret to say that Mikoyan survived Stalin's purges and died of old age, unlike thousands of his victims.
At the end of the day, Obama is nothing but a highly polished Hugo Chavez with the same corrupt instincts. To him the crisis is an opportunity to plunder Americans and then — with the willing assistance of America's corrupt media — use the loot to effectively turn the US into a one-party state.
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Are you seriously attempting to peddle the notion that today's economic climate wasn't forged over the last 20 years, with the total and complete 'Finacialization' of our economy?
What nonsense to suggest that at this late date an already wrecked economy didn't exist prior to January, 2009!
Partisan rants may be good for YOUR spleen, but they add NOTHING to the constructive bi-partisan debate that is crucially important for the future of this nation!
Shame on you!
hope you are able to spread the word to others so that they can
act intelligently the next time they go to a voting booth.
On Mar 02 08:48 AM Jim Hawthorne wrote:
> Political pap.
> Are you seriously attempting to peddle the notion that today's economic
> climate wasn't forged over the last 20 years, with the total and
> complete 'Finacialization' of our economy?
> What nonsense to suggest that at this late date an already wrecked
> economy didn't exist prior to January, 2009!
> Partisan rants may be good for YOUR spleen, but they add NOTHING
> to the constructive bi-partisan debate that is crucially important
> for the future of this nation!
> Shame on you!
On Mar 02 08:48 AM Jim Hawthorne wrote:
> Political pap.
> Are you seriously attempting to peddle the notion that today's economic
> climate wasn't forged over the last 20 years, with the total and
> complete 'Finacialization' of our economy?
> What nonsense to suggest that at this late date an already wrecked
> economy didn't exist prior to January, 2009!
> Partisan rants may be good for YOUR spleen, but they add NOTHING
> to the constructive bi-partisan debate that is crucially important
> for the future of this nation!
> Shame on you!
If Obama isn't stopped by a bi-partisan coalition of centrist Democrats and Republicans, the S&P will go down at least to 600 and maybe to 400.
I'm not hopeful about such a coalition.
Where were they when Reagan did the exact same thing?
It's like they're part-time fiscal conservatives. When Republicans are in office, it's OK to inflate the debt and spend like drunken sailors, but then when Democrats win, they get to writing about how taxes are going up and socialism must be right around the corner. Meanwhile, the myth that Republicans are for small government is repeated again and again, and people still manage to fall for it. I'll pass on the Kool Aid, thanks.
1. First, shall we agree that government need to do something: when faced with choice of spending or saving, it is quite easy to choose the latter;
2. With large spending and larger deficit, he has to find money from somewhere. If he were king of England, he could confer knightship to the 10 wealthiest people and ask for "donation " in exchange of future power sharing (maybe those people are already powerful enough? We never know how the government contract goes)
If he was a dictator, which is even simpler,well, the history is full of such bloody "wealth" transference
3. I quite agree the tax incentive to the productivity of the whole nation. There should be reward for taking risk moral or not; even I agree he should find money somewhere, his tax issue won''t help encourage business.
4. I wish 20 years later,we shall laugh at our stupidity of today: in such a country one farmer can grow enough food for 40 people, average person has more than 20 clothes and they are still buy more. The supply chain far exceeds the demand so comes the differentiation of the products--and people are quite willing to pay for the higher price, be it laptop; computer;house; or surgery. And now people find they may not need them any more for survival.
5. FDR is often praised as the leader who guide US to its dominance; oh yes; but at a huge price--the whole Europe had been wiped out.
Should we first resort to mass destruction this time and then declare fast growth?
If S&P has down to 500, then to grow at 10% per year will be quite easy.
6. Stop "market to market" maybe a good idea 9 months ago, but now with so much foreclosure ( those with more than 2 houses are quite eager to sell at least one, whether they can afford it or not) you should put a price label there.MMM, how I miss those old days; do you think we can still have $7 for 100 acres ?
7. I am in favor of "green alternatives''. Of course wind, solar, or energy from waste are more costly then oil and electricity; they said something similar when light bulb comes out first. At the moment, we can't talk about scale of economy since it is still early stage.
8. I have to say this disaster is truly self-inflicted. We have no natural disaster; there is no war threat thanks for the invention of H-bomb;no plague,with plenty of cheap oil and other natural resources; yet we still live like hell.
This is really wonderful.
Financial markets are only now beginning to understand that the current risk of financial collapse is far less important than is the prospect of having a low growth economy designed by the intellectual heirs of Saul Alinsky and lower returns on investments forever.
Half the people at the Inauguration in DC were there for a handout...not history.
Now I see Obama's suppoerters make statements like, "you never complained when the GOP under GWB were ringing up high deficits." I thought Obama was going to bring change? i thought a vote for McCain would be Bush's third term?
This is going to get real bad, folks. The first people to turn against this president will be the handout crowd when they discover their gas will not be paid for
By the time, this communist lunatic is through, the American econonmy would have been damaged beyond repair. Obama is simply nuts.
Dick Morris says Obama has launched "The war on prosperity", and he's correct. Your point is to begin political resistance to Obamanomics if we're to see recovery from the current "malaise" in our lifetimes. Let me list some of the more destructive features of Obamanomics:
1. Bad mouthing the economy and demonizing the "rich" may satisfy the populists, but it's discouraging the private investments that alone can revive a productive economy. Government employment may put bread on a few tables, but it is never "productive".
2. Raising taxes on investors and investments will also discourage new productive contributions. For this reason, raising taxes on the "rich" will most likely reduce government revenues and increase deficits.
3. The "stimulus" act is a fraud. At an average cost of $225,000 for each of 3.5 million jobs "saved or created", we'd do better to just pass out the cash - at least then the recipients would nearly qualify as "rich" and would be taxed accordingly. Little of the $787 billion goes to "our crumbling infrastructure"; rather the bulk of the money goes to public schools (where less than 50% of the workforce actually teach) and to bail out fiscally imprudent state governments.
4. Increasing the government's fiscal deficit to the levels proposed by Obama is the height of irresponsibility. As with the excess of private debt that led to the current crisis, it can only lead to debt repudiation or hyper inflation. The interest on the debt will soon exceed 25% of the federal budget, much of this going to China and the oil sheiks who hold an excess of dollars. If they don't buy at current interest rates, those rates will increase. And as the value of the bonds and the dollar decrease, our necessary imports (like oil) will be more expensive.
5. Obama's energy policy is another fraud, with subsidies for windmills and "clean coal" as "alternate energy". Some 80% of our oil consumption is for transportation, and I have yet to hear of a windmill-powered car or airplane. Practical initiatives to increase domestic production of liquid fuels are totally lacking from the policy. The imposition of "cap and trade" fees on carbon burners will significantly increase costs to both industry and consumers, all to mollify a band of irrational global warming zealots.
6. I look with dread for the outcome of a new "health care" policy. Whatever arrives will doubtless increase costs and incur rationing - a bureaucrat reaching decisions on whether you or I get to live or die. Demonizing the pharmaceutical companies can only result in decreasing incentives to develop new drugs - where the US industry has been responsible for the lion's share of discoveries to the benefit of our lives. I can only hope there will be a successful constitutional challenge to federal usurpation of this area of the economy.
I could go on, but you get the point. I see a long period of stagflation, but worse than the 1970s, if Obamanomics is not stopped. I'll be making my investment decisions and political contributions accordingly.
all the sheeple bleat obahahamahahah.
who is john galt?