feature-2011-02-stateoftheunion

The Economics of the State of the Union

February 1, 2011 | by | Topic: The American Story, The Path to FreedomPrint Print

The news from Egypt has thrust President Obama’s State of the Union off the front pages. While that news is critical, so is further analysis of the State of the Union, especially from an economic perspective. My previous column focused on the political dimensions of the State of the Union address, about how Barack Obama has already entered full campaign mode in an attempt to woo the 5 or 10 percent of the swing vote that he needs for re-election. Today, let’s look at the economic aspects of the speech.

One would hope that, after two years of failed policies and economic stagnation, President Obama would have seen the need for a changed economic strategy. Alas, beyond a few cosmetic touches, Obama’s approach to economics remains substantially unchanged.

Here are a few examples:

In the address, Obama stated a self-evident truth: “None of us can predict with certainty what the next big industry will be.”

Agreed. But then, apparently unaware of the incongruity, the president proceeded to advocate increased government funding to three specific industries: biomedical research, information technology, and clean energy. So deeply ingrained is Obama’s love of central planning, so confident is he in his ability to foresee what future generations will need, that he specifically called for 80 percent of electricity to come from renewable energy sources by the year 2035, as if anyone knows what relative costs will be or what new technologies will be available that far ahead.

Indeed, President Obama seemed blithely unaware of the sad history of federal support for alternative energies—wasteful boondoggles, such as Synfuels and ethanol. At least he was consistent, though. He also appealed for federal support of high-speed railroads, another industry in which the federal government already has shown its incompetence. In the 1800s, there was only one railroad connecting the Midwest to the Pacific Coast that did not go bankrupt—James J. Hill’s Great Northern, notable for being the only such railroad not to have received federal subsidies.

Obama stated the obvious truth that Uncle Sam’s deficit spending is “not sustainable.”

How could he say this with a straight face when the current fiscal year’s deficit is projected to be $1.5 trillion—an all-time record? How serious is he, given that he offered only two specific areas for spending cuts: defense spending and subsidies to oil companies?

Well, he did say something about cuts for community action groups, but since ACORN is drowning in criminal charges, cutting spending there was a foregone conclusion. And, for the record, I support withdrawing all subsidies for oil companies. But let’s withdraw taxpayer-funded subsidies from all energy producers. Percentage-wise, the subsidies for wind and solar are many times as great per kilowatt of energy than they are for oil. Amazingly, President Obama wants to increase subsidies to—actually, he uses the words “invest in”—those wretchedly uneconomic forms of energy.

The president mentioned a government loan to a company that became successful. Fine. But private loans are just as capable of starting businesses and creating jobs, and they do it without dipping into the taxpayers’ pockets. Government doesn’t need to be “encouraging investment,” as Obama said; rather, government should stop discouraging investment and job creation, which it does when it siphons precious resources from the productive private sector.

Let’s have “a government that is more … efficient,” proclaimed President Obama.

Sounds good, but how? Government bureaucracies, insulated from the profit-loss discipline of competition, are inherently inefficient. Why single out the Pentagon for spending cuts? ALL bureaucracies are wasteful. That’s the nature of the beast. If he really wanted a more efficient government, Obama would have recommended the elimination of specific agencies and bureaucracies.

Obama called for more government “investment” in infrastructure. (At least he’s not calling it this kind of spending “stimulus” anymore.)

Yes, infrastructure clearly needs some repairs, but I don’t trust Team Obama to do it right. I’m mindful of the nearby exit ramp that was widened to two lanes as part of Obama’s stimulus package, even though it is so lightly used that mine is usually the only vehicle on it.

Obama promised a new website that would show us where our tax dollars are going. When I recall how inaccurate was his stimulus/jobs website, my response to the president is, “No thanks, save the money.”

The State of the Union address showed an appalling ignorance of basic economics and the lessons of history. Sadly, President Obama still thinks like a central planner, even as he seeks to widen his appeal to the middle. He is decades behind the times. His is the path that leads to stagnation.

Mark W. Hendrickson

Mark W. Hendrickson

Dr. Mark W. Hendrickson is an adjunct faculty member, economist, and fellow for economic and social policy with The Center for Vision & Values at Grove City College.

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