The Truth About 'Investments' Hurts

“Don’t Harsh My Recovery.” So said a tweet I got in response to an analysis I did on America’s continuing economic non-recovery on my radio show this week.  The tweet went on to say, “I want to believe the economy is recovering, Roger, if I believe it will.”

“Think and grow rich” might work for an individual envisioning business success, but it is delusional as national economic policy.  We can’t wish or will the country to prosperity, or recover from a recession caused by too much debt by incurring more debt.

“Together We Thrive” was not only inappropriate as a theme for a memorial to the victims of the Tucson shooter, it is the economic policy of a collective society, not of a free one.

“When the truth hurts, lie to me” might help you cope with interpersonal relationships, but it doesn’t work in economics.  The truth about the American economy hurts, and when it does, too many Americans want to be lied to.

Specifically, too many Americans want to believe that government “investments” will create jobs.  Polls show majorities favoring more government spending on infrastructure and schools.  The public assumption appears to be that such spending will build new roads, bridges, and broadband, and fix our failing K-12 government school system.  That assumption is false.

Obama’s original plan to recover from the recession was to stimulate the economy by spending hundreds of billions of borrowed dollars on “shovel-ready” projects, with “90%” of the jobs “created or saved” in the private sector.

According to a study done by economists at Stanford University, from March 2009 through September 2010 just $4 billion was actually spent on “infrastructure,” while $173 billion was handed out to state and local governments to subsidize their budgets.

The President says we need more money for education?  The sad fact is that the U.S. already spends more than every other industrialized country on Earth for K-12 education, with the poorest results of any of those countries.  Does anyone really still think that more money is the answer to our failing public education system?

Despite these facts, most Americans lapped up Obama’s State of the Union call for more government “investments” in infrastructure and schools.

Reminiscent of the children’s fable “The Emperor’s New Clothes,” Obama declared the end of the recession and the success of his economic recovery plan, pointing to the rising Dow Jones Industrial Average as proof.  But nearly every economic indicator except the Dow is flashing negative, as the real world signals persistent unemployment coupled with rising food and gas prices.

By contrast, in 1981, President Ronald Reagan inherited a recession as bad as the current one.  By 1986, oil was $10 a barrel and the growth rate of the economy was 9%. By the end of the decade, more than 20 million private sector jobs had been created. Why?

Reagan’s view was that government was the problem, not the solution.  His solution was to cut taxes, encourage business development, including oil and gas drilling, and get government out of the way.  Oh, and defeat the Soviet Union too.  It worked, even when the Democrats in Congress insisted on deficit spending to protect “entitlements” and welfare.

Fast-forward to today.  Obama’s own experts predict his economic policies will result in high unemployment, low growth rates in the gross domestic product, and trillion dollar deficits stretching to the horizon.  Yet this President continues to tout the “success” of his policies.

To be fair, the world is a different place than when Reagan was President.  World wheat, corn, rice, and other staple food production is stretched thin just as demand increases in China and India for more (and higher-quality) food.  All the more reason to rely on a free (or at least freer) market.  But that is not happening.

U.S. agriculture policy (the result of both Democratic and Republican administrations) hinders crop growth in the U.S., hurting our farmers, raising prices for American consumers, and contributing to food riots in other countries.

For example, the Feds have deliberately turned parts of California’s fertile Central Valley into a dust bowl by holding back water supplies to supposedly help an “endangered” 2-inch fish.  Unemployment rates in The Valley top 40% in some towns hard-hit by this self-inflicted wound.

While Russia puts quotas on wheat exports, and many other countries impose price controls on food costs, the time is now to free American agriculture.  Plant, Baby! Plant!

America’s economy depends on cheap energy.  While, again as with food, world demand for energy pushes prices up, Obama’s energy policies make the problem worse.

Obama’s cap-and-trade CO2 emissions reduction will “necessarily skyrocket the cost of electricity” (his words during the 2008 campaign).  Do you think the economy can recover if the electricity rates “skyrocket”?

The State of the Union address repeated calls for solar and wind power, while Obama bans oil and gas drilling wherever he can, even revoking drilling leases previously granted.  Abundant cheap coal also faces extinction in the Obama era, signaled by last weeks’ cancellation of a permit for a coal mine already under operation in West Virginia.

The American consumer will face skyrocketing prices for all sources of energy, along with higher prices for all the products we need that are made and/or delivered with that energy.

These government “investments” are, by definition, made by politicians using political calculus. Money is allocated based on political gain rather than the price mechanism of a free market.

In his State of the Union speech, Obama also correctly called for an increase in American exports to increase American jobs.  Reagan said the same thing in 1981, and his low taxes and reduced government regulations approach did in fact increase American exports by the end of the decade.

Unfortunately, Obama is pursuing a depreciation of the value of the dollar as the quickest way to lower the cost of American exports.  The price of this policy will be a reduction in the purchasing power of your income and your retirement savings. In a word, it’s inflation.

Sorry tweeter.  The real facts of our economy today are harsh, and no amount of wishful thinking or hopeless collective utopianism will change that.  Only freedom will.


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