“Only Government Can …”?: Parsing Obama’s Speech on the Economy

[Two Thursdays ago], President-elect Barack Obama delivered a major speech on the economy. I didn’t know if it had that legendary tingling effect on its listeners, but reading the text in black and white, it reads like a manifesto on central planning. Obama’s faith in Big Government is unmistakable: “Only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy.” Obama largely ignored government’s central role in causing the current crisis-totally ignoring the rampant government meddling via Fannie Mae, Freddie Mac, inflationary policies by Uncle Sam’s monetary meddlers at the Federal Reserve, Community Investment Act regulators, and other interventionists. He did concede that, “Politicians spent taxpayer money without wisdom or discipline.” He went on to declare, “Our government has already spent a good deal of money, but we haven’t yet seen that translate into more jobs or higher incomes or renewed confidence in our economy. That’s why the American Recovery and Reinvestment Plan won’t just throw money at our problems-we’ll invest in what works.” He went on to underscore the need to make “smart investments” and to avoid spending money on “pet projects.”

May I ask: Why are other politicians’ programs “pet projects,” but President-elect Obama’s preferred programs are not? How can the incoming President know if his projects will be “smart investments,” since they will take place outside of the profit-and-loss test of the marketplace? How can you know the future and tell us “what works?” How can Obama believe that he knows what is best for society, when no other central planner has ever been able to solve that riddle?

The contradictions in Obama’s address were breathtaking.

“Government at every level will have to tighten its belt,” he solemnly intoned, while requesting massive increases in federal spending. Obama acknowledged that taxpayer dollars have been spent “without discipline,” but what is disciplined about trillion-dollar deficits? How can we get “our fiscal house in order” through floods of red ink?

Some may think that massive deficits might be a worthwhile tradeoff — placing a heavier financial burden on the future in exchange for Obama programs that “immediately jumpstart job creation and long-term growth.” History, however, shows Obama’s promise to be, well, unpromising. Sure, the President-elect’s plan will create jobs for many Americans. Put a trillion dollars in my hands, and I could employ a lot of people, too. But overall employment would stagnate. Roosevelt’s New Deal created many jobs, yet the unemployment rate never fell below 14 percent during his first eight years as president. This is because government jobs are what economists call “acatallactic” — that is, they are outside the economic marketplace. That’s the place where workers have to produce what people in society most urgently want in order for the people’s wealth to increase. Although government jobs may meet the objectives of central planners, they cripple overall employment. The larger the government programs, the more scarce resources (most importantly, capital) are diverted from the private sector into the public sector, which is inherently uneconomic and inefficient.

Rather than repeating the colossal mistakes of the New Deal, Obama should consider policies that have been shown to work. The recession of 1920-21 was the most severe deflationary episode of the last century, yet it was followed by an early and strong recovery. The difference between this relatively brief downturn and the Great Depression, which lasted from 1929 to 1941, was that government intervention was minimal and markets were allowed to adjust.

Employment is first and foremost a cost phenomenon — that is, there will be a demand for labor at the right price. When consumer prices fell in 1920, wages quickly adjusted downward, too, which resulted in a rapid recovery of output and employment, with industrial production increasing a whopping 63 percent in only 22 months. During the early 1920s, under the leadership of Treasury Secretary Andrew Mellon, federal spending was cut almost in half. During the New Deal, federal spending and government deficits soared. It is clear which course of action produced better results.

President-elect Obama appealed to us to abandon “the worn-out dogmas of the past.” There is no position more dogmatic than clinging to the unjustified belief that “only government” can restore prosperity to America. He said, “We can restore opportunity and prosperity.” By this I wish he meant that he would give the private sector the opportunity to create the high levels of prosperity that only free markets can produce.

The President-elect is right: “It is time to finally change the ways of Washington so that we can set a new and better course for America.” Yes, let’s change from the broken paradigm of heavy government intervention and embark on the time-tested and better course of freedom and free enterprise.

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  • jamespereira

    Just yesterday, I came across this online poll asking how you think Obama will do as President.

    If you wish to participate, click here:
    http://romancatholicinfo.com/catholic-news/how-will-barack-obama-do/

    God bless America and Barack Obama.

  • yblegen

    Dr Hendrickson, I pray others are listening to what you are saying.

  • mfernand71

    What this article says it is very important, and should be thoroughly research and published in as many places as possible preferably in popular websites frequented by young and old. I don’t know anything about what works and doesn’t work in an economy like we have now, but common sense tells me that spending more and more money that we have to borrow or print cannot be the solution. I also believe that the government alone cannot solve the problem. Everybody who wants to work should be able to find a job, and if all the prices, salaries, houses, and stocks need to be adjusted then let them be adjusted. The American Dream should be more than just the best house and car in the neighborhood.

  • aorosco

    My faith is not in Obama or the US government, my faith is in God and those who live their lives likewise in this United Stated of America we will make the difference. However the US government and Obama does not share the same faith, they have faith in only themselves. This is truly evident in the rhetoric they proclaim to their non-religious masses and spiritually dead so called religious.

    I pray that God will act through his people of Truth, Faith, and Courage to change the hearts of the evil ones and yes we do have evil ones in our government and country. They can be found in what the say or do not say and do or not do. If what they do or say is not for the Glory of God. it is evil and if what they say and do is for the Glory of God than it is of God.

    Remember satan is the great deceiver that divides through his deceptions. He is cunning and great in rhetoric. Gird yourself in truth so you can recognize the great deceiver and rise up to protect our families, faith, country and world.

    “Give me Freedom or give me Death” is a cry of a great Patriot of Old.
    Give me freedom to know, love and serve God because only with God is Life Eternal!

    Do not be afraid to live and stand up in the Truth!

    AndyO

  • goral

    The American electorate did get a president who employs the same logic as the majority of the people do.

    “Our government has already spent a good deal of money, but we haven’t yet seen that translate into more jobs or higher incomes or renewed confidence in our economy. That’s why the American Recovery and Reinvestment Plan won’t just throw money at our problems-we’ll invest in what works.”

    That quote would make a right minded person scream – fraud! charlatan! criminal!
    Not so dear citizens, not in our United States.
    It’s more likely that response would be made in a Kenyan village than in any place in this country.

    We will be hearing nothing but this type of unawareness and ineptness for the next four years.
    The response will be – Brilliant!
    or maybe a nebulous God bless America and Barak Obama.

  • noelfitz

    This is about political and economic issues. It has nothing to do with religion.

    Is CE adopting a particular political stance?

    Would it not be better for CE to stick to religious topics and build up the people of God?

    God bless,

    NoelFitz.
    _________________________________________________

    In necessariis, unitas; in dubiis, libertas; in omnibus, caritas.
    _________________________________________________

  • Mary Kochan

    If you don’t want to read political articles, why do you read them?

    And why would you want to deny other people the choice of reading them if that is something they are interested in?

  • goral

    Mary Kochan, you might just have to run this website on Sundays only if some of our posters/editors have their way.

    -Do not the “people of God” vote and work and some of them actually think
    logically? Or maybe even think globally and illogically and act locally.
    (something like that)
    -Do we dare cross that wall of separation into the political realm even as
    the people of the State use the money of the people of God at their own
    discretion?
    -Is the “messiah” off limits except to the people of the State?
    -Should Catholic/Christian writers and commentators lose their poetic
    license when they stray from religious topics?

    I think I asked enough questions.

  • noelfitz

    Mary and Goral

    Thank you for your replies.

    My concern is that political posts may imply that Catholics agree on politics. We do not. But we do, or should, agree on the faith. Thus my motto.

    Goral I do think that people can think logically on religious topics. Religion is not only for Sundays.

    There is one Messiah, the Christ the anointed by God who is our Savior. To call Mt Obama the “messiah” is an insult to our faith as well as Mr Obama.

    Poetic license should be kept to poetry, and not used as terms of abuse.

    God bless,

    NoelFitz.
    _________________________________________________

    In necessariis, unitas; in dubiis, libertas; in omnibus, caritas.
    _________________________________________________

  • goral

    Mary and Goral? That’s like the Beauty and the Beast. It’s an honor.

    Then we’re all in agreement. This is a good article for our information and our comments and even our religion.

    It’s only fitting that the messiah should follow the antichrist as G W Bush was known in some circles. (note the lower case letters)
    There may be liberty and borderline abuse of my poetic license in this and other opportune instances, which is not at all out of character for me.
    Like your motto states NoelFitz: in dubiis, libertas.

  • Cooky642

    I’m afraid I have to call a “time out” on Dr. Hendrickson. He was doing great right up until the final paragraph. If he wanted us to get away from the “broken paradigm of heavy government intervention”, he should have said so before the election and, perhaps, we would not have elected a Democrat. If we want a “time-tested and better course of freedom and free enterprise”, we should have elected a Conservative. (Please note I did not mention John McCain, who was most definitely NOT a Conservative.)

    To ask a Democrat to propose or support anything OTHER than heavy government intervention is to ask an elephant to change it’s spots……………

    (To those of you who laughed: thank you. My point exactly: an elephant doesn’t have “spots”. You can’t expect a Democrat to be anything but what he is by nature, just as you can’t expect a Conservative to be anything but what he is by nature. Because “the people” elected a Democrat, we are stuck for the foreseeable future with “heavy government intervention”. It’s going to be a rough ride. Lets pray that “the people” wake up before that heavy government intervention turns us into the USSA.)

  • kent4jmj

    Kensian economics versus the Austrian school, the one Ron Paul spent so much time and energy in trying to educate us about. Government control = some degree of socialism, fascism or communism while a free market does not. John Birch society has some very good educational material so does mises.org and lewrockwell.com .

    The bubbles created by the other bailouts have all burst. The only difference this time is that the bubble being created is to bailout our government. When this one bursts there is nowhere else to go. End of the road and the mother of all depressions!

    Mr. Hendrickson is right on target.

    Is there a spiritual aspect to the financial crisis? Yes I think there is. Selfishness. We see this most clearly in our lack of respect for life and the marriage bed. I could never prove a direct correlation but will say that until we become a culture of life that respects human sexuality as God intended we will continue to suffer the curse of not following God’s ways.

  • Lucky Mom of 7

    The economy has direct bearing on issues of social justice. It’s relevant on a Catholic website. Being largely uninitiated myself with this kind of thing, I’m very grateful that CE addresses it.

    Lucky

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