Wednesday, January 25, 2012

The State of the Union 2012

Last night in the State of the Union address, President Obama said he wanted the government to drive up prices for consumers, treat the symptoms rather than the disease of higher education costs, and decrease charitable giving.

With his proposed "Trade Enforcement Unit," Obama is actually proposing to punish countries for selling cheap goods to the U.S. The argument is that subsidizing businesses so they can sell to us cheaper is unfair. However, such actions are actually harmful not to Americans, but to the countries, like China, that are doing it. Americans are benefited by lower prices, because lower prices increase our standard of living. But when you subsidize a company, you have to do so by taking money from the economy -- from your own consumers and from other companies in the country -- to allow a few companies to sell at a lower price. This harms China over the long run and makes their companies less competitive, their economy weaker, and their consumers less wealthy and with a lower standard of living than they would have otherwise had. If China wants to do that to their economy to sell cheaper goods to the U.S., who cares? To point out that we do the same thing is no argument, either -- it only shows our government is just as stupid as the Chinese government on this issue. And what about our companies? We don't have to make those things the Chinese are making -- in fact, comparative advantage suggests we shouldn't try to do so anyway.

Higher education costs so much because cheap money in the form of student loans -- made cheap by government subsidies (at least, until the federal government took over that aspect of the program) and by the fact that 18 year olds do not think about the fact that they will have to pay all this money back -- drives up the price of higher education the same way cheap money created the housing bubble. But instead of addressing the cause of ever-increasing higher prices in higher education, Obama of course only focused on the result. His solution, then, is to use the federal government to bully universities into lowering their prices. Of course, since much of the increasing cost of higher education is due to the development of a massive administrative bureaucracy to in no small part deal with federal requirements, loans, etc., meaning the bureaucracy can't go anywhere, the places where costs will be cut will be in faculty -- especially faculty in areas not considered to be "important," such as the arts, literature, philosophy, history, and languages. Thus higher education will get worse, meaning high school education will get worse (since there will be even less pressure on high schools to teach anything for anyone to get in college).

With the so-called "Buffett Rule," Obama would decrease charitable giving by millionaires, since

Anyone making over $1 million will be required to pay an effective tax rate of at least 30%. At the same time, deductions would be eliminated on Americans earning more than $1 million. In tandem, the proposals would mean a substantial tax hike for the wealthiest Americans. (CNN)
If you eliminate deductions, you eliminate one of the reasons people give money to charities. This is certainly not the only reason people give, of course, but incentives do matter. If you eliminate deductions, you eliminate a reason to give money away -- and you should not be surprised then when people don't give as much. Of course, with less private charity giving, charities will have less money to do their work, and government will "have" to take up the slack. The real result will be that the Left will get to talk about how stingy the rich are and point to how "charitable" government is.

One of the few economically sensible things he said was that we should extend the payroll tax (yes, please, let's not pull more money out of a bad economy!), and that we shouldn't give tax breaks for companies to relocate overseas. Of course, he then went on to say that we should give tax breaks to this, that, and the other company -- when the federal government needs to stop trying to pick winners and losers. It doesn't do a good job of that, as a few scandals of late along those lines shows.

I found the following to be particularly hilarious:

"I will oppose any effort to return to the very same policies that brought on this economic crisis in the first place."
This is hilarious because from day one he engaged in exactly the same policies that brought on this economic crisis. Obama is the kind of doctor who, seeing a man bleeding to death, calls for the leeches! Of course, Obama hasn't the foggiest idea what caused the economic collapse, so he certainly cannot know that what he thinks will help was the cause of the problem in the first place. Among the reasons to support a separation of economy and state is precisely because those who go into government know nothing at all about the economy and how it works. Of course, those who do so understand the economy would have enough sense to call for a separation of economy and state too.

And now for the audacious:

"Let's never forget: Millions of Americans who work hard and play by the rules every day deserve a government and a financial system that does the same. It's time to apply the same rules from top to bottom: No bailouts, no handouts, and no copouts. An America built to last insists on responsibility from everybody."
The bailout, handout, cop-out king has the audacity to make this argument? He says "no bailouts" in the same speech in which he praises himself for the GM and Chrysler bailouts? He says "no handouts" when he wants government to subsidize highly unprofitable green energy companies? He says "no cop-outs" in the same speech in which he continues to blame Bush for the bad economy? (Bush deserves all the blame one can heap on him, but after a while, this economy became Obama's fault for continuing on as long as it has.) I would love to have an economy in which there were in fact rule of law, equality under the law, and no bailouts, no handouts, and cop-outs from our government. But Obama violates these things on a daily basis (and by daily, I think I am being overly generous to him).

And then there is the rhetoric. The following sounds like something I would agree with:

"We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by. Or we can restore an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules. What's at stake are not Democratic values or Republican values, but American values. We have to reclaim them."
But wait, the bailouts Obama supported allowed "a shrinking number of people to do really well," at the expense of the well-being of the rest of us. And every one of Obama's subsidies, special loans, cronyist activities, etc. are different rules for people he prefers over others. He doesn't believe in equality under the law. He believes in special treatment of some vs. others under the law. His every action shows he in fact opposes equality under the law and supports special laws for certain groups and individuals.

In other words, this was yet another State of the Union in which the President of the United States was allowed to demonstrate his overwhelming economic ignorance. It's an annual tradition we have gotten accustomed to decades ago -- but we shouldn't let ourselves get used to it.
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