Sunday, February 15, 2009


Obamateur hour

I am now quite convinced that Obama will be a one term president. The economic headwinds that he faces are formidable, in fact, impossible. I feel sorry for him because they are not his fault; although his party is not so pristine. What is worse for him is his own indecision. These are tough times which require hard decisions and it is clear that his rhetoric does not match his actions.

The hideous drooling blob of toxic pustules dignified as “stimulus” is something the incoming Obama had months to prepare for, with oodles of bipartisan goodwill and fawning press coverage to waft him along. Instead he chose to outsource it to Nancy Pelosi, Harry Reid, Barney Frank, and the rest of the congressional pork barons. So that too is not an “event” but merely, like his cabinet picks, a matter of judgment and executive competence.

The thing is we know that the stimulus will not work and they know the stimulus will not work, that is why they were trying to gather as many Republican votes as possible, so why bet your Presidency on this colossal waste? Because Democratic dogma will not allow them to do what is necessary to rope enough Republicans into supporting a bill that is even a tiny bit palatable to even the squishiest RINOs.

Ideology is a good thing if you are correct and it is applied to solve a relevant problem. This stimulus bill will not stimulate anything and will have the exact opposite effect. It will waste precious money driving up the cost of borrowing for business (see crowding out effect) at a time when the Fed is doing everything within its power to drive long term interest rates to zero. (BTW, more on this later.)

The prevailing error is confusing increased spending and a rising GDP with increased economic growth. But as any economist ought to know, economic growth is a process of capital accumulation. From this it follows that any program that specifically targets consumption or focuses on what is termed shovel-ready projects will retard if not actually paralyse economic recovery.

There is certainly more than a glimmering of the recognition of this fact in the Congressional Budget Office. (The rumour mill has it that Democrats want to stack this estimable non-partisan bureau with their partisan stooges). It recently reported that Obama's so-called stimulus would have the long-run effect of crowding out private investment and so lower the rate at which GDP will grow.

But the fact that nothing can be done is not Obama's fault. What is his fault is that he has made it worse and he has chosen to not compromise enough to get a small group of RINOs to provide political cover. And that will be a huge mistake come the 2010 elections. Obama and the Democrats will own this budding depression by then. Just like the Democrats bet their future on opposition to the Iraq war in 2004, Republicans have bet their future on the economy staying bad for the next 18 months. However, this bet will pay off.

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