President Obama accuses Republicans of clinging to the failed policies of the past. But the Obama administration has revived the practice of picking winners and losers in the marketplace. That policy didn’t work in the 1930s and isn’t working today.
Policy wonks believe that businesses are congenitally short-sighted — that businesses must be prodded to invest in infrastructure and tomorrow’s technologies. But it’s not true. The mobile phone industry continues to spend tens of billions of dollars acquiring spectrum rights, building nationwide networks, and developing next-generation technologies. Businesses wisely make long-term investments when there are good prospects of success.
The Obama administration clings to ideas that even FDR’s treasury secretary, Henry Morgenthau, said didn’t work. Every available means is being used to undermine natural market forces: loans are being made that will never be repaid, regulations and taxes are being enacted to punish select industries, corporate bondholders are being expropriated, waivers are being granted to individual companies, and private businesses are being squeezed out of markets.
No wonder the U.S. is experiencing the worst economic recovery since the 1930s. Who wants to invest in businesses when the federal government is running around trying to make winners out of losers and losers out of winners?
Let’s look at the energy sector. The Obama administration loaned Solyndra $527 million and Abound Solar Manufacturing $400 million. Solyndra filed for bankruptcy less than two years later. Abound laid off nearly half of its workforce.
Solar and wind power are called “renewable” but they would more accurately be called “intermittent.” Germany bragged that its solar power infrastructure produced half of the country’s electricity for a few hours per day over a recent weekend. However, that same infrastructure supplies less than 5% of Germany’s annual electric power consumption. Unless governments find a way to eliminate nighttime and clouds, solar energy will never be anything more than a part-time producer.
Meanwhile, President Obama threatens to bankrupt anyone who dares to build a coal power plant. But coal is one of the most abundant sources of energy and coal power costs about one-third of what wind power costs.
Now let’s look at the auto industry. General Motors’ sales had been declining for years because the company was no longer competitive. The Obama administration decided that GM was too big to fail. The bailout preserved the United Auto Workers’ benefits at the expense of GM’s bondholders and U.S. taxpayers. True, GM rebounded after receiving $50 billion from the government and while Japanese competitors recovered from a devastating tsunami. However, the bailout did nothing to improve GM’s long-term competitiveness. Some industry watchers say that GM is headed towards another bankruptcy.
Other industries are being punished for their success. Obamacare imposes a 2.3% excise tax on the revenue of companies that make pacemakers and other medical devices. Cook Medical, the largest private maker of medical devices, says that it is limiting expansion as a result.
Meanwhile, more than 1,200 companies received waivers exempting them from parts of Obamacare before the administration announced that it would no longer accept waiver requests. The Obama administration likes to talk about fairness, but it has a record of disbursing special favors.
If you don’t believe that, then consider the student loan business. Outstanding student loans total approximately $1 trillion. President Obama has expressed support for partially forgiving student loans. The Student Loan Forgiveness Act would forgive up to $45,000 of debt for those who make 120 payments. Forgiving student loans can only undermine the private lending industry and drive up the cost of higher education.
When the government substitutes a political agenda for market forces, it invites corruption. The Federal Communications Commission is pushing a dubious National Broadband Plan. In response, LightSquared requested a waiver of FCC rules so that it could build a terrestrial broadband network using spectrum originally assigned to its satellite network. The FCC was willing to issue the waiver even though it was unfair to the companies that had spent billions of dollars acquiring spectrum rights in auctions. The FCC backed off only when it was determined that LightSquared’s terrestrial network would interfere with millions of GPS receivers.
The Obama administration is trying to replace market forces with its political agenda because the administration believes it knows more than markets representing signals from millions of buyers and sellers. But giving loans and waivers to some companies while punishing others with new taxes and regulations will not create jobs, reduce the cost of health care, or achieve any other lofty goals.
FDR prolonged the Great Depression by preventing markets from operating naturally. President Obama seems determined to repeat that mistake. With so many people unemployed, and so many other struggling to make ends meet, the last thing we need is a president who wants to do to other industries what was done to the auto industry.
Ira Brodsky is the author of The History of Wireless: How Creative Minds Produced Technology for the Masses.