An Economic Look at Obama's Job Speech

Obama gave a speech today about job creation and what he was going to do with the excess TARP funds. Let’s look at this speech with an economic eye:

“The fear among economists across the political spectrum was that we were rapidly plummeting toward a second Great Depression.

“So, in the weeks and months that followed, we undertook a series of difficult steps to prevent that outcome. And we were forced to take those steps largely without the help of an opposition party which, unfortunately, after having presided over the decision-making that led to the crisis, decided to hand it over to others to solve.”

What political pettiness.

“To achieve this, and to prevent an economic collapse, we were forced to extend assistance to some of the very banks and financial institutions whose actions had helped precipitate the turmoil.”

Because those banks were forced to lend, by the government, to unqualified applicants they never would have lent to on their own.

“These were not decisions that were popular or satisfying; these were decisions that were necessary.”

Maybe to a politician such as yourself, Mr. Obama, in your incessant need to “dosomethingdosomethingdosomething,” but to most economists, they most definitely were not necessary.

“This fall, I signed into law more than $30 billion in tax cuts for struggling businesses, extended an effective tax credit for homebuyers, and provided additional unemployment insurance for one million Americans.”

I cut taxes, then immediately raised them to pay for all this government assistance.

“In addition, we are working to break down barriers and open overseas markets so our companies can better compete globally, creating jobs in America by exporting our products around the world.”

Oh, is that what it’s called when you impose a 35% tariff on imported tires from China?

“Partly as a result of these and other steps, we're in a very different place today than we were a year ago.”

We are in a different place. We’re worse off.

“This is welcome news, and news made possible in part by the up to 1.6 million jobs that the Recovery Act has already created and saved according to the Congressional Budget Office.”

Job created or saved: temporary jobs, part-time jobs, and seasonal jobs. Our underemployment rate is as high as it’s ever been (those who have a part-time job but are looking for full-time work). Temporary jobs count too. I can find a one-day job moving rocks and it counts as a job created. If I find a different one day job the next day it counts as a job created. ARRA is not created or save 1.6 million jobs the way he wants you to believe it has.

“For even though we have reduced the deluge of job losses to a relative trickle, we are not yet creating jobs at a pace to help all those families who have been swept up in the flood.”

Because the government can’t create jobs! Only the private sector can do that. Businesses need a stable environment in which to flourish. A constant clear message of low taxes and a hands-off government are what are needed. By your constant meddling Mr. Obama, you’re only creating and sustaining uncertainty – the ultimate job killer.

“There are more than seven million fewer Americans with jobs today than when this recession began.”

Recessions hurt. The market needs to self-correct. By trying to interfere, you’ve, paradoxically, only made the problem worse.

“And it speaks to an urgent need to accelerate job growth in the short term while laying a new foundation for lasting economic growth.”

Unsustainable empty subsidized job growth is not the way to lay a foundation for lasting economic growth.

“We're proposing a complete elimination of capital gains taxes on small business investment along with an extension of write-offs to encourage small businesses to expand in the coming year.”

Now, just so you don’t think this piece is only to bash Obama, I like this idea. This blog does not follow politics. It follows economics. As such, we will follow the economics whether it takes us left or right. This as it happens, is more of Obama going right than us going left, but the fact remains that we support it. However, Obama must be careful. A tax cut here and a tax cut there will not be effective if the overall business environment is one of high taxes and high regulation.

“We're proposing a boost in investment in the nation's infrastructure beyond what was included in the Recovery Act… What this means is that we're going to see even more work - and workers - on Recovery projects in the next six months than we saw in the last six months.”

It didn’t work the first time, so let’s double down.

“I'm calling on Congress to consider a new program to provide incentives for consumers who retrofit their homes to become more energy efficient.”

This is another good idea and one where perhaps the economics takes us left. I have previously defended cap-and-trade (though not in the context of global warming) and I now defend this idea. Making your home energy efficient has, in my opinion, qualities of a positive externality. That is, it provides benefits beyond those explicitly for the homeowner. By putting in energy efficient windows, it reduces your overall power consumption, reducing demand, and thus bringing prices down for everybody. Because positive benefits spillover to other people, this type of behavior should be encouraged. A government subsidy accomplishes this.

“These steps provide a framework in which companies can compete and innovate to create those jobs.”

Government subsidized job growth does not foster competition. Raising tariffs in order to keep high domestic prices on tires so those workers don’t lose their wage does not foster competition. The words “government” and “competition” are mutually exclusive Mr. Obama.

“There has rarely been a less loved or more necessary emergency program than TARP, which - as galling as the assistance to banks may have been - indisputably helped prevent a collapse of the entire financial system.”

More political hyperbole and fear mongering. It was not one of the most necessary government interventions in history. I understand TARP was Bush’s idea, and I was just as critical of Bush for proposing it as I am of Obama for defending it.

“Launched hastily under the last administration, the TARP program was flawed, and we have worked hard to correct those flaws and manage it properly.”

More political pettiness. That’s quite off-putting Mr. Obama. And I would quarrel with you that you have managed it properly.

“And today, TARP has served its original purpose and at a much lower cost than we expected.”

But since we never met a tax dollar we didn’t like, instead of giving back it to the taxpayer, we’re going to use it further fund a failed ARRA program.

“For even before this period crisis, much of our growth had been fueled by unsustainable consumer debt and reckless financial speculation, while we ignored the fundamental challenges that hold the key to our economic prosperity.”

So we’re going to repeat the same mistakes that caused it by needlessly intervening in places the government has no business.

“We cannot go back to an economy that yielded cycle after cycle of speculative booms and painful busts.”

By “saving” the economy from a necessary correction, you’ve only delayed the inevitable. The economy cannot be propped up by the government forever so another crash will be necessary. Then government will “save” us again, thus necessitating another crash. You’re exactly right Mr. Obama; we cannot go back to a government-intervention-caused boom-and-bust cycle. Stay out of the way.

“We cannot continue to accept… a health care system in which exploding costs put our businesses at a competitive disadvantage.”

I agree. Abandon Medicare and Medicaid, roll back interventions in the healthcare market, enforce anti-trust legislation and let economic principles be your guide. Your current healthcare ideas will only compound a problem you yourself (government) created.

“Because an educated workforce is essential in a 21st century global economy, we've launched a competitive Race to the Top fund through the Recovery Act to reform our schools and raise achievement, especially in math and science.”

Because there is not a problem in the world that can’t be solved by throwing money at it.

“Because even the best trained workers in the world can't compete if our businesses are saddled with rapidly increasing health care costs, we're fighting to do what we have discussed in this country for generations: finally reforming our nation's broken health insurance system and relieving this unsustainable burden.”

I admire you for wishing for reform Mr. Obama, but the key to reform is a more free-market based approach and less government intervention.

“We'll set and enforce clear rules of the road, close loopholes in oversight, charge a new agency with protecting consumers, and address the dangerous, systemic risks that brought us to the brink of disaster.”

By “address the dangerous, systemic risks that brought us to the brink of disaster,” you mean you will point the finger at yourself (government) right? Banks and lenders only played by the rules the government set out. By creating perverse incentives, you got perverse results.

“And because our economic future depends on our leadership in the industries of the future, we are investing in basic and applied research, and working to create the incentives to build a new clean energy economy. For we know the nation that leads in clean energy will be the nation that leads the world. I want America to be that nation.”

And I want a teleporting recliner that makes pizza, but wishing won’t make it happen. I admire encouraging research, but to expect to transform our entire economy simply by throwing money at it is naïve. Green technology won’t become the norm until there is a real demand for it – not artificial demand created by government funding.

“There are those who claim we have to choose between paying down our deficits on the one hand, and investing in job creation and economic growth on the other. But this is a false choice.”

I agree, it is a false choice. Very few with economic understanding would ever think that creating unsustainable empty jobs at taxpayer expense is a wise choice.

“One of the central goals of this administration is restoring fiscal responsibility. Even as we have had to spend our way out of this recession in the near term, we have begun to make the hard choices necessary to get our country on a more stable fiscal footing in the long run.”

HA! Massively increasing spending only to even more massively raise taxes is not fiscal responsibility and it is certainly not putting us on stable fiscal footing.

“Despite what some have claimed, the cost of the Recovery Act is only a very small part of our current budget imbalance. In reality, the deficit had been building dramatically over the previous eight years.”

It’s Bush’s fault.

“The fact is, we have refused to go along with business as usual;”

More like, “The fact is, we have refused to go along with business. As usual.”

“And I made clear from day one that I would not sign a health insurance reform bill if it raised the deficit by one dime - and neither the House nor Senate bill does.”

The massive increase in spending that is necessary in this bill will be paid for by even more massively increasing taxes. You’ve proven yourself spend happy Mr. Obama. You’ve never met a tax dollar you didn’t like so why should we believe you that you won’t spend the extra tax revenue on even more social programs? You’re doing it right now with the excess TARP funds. Instead of giving it back to the taxpayers, you’re putting it into ARRA.

“And the question we'll have to answer now is if we are going to learn from our past, or if - even in the aftermath of disaster - we are going to repeat it.”

You’re doing everything necessary to ensure we repeat it. Government intervention creates more problems than it solves. Yes, we are definitely going to repeat our mistakes.

“As the forces of the status quo marshal their resources, we can be sure that answering this question will be a fight to the finish.”

It seems to me the status quo has been ever-expanding government, regulation, and the curtailing of liberty. It seems to me it is you who is fighting to maintain the status quo, Mr. Obama.