After a nod to the troops and expressing the standard progressive sentiment that people should behave more like soldier marching as to war (as conservative writer George Will points out), the President dives into an account of how we got here. He points to the displacement of jobs by outsourcing and technology, and repeats the stagnant-median-wage line. While it does seem to be true that median real wages are stagnant, median real compensation has continued to rise. Costs have definitely risen, it is true. The 1970s “stagflation” comes to mind – when America’s FDR-era spending was paid for in the debasement of the currency, as well as the easy-money pre-housing-bust Federal Reserve policies under Greenspan. The President is willing to put the blame for the bust on banks and regulators, but not on the people. He correctly points to rising personal debt as part of the crisis, but neglects to point out that this personal debt is partly the leveraged over-consumption of the American people. We’ve had a period of personal as well as federal fiscal irresponsibility, and the housing bubble collapse is the harbinger of the correction. Student loan debt is likely the next bubble to burst, but I digress. Some significant blame does rest on regulators, but the President gets it wrong “We learned that mortgages had been sold to people who couldn’t afford or understand them…Regulators had looked the other way, or didn’t have the authority to stop the bad behavior.” The reason mortgages were sold to those who could not afford them was because government regulations forced them to. You may recall that the repeal of the Glass-Steagal Act in 1999 is often credited with the mortgage crisis, but that’s only half the story. Glass-Steagall’s repeal was part of a compromise that also strengthened Carter’s Community Reinvestment Act – an act which prohibited banks from a variety of practices which made it difficult for the poor to take out mortgages. While the repeal of Glass-Steagall created the moral hazard of investment bets with federally-insured money, the strengthened CRA forced bad mortgages to be signed off on. Arguably, the strengthening of CRA regulation did more to cause the crisis than the repeal of Glass-Steagall, and hence it was likely government regulation, rather than a lack thereof, which was the cause of the crisis for which the Federal Government bears blame.
Obama smoothly transitions from the economy to jobs – following the fallacy in modern politics that jobs should be an end in themselves. He touts the auto company bailout as a victory that saved American jobs. However, jobs are not an end in themselves, they are the means to an end: greater wealth. The two automotive industries that were bailed out would have gone bankrupt had the government acted. When a company goes bankrupt, it is because the aggregate value of what it produces is less than the aggregate value of what it consumes – in labor, raw materials, and capital goods. In short, failing companies destroy wealth. Greater wealth means greater capital, which means expanded production (not necessarily in the automotive industry) and the creation of more jobs. The proposition that a massive transfer payment was necessary to save jobs at those two companies is true. The proposition that such a course of action was a net job creator is dubious at best. Undaunted by little things like opportunity cost, the President forged ahead, praising employment gains and laying out his plan for continued recovery.
Predictably, the administration’s plan isn’t one of free enterprise, low taxes, and free trade (though Obama has opened free trade with a few countries, and for that I applaud him). Instead, the proposal before us is one of more government interventionism and economic protectionism. One example was when American jobs were saved when “we stopped a surge in Chinese tires.” Doubtless the American tire-making industry welcomed this news, but the American consumers were denied cheaper tires. While protectionist tariffs and trade policies can occasionally protect individual industries, on the whole they hurt American consumers and hamper economic growth. Furthermore, the President espouses a tax policy of transfer payments from multinational corporations to American-based corporations to promote job growth in America. The frustrating trend of tax-policy manipulation and coercive regulation to “engineer” the economy into the state politicians want continues.
Education and energy are next, a never-ending stream of bigger government solutions – interspersed with the occasional ray of sense. We should get rid of the oil company subsidies (sense) – but subsidize solar and wind, with no mention of maybe easing nuclear power regulations (nonsense). The Senate should enact a rule guaranteeing Presidential appointments an up-or-down vote within 90 days (sense), but we should further expand the power of the executive branch to reshuffle agencies (Constitutional nonsense). Here and there are some noble intentions, but always outside the powers in Article I Section VIII – much less the domain of the executive. We’ve got too much student loan debt, brought on by increased demand for education (via the subsidy of federal student loans) and hence increased price of education – so Congress should take further action to make college affordable. Every time the government steps in to make education cheaper, the quality goes down and the price goes up. The one ray of light here seemed to be the possibility that some really expensive schools might lose funding – hopefully prompting reforms of the administration-heavy and inefficient ways in which many schools are run.
While it was a politically brilliant speech – with implicit support for unions, recently hurt by the Keystone pipeline cancelation – it was incredibly frustrating. The President seemed determined to pound the inequality drum as often as possible, and talk a lot about “fair share.” While I agree that capital gains tax rates often allow the very rich to pay lower rates than other people, it is disingenuous to talk about “fair share” when supporting a progressive tax system – by its very nature unfair. If you want a really fair tax plan, eliminate all deductions and loopholes, eliminate corporate taxes to end double-taxation complications, and add wages to compensation to capital gains to get one aggregate income value to be taxed at a flat rate. Instead, we’re offered tweaks to a tax code of ever-increasing complexity, one which only the rich can exploit well. It is neither fair nor sensible, but does allow politicians to fiddle and meddle to make Americans spend money in patterns they deem acceptable. It was a long speech, so I only covered random things here – I really don’t want to treat it in detail. Notably absent from the speech was much discussion of the President’s expensive, Constitutionally dubious, and morally questionable health care program. If you’ll excuse me, I should probably get ready for a debate with my friend.