January 25, 2010

Year One: Long on Audacity, Short on Hope

by Hal Gershowitz

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The first year of the Obama Administration has not been a very good year for the country. Frequent Flyer Miles aside, the new Administration has been very short on achievement since that cold, crisp winter day one year ago when Barack Obama, newly elected 44th President of the United States, addressed the nation, indeed, the world. His inaugural address was somewhat reminiscent of John F. Kennedy informing the world that the “torch has been passed to a new generation.” It was a time of hope for a nation that was swept up by the rhetoric of the Obama campaign and by an electorate that was fed up with the disappointments of the Bush years. It was also a golden political opportunity for the new Administration, as it was reinforced by the additional gift from the electorate of control of both houses of Congress. So what happened?

Hope, it appears, was quickly overrun by audacity, and the self‑created hubris surrounding the White House team. Over-leveraged citizens were soon to be traumatized by an over-leveraged (and over-reaching) government. As soon as one could say “Seven Hundred Billion Dollar Troubled Asset Relief Program,” with which the Bush Administration bailed out big banks and Wall Street investment bankers, the Obama Administration (not to be outdone) cobbled together a controversial $790 billion stimulus bill, which in hindsight stimulated nothing. Within a matter of weeks the government, in the name of economic rescue, committed a trillion-and- a-half dollars to very questionable effect. Economists and historians will debate the Bush bailout and the Obama stimulus for years to come.

With only half of the bail-out money distributed by the end of President Obama’s first year in office, and with the banking crisis having substantially abated, many now argue that the unspent funds should be returned to the Treasury. Returned to the Treasury? How naïve they must be. Then there’s the matter of the $121 billion that seventy banks have already paid back to the government with interest. Surely those funds would be returned to the Treasury to reduce the burgeoning national deficit as the original Bush enabling legislation required. Returned to the Treasury? How naïve they must be. No, instead, the Obama Administration plans to seize those funds to help pay for a second economic stimulus. One might reasonably ask how successful the first economic stimulus has been to warrant a second stimulus program, especially if TARP payback funds are going to be misdirected for such high purpose and money from the first stimulus remains unspent (remember the term “shovel ready jobs”?). According to a recent Associated Press story, the validity of which was confirmed by a bevy of impartial economists, the $20 billion expended so far for infrastructure projects such as roads and bridges have not produced a single new confirmable job.

As Brian Riedl of the Heritage Foundation recently wrote in the Wall Street Journal,

“Congress cannot create new purchasing power out of thin air. If it funds new spending with taxes, it is simply redistributing existing purchasing power (while decreasing incentives to produce income and output). If Congress instead borrows the money from domestic investors, those investors will have that much less to invest or to spend in the private economy. If they borrow the money from foreigners, the balance of payments will adjust by equally raising net imports, leaving total demand and output unchanged. Every dollar Congress spends must first come from somewhere else. For example, many lawmakers claim that every $1 billion in highway stimulus can create 47,576 new construction jobs. But Congress must first borrow that $1 billion from the private economy, which will then lose at least as many jobs. Highway spending simply transfers jobs and income from one part of the economy to another. As Heritage Foundation economist Ronald Utt has explained, “The only way that $1 billion of new highway spending can create 47,576 new jobs is if the $1 billion appears out of nowhere as if it were manna from heaven.” This statement has been confirmed by the Department of Transportation and the General Accounting Office yet lawmakers continue to base policy on this economic fallacy. Removing water from one end of a swimming pool and pouring it in the other end will not raise the overall water level. Similarly, taking dollars from one part of the economy and distributing it to another part of the economy will not expand the economy.”

Every recession ends and most indications are that the current recession is ending or has ended as well. The Fed and the Obama Administration have made this point repeatedly. Nonetheless, like the man who can’t take “yes” for an answer, the Obama Administration continues to want to spend money we don’t have in a futile effort to create jobs with money it borrows (or taxes) from the private sector at the expense of jobs that that same money would create in the private sector. The only payrolls that are increasing in America are government payrolls. Meanwhile, private sector jobs continue to contract. Is it any wonder?

Having increased spending by a whopping 24% over the last Administration’s already profligate spending during its last full budget year, (and which was a major cause of its electoral defeat) we expect President Obama to soon make some dramatic gesture promising some new spending discipline or a reduction in spending by his Administration. When, and if that happens, we suspect most Americans will see it as mere sophistry because it would likely permit increased spending if taxes were hiked to pay for it. One thing we have learned during the past year is that no spending restraint is a good spending restraint when there is some way to extract more money from the taxpayer, whether through tax increases, so-called fees or revenue enhancers, or the raising of taxes by stealth through a failure to adjust base costs for CPI increases.

Could any campaign promise have engendered more trust than candidate Obama’s constant drum beat that healthcare reform would be an open, participatory process? He explicitly stated that we were going to have the Congressional healthcare reform negotiations on C‑Span. The point, of course, is that he knew perfectly well that the Congressional healthcare negotiations would never be made public, but it sounded good and probably was worth a lot of votes. The silence from the White House has been deafening now that C-Span has publically called on the Administration and Congress to allow (as the president promised) the taxpayer funded TV channel to cover the negotiations that are currently on-going and will involve hundreds of billions of dollars of cost to the taxpaying public. Not only is C‑Span being stiffed, but also in an unprecedented display of arrogance, Congressional leaders haven’t even appointed a Conference Committee to reconcile the House and Senate versions of the legislation. Instead, the leadership is negotiating behind closed doors with the President and union leaders to provide their members with a sweetheart deal at the expense of all other American workers.

The most recent and most audacious decision to exempt union members and local and state government employees (think Obama’s base) from the tax on so-called Cadillac healthcare plans until 2018 (at which time one can bet on an extension of the exemption) is almost too numbing to contemplate. Not that such wheeling and dealing on behalf of a politician’s supporters at the cost of everyone else has, heretofore, been unheard of. Quite the contrary, politicians have engaged in such chicanery from time immemorial. And that, of course, is our very point; nothing has changed. Eighty-seven percent of the workers in America do not belong to unions but those among the non-union workers who enjoy the benefits of so-called Cadillac plans will have their plans severely taxed, while workers who belong to unions get a free ride in return for big Labor’s endorsement of the President’s healthcare plan…or as the old-time politicians used to say, “You scratch my back and I’ll scratch yours.”

We need not dwell on the “cash-for-cloture” deal that sold the Landrieu and Nelson votes to Senate Majority-Leader Reid. Yes, as we said above, there have been deals in return for votes in the past, but never in our memory have we seen such “in-your-face” audacity whereby the citizens of every other state are now expected to fund the largess such as that which Louisiana and Nebraska are to receive. We do not remember a case in which the Attorneys General of various states (nine at last count) have filed suit in federal court to object to such blatant vote buying at the expense of the rest of the country. What is particularly disappointing, but perhaps entirely predictable, is that these political deals are nothing less than a blatant tax increase on the middle class, the very group that Candidate Obama assured would never see a tax increase under his plan for the country.

President Obama’s campaign promise not to raise taxes on the middle class was neither sincere nor realistic. Perhaps, the biggest tax increase for the middle class will, as noted earlier, be tucked into the so-called healthcare reform measures currently being hatched behind closed doors. The Washington Post reported, “The $829 billion cost would be more than offset by reducing spending on Medicare and other federal health programs by about $400 billion over the next decade, and by imposing a series of fees on insurance companies, drug makers, medical device manufacturers and other sectors of the health industry that stand to gain millions of new customers under the legislation.” Every one of these “fees” will be passed onto the public.

A nice and more soothing sounding word: “fees.” Fees of course, are simply a euphemism for taxes. It is axiomatic that businesses don’t pay taxes; they collect them. Only people pay taxes. When corporation are taxed, those taxes ultimately show up in prices, reduced wages and, often, reduced jobs. The government can tax corporations, the means of production, capital gains, dividends (which have already been taxed once) charge special fees and penalties as the Obama Administration plans to do and pretend that only the wealthy are being taxed but the truth is, and has always been, that the workers, consumers, and investors, people who are wage earners and people who are living on fixed income will actually do the paying.

Milton Friedman’s old adage is as true today as it was when he first said it. There is no free lunch. A good example of the Administration’s “free lunch” program is the idea to subsidize medical care for those without insurance because they lack the wherewithal or because they are already sick, and to force everyone to buy polices with expanded “basic coverage” that includes more services, such as “free” preventive care. But, as Friedman taught, there is no such thing as a free lunch. Someone will always have to pay, like those who buy insurance or who have it bought for them by their employers. Insurance premiums for everyone obviously must rise to reflect the newly subsidized demand for care. Of course that means the middle class will pay more, one-way or the other, for their insurance. Whether we call that added cost increased premiums or increased taxes is quite irrelevant. Costs to the middle class will soar. And to add insult to injury, anyone who refuses to buy insurance will be fined. Notwithstanding President Obama’s embarrassing quibbling with George Stephanopoulos over the issue, that fine is a tax.

Any government-imposed cost on the people is a tax. One can call it whatever one wants. It is a tax. Currently insurance companies manage risk by not covering conditions that people already have when they apply for insurance. We can certainly forbid insurance companies, by law, from doing that. And we can forbid them from charging more when they do insure someone who applies with a known illness that will be expensive to treat. It may well be good public policy to enact rules to that effect, but let us make sure that everyone understands that all of us will pay higher premiums. Those government-mandated premiums are simply another tax.

Finally, let us touch, just briefly, upon the subject of last week’s essay – – security. Here we believe the President has hoisted himself on his own petard. Political campaign rhetoric, foolish rhetoric we believe, to placate his antiwar wing, academia, and most foolhardy, the rest of the world on the theory that Guantanamo is a stain on our international reputation, has now obligated President Obama to close the military prison at Guantanamo and to try the most vicious of the terrorists, those who have waged war against us and who have murdered thousands of Americans, as common criminals in criminal court in New York City. Now there is talk of other terrorists’ trials in Washington, D.C. Coming soon to a city near you to make jury duty more varied: terrorist trials. What elitist folly. It provides eloquent meaning to William F. Buckley’s quote a generation ago that he would rather be governed by the first one hundred names in the Manhattan telephone directory than the faculty of Harvard.

The word audacity can be defined as action that is “bold or daring,” presumably the meaning author Obama had in mind. It can also be defined as “effrontery, impudence or shamelessness”, apparently what his Administration has in mind. As we have stated in an earlier essay, we should have read the small print.

Meanwhile, a political super nova (an explosion a million times brighter than the sun) took place in Massachusetts last week that showed we are not alone in our evaluation of the president’s first year in office.  Little-known Republican Scott Brown  defeated the “shoe-in” Democratic candidate Martha Coakley for what, arguably, has been the safest liberal seat in the history of the United States Senate, the seat previously held for nearly fifty years by Ted Kennedy. Even before the polls closed, un-named Administration spinners were attributing their reversal of fortune to “poor campaigning,” “poor polling,” “candidate laziness,” “ignorance of who Red-Sox ace-pitcher Curt Shilling is,” and on and on as though there wasn’t a single person in Massachusetts or the rest of the country who didn’t know that the election had become a referendum on Washington’s reckless, heavy-handed and costly governance, especially regarding President Obama’s healthcare program that fewer and fewer people beyond the beltway want.

The election result was nothing less than the governed telling those who govern that their agenda is not the people’s agenda. The people of Massachusetts seem to be echoing the words of John F. Kennedy when he ran in his first primary election for the U.S. House of Representatives so many years ago, “Sometimes, party loyalty demands too much.”

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