Obama’s “New Foundation”

Today, President Obama gave a speech entitled “New Foundation” which gave an update on the economy and all of the government policies that are currently underway.

His opening portion of the speech ended with this remark:

And most of all, I want every American to know that each action we take and each policy we pursue is driven by a larger vision of America’s future – a future where sustained economic growth creates good jobs and rising incomes; a future where prosperity is fueled not by excessive debt, reckless speculation, and fleeing profit, but is instead built by skilled, productive workers; by sound investments that will spread opportunity at home and allow this nation to lead the world in the technologies, innovations, and discoveries that will shape the 21st century. That is the America I see. That is the future I know we can have.

The funny thing is that most of what he says makes sense and I totally agree with.  We do need an economy based on production and savings and not debt and spending.  This is the fundamental problem with our current economic system.  He goes on to blame our current crisis on “greed” and “instant gratification” but those arguments don’t hold any water.  We’ve always had greedy people who want things now.  If that were the case, we’d be in a permanent depression.

The problem is that Obama thinks that only the government can implement policies and programs that will accomplish these goals.  I believe that government is the worst possible agent to try and lead us into the future, and that they are only making matters worse.

From a purely economics standpoint, the government is taking resources away that the private sector would be using, or they are undertaking tasks that are not being done by private sources because they are unproductive and inefficient.  Look at the auto bailout, for example.  Imagine what a startup like Tesla or some other company could do with one billion dollars, a fraction of what the Big Three have gotten so far.  We could have a brand new, competitive auto industry for the amount of money that has been wasted propping up dead bankrupt companies.  I do not believe in bailouts and handouts, but if we are going to give money away, it should go to new production, not financial means.

Other examples of Obama’s “stimulus” are building roads, weatherizing homes, and building green energy sources.  If these were profitable endeavours, don’t you think the private industry would already be doing these things?  The reason they aren’t is because there is not any money or benefit to gained at this point in time.  By directing resources to these projects, we are taking money that could be used for other, more profitable forms of production, and putting it to unproductive uses.

To make matters worse, we are funding these projects and bailouts with printed money.  When you think about how a bank works, you realize that they need to have people depositing and saving money in order to make new loans.  The more money saved, the more money that can be loaned out.  The same should be true for the government, except Bush and Obama have been running trillion dollar deficits.  We aren’t funding our “stimulus” with saved resources.  We are just piling on more debt and creating money out of thin air.  In the long run, this misguided form of “stimulus” will hurt our economy more than help it.

Obama has the right intentions, and he keeps talking about fiscal responsibility.  However, his actions to spend more, inflate more, and expand the central government will only dig us deeper into a depression.  We need to stop printing money trying to reinflate our spending bubble, and let the markets work.  Right now, Obama needs to resist the urge to intervene and let the economy readjust and liquidate all of the malinvestment.  How can a small group in Washington know more than an economy of 700 million?  Stop trying to play hero and get out of the way, that’s what he should have said today.

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