As is typical of politicians generally, and Obama particularly, the response to continued U.S. economic anemia is yet another speech. On Thursday, President Obama, channeling the spirits of two long-deceased progressive presidents, combined Teddy Roosevelt’s bully pulpit with Woodrow Wilson’s penchant for omnipotent and omnipresent government to call for — wait for it — more “stimulus.”
In a characteristic bout of presumption, Obama declared that “there should be nothing controversial about this piece of legislation,” as if no one might object to yet another half-trillion dollars of taxpayer — or future taxpayer — money being thrown the way of politically connected players and workers in jobs the economy cannot sustain.
The source of his claim appears to be that big business and big labor have both expressed support for the spending in the bill. But both are in bed with big government, and none among this triumvirate is, or has ever, supported the unfettered operation of markets. Each of the three seeks to manipulate the market for its own ends. Just as “pro-business” does not mean “good for the economy,” “pro-labor” does not mean “good for workers” and “pro-government” certainly does not mean “good for the individual” — or for the individual’s freedom.
According to the president, the main components of the bill are a tax break for hiring new workers, a cut in payroll taxes and (after an obligatory jab at the Chinese) federal funding for a series of construction projects.
After singling out a Midwestern bridge, a Texan public transit system and “schools throughout the country” for repair and refurbishment, Obama continued with a pledge to have “no more earmarks.” Perhaps the irony was lost on his speechwriters, but one really must wonder what the administration thinks earmarks are, if not projects like these.
Next, one should wonder about the consequences of tampering with the market in such drastic ways. If it became law, the proposal to give tax credits to businesses for hiring veterans or the long-term unemployed would ensure that whenever a company had a choice between workers, it would consider how to capture the tax credit along with whether the prospective employee is the best candidate for the job. The proposal would add friction to the market and induce businesses to undertake contracts that may not be good for them, or the economy at large, in the long run. And this is only if it works: One important conclusion of economic theory is that temporary shocks such as this promote myopic and strategic behaviors, rather than the farsighted and cooperative behaviors needed for economic growth, because of how the policy restructures incentives.
In a similar vein, the proposal to “help” construction crews by artificially creating demand for their work would cause more harm than good. Resources that would have been used efficiently by individuals would instead be siphoned off to support a cadre of builders for whom no real, market-based demand exists. The transfer would not only prevent wealth from being created by those individuals; it would also further inflate the construction bubble. Common sense says that the response to a bubble bursting is not to desperately fill it with air but to allow it to deflate.
The proposal to cut payroll taxes might actually be a good idea if it did not accelerate the collapse of Social Security and thereby hasten the day when our multitrillion-dollar unfunded liabilities will come due.
How does Obama intend to pay for this grab bag of macroeconomic malfeasance? The short form: require Medicare and Medicaid to lower their reimbursement rates (already below-market); raise taxes on the big, nasty corporations (already the highest in the world); and punt the rest of the decision to Congress, which Obama can then blame when the necessary cuts either don’t materialize or are not to Obama’s liking.
If Mr. Obama truly wishes to see unemployment figures decline, and thus his chances at re-election improve, he would be well advised to simply get out of the way: flatten the tax code, rein in the federal bureaucracy, end subsidies to politically connected organizations ranging from farmers to Goldman Sachs, remove artificial legal barriers to employing low-skilled workers and convicts, and reform, repeal, or delegate to states the myriad entitlement programs the federal government now manages. But above all, he, and the Congress, should withdraw from their delusion that they can plan the economy better than the hundreds of millions of Americans who live in it.
Andrew Glidden is a writer living in Berkeley, California.