…that may stop cancer in its tracks. I hope that this sort of research will continue to advance once we’ve socialized medicine.
Category Archives: Economics
The Obama Surprise
Who were the rubes? They were the rubes:
The first surprise to many Valleyites is how innately anti-entrepreneurial the new Administration has turned out to be. Candidate Obama looked like a high tech executive – smart, hip, a gadget freak – and he certainly talked pro-entrepreneur. But the reality of the last six months has been very different. One might have predicted that he would use the best tool in his economic arsenal – new company creation and the millions of new jobs those firms in turn create – to fight this recession. But President Obama has instead appeared to be almost exclusively interested in Big Business as the key to economy recovery.
By comparison, almost every move the new Administration has made regarding entrepreneurship seems to be targeting at destroying it in this country. It has left Sarbanes-Oxley intact, added ever-greater burdens on small business owners, called for increasing capital gains taxes, and is now preparing to pile on cap-and-trade, double taxation on offshore earnings, and a host of other new costs. Even Obamacare seems likely to land unfairly on small companies.
Entrepreneurship has been the single most important contributor to the economic health of this country for at least a century now – and if you were going to systematically destroy that vitality, you couldn’t come up with a better strategy than the one Washington has put in place over the last six months. Indeed, you can make the case that the sole contribution the Obama administration has made to entrepreneurship in America to date is to force all of those millions of unemployed people to desperately set up their own businesses in order to survive.
But as he points out (and it’s a long-standing truism), big business has no interest in free markets:
…you may think that the competitive challenge that big tech companies fear most is from other big tech companies. You know: Apple v. Microsoft, HP v. Dell, Cisco v. Juniper, MySpace v. Facebook. But in fact, that isn’t the case. Sure, those are dangerous competitors; but far more threatening is that clever new start-up that seems to appear out of nowhere. That’s the threat that wakes up Fortune 500 tech CEOs at 3 a.m. That little start-up not only competes with you, it can render your entire business – even your entire industry – obsolete and you don’t even see it coming. Think desktop publishing and the printing industry, the iPod and the music industry – and just look at the terror that Twitter seems to be creating at Google and Facebook these days.
Once you understand this dynamic, a lot of the paradoxical recent business behavior in high tech suddenly becomes explicable. For example, why did the big tech companies embrace such regulations as Sarbanes and stock options expensing – even though they would cost them billions of dollars with no obvious gain? And why would they support a Presidential candidate who seemed to have little understanding of, or sympathy for, market capitalism and business?
Because it was the best strategy to crush the start-ups.
And for the most part, that strategy has worked. High tech has only seen a handful of new companies go public in the last five years – compared to hundreds per year before that. Less noticed is that this means most hot new start-up companies, instead of enjoying an IPO and becoming rich enough to compete full-on against the big boys, now can only grow to a certain size then offer themselves up to be bought by the giants. What had once been hugely valuable competition has now been reduced to a farm system for acquisitive mature companies. [And a side benefit has been the near-destruction of the venture capital industry, which big business always described as ‘vulture’ capital because it drew away their most talented employees.]
Now you see why the tech world joined the Obama team early on in the campaign. Not only did Senator Obama seem like their kind of guy, but each camp saw in him the President they wanted. The entrepreneurs thought they were getting a fellow entrepreneur, and big business thought they get a confederate in taking out the competition.
The entrepreneurs were suckers, but this is going to hurt the big guys, too.
ITAR is another example of this phenomenon. It really hurts the small companies disproportionately, because the big companies, like Boeing and Lockmart have a small army of compliance people in place who know how to work the system, and the costs of whom can simply get charged against their government contracts. This is in fact a big advantage of established aerospace contractors in general — that they have ongoing cost-plus contracts against which they can charge for the bureaucracy made necessary by government regulations, whether ITAR, or simply enforcing the FAR, plus they get an IR&D budget funded by the taxpayers. This makes being a startup all the harder, and this administration looks unlikely to do anything to make it any easier.
Which Is Worse?
I don’t think Obama realizes — or, more frighteningly, perhaps he doesn’t care — what this spending is going to do to the economy. After all, the free market is just a rival power center. As Tim Noah says: ‘On Wall Street, financial crisis destroys jobs. Here in Washington, it creates them. The rest is just details.”
I’ll have more thoughts on this Munchausen Syndrome By Proxy tomorrow at PJM.
[Update a couple minutes later]
Glenn’s post was motivated by Megan McArdle’s thoughts on deficits, and who to blame for them:
The problem with the budget deficit is not any particular program, or even any particular tax cuts. It is not that George Bush or Obama is a bad person who does bad things. The problem with the budget deficit is that, unlike the deficits George Bush ran, the deficits projected under Obama (and beyond) are actually large enough to potentially precipitate a fiscal crisis. If our interest rates suddenly spiked up, perhaps because lenders were worried about the size of our budget deficits, we’d find ourselves in the kind of nasty fiscal jam that regularly plagues third-world countries. The difference is, no one has enough money to bail us out.
Obama is the one who will have to prevent this. Yet instead of plans, we’re getting fairy numbers from the OMB. That’s worrying, and it’s sure not George W. Bush’s fault. His OMB liked to inflate the deficit projections, so that they could take credit for a mostly imaginary reduction.
It’s almost like he wants to wreck the economy.
Good News
The Democrats will have an uphill political battle to screw up our health care the way they want to.
[Update a couple hours later]
Blue on blue on health care:
“It is all about Democrats,” said Adam Green, chief executive officer of Change Congress, which launched the Nelson campaign. “We only need 50 votes. We could conceivably have 60 votes on our own if we keep Democrats unified. It is a matter of convincing Democrats whose conventional wisdom is based on the old political order. This is an extremely popular proposal spearheaded by an extremely popular president, and it is OK to support it.”
As Michael Barone points out, it’s only popular among young people, who don’t care about it that much, and don’t vote that much. Those of us whose actual health is on the line will fight it tooth and nail, and the “moderate” Democrats know it.
[Mid-morning update]
The Dems have lost the AMA. I applaud the crumbling of this coalition.
[Update a couple minutes later]
More here, from the Gray Lady:
The opposition, which comes as Mr. Obama prepares to address the powerful doctors’ group on Monday in Chicago, could be a major hurdle for advocates of a public insurance plan. The A.M.A., with about 250,000 members, is America’s largest physician organization.
While committed to the goal of affordable health insurance for all, the association had said in a general statement of principles that health services should be “provided through private markets, as they are currently.” It is now reacting, for the first time, to specific legislative proposals being drafted by Congress.
The devil’s always in the details…
“Stimulus”
…the 1930s Keynesian model that was used to sell the idea of fiscal stimulus to Americans was eliminated from economics decades ago.
And this abandonment of Keynesian multipliers does not reflect any ideological or partisan issues that divide conservatives and liberal economists. Rather, it is because the old Keynesian model does not come anywhere close to meeting today’s standards for economic analysis…
…modern economic analysis shows that the impact of government spending on the economy depends on what it is being spent on and how it ultimately is paid for.
The upshot of this new research is that multipliers are nowhere near the numbers that were cited in support of ARRA and, in fact, can be negative, depending on how the spending is ultimately financed. Robert Lucas, the 1995 Nobel laureate in economics who specializes in macroeconomics and government policy, recently remarked that the promise of large multipliers presented by private macroeconomic consulting firms in support of ARRA was “schlock economics.”
One of the infuriating things about the rush to passage of that disastrous legislation was the continual lies, from people like Ed Rendell, and Chuck Schumer and others, that most economists agreed that it was essential to recovery when, at best, there was merely a consensus that something should be done to soften the blow of the financial implosion, but not ARRA. And the media, of course, never called them on it. And of course, the president and others trotted out their usual straw men, and false choice, saying that anyone who didn’t want to implement that legislative atrocity wanted to do “nothing.”
Simply suspending the payroll tax for the rest of the year would have been a lot more effective, and cost a lot less, without creating this huge new tidal wave of debt in the out years.
[Lunchtime update]
Rasmussen: 45% say cancel the rest of the stimulus spending. Only 36% disagree. Expect that number to go higher. And that’s not “adults.” It’s likely voters. Democrats will ignore this at their peril next election season.
And note this:
A plurality of government employees believe speeding up the stimulus will be good for the economy. However, those who work in the private sector strongly disagree.
In other words, the people who understand how the economy works (because they’re the ones who make it work) are opposed to this, while the people who get their money from it are in favor. The goal of the Big Government party (on both sides of the aisle) is to increase the latter and decrease the former, not understanding that, eventually, this will cause the collapse of the nation.
[Another update a couple minutes later]
Here’s a nice visualization:
The Dauphin Of Detroit
Some are grumbling about Deese’s lack of relevant experience. (He has driven a car and once slept in the parking lot of a GM plant!) But the real issue isn’t Deese’s resume. The real issue is why anyone should have the power to “rewrite the rules of American capitalism.” Unlike Deese, Treasury Secretaries Paulson and Geithner are men of experience. But what kind of experience could justify the immense, arbitrary power they’ve exercised in the wake of the financial meltdown? Experience centrally planning the global economy?
Deese’s embarrassing rawness is actually welcome, for it draws our attention to the invidious inequalities inherent in a government with unconstrained discretion. Deese isn’t going to pick the colors for the Chevy Malibu. But he could. And Obama can tell us that Congress won’t dictate which factories GM should close. But it will.
Liberals used to care about inequalities in power—and they were right to. Because equality of power ensures freedom. Being equal in our basic rights, no one has a natural right to rule over another. This kind of liberal egalitarianism is the root of the prohibition on titles of nobility found in the American Articles of Confederation. It is also the root of the very idea of limited government—the idea that a government’s power is legitimate only if it is carefully parceled out, well-checked, and limited in scope to tasks only a government can perform.
The answer is simple: they’re not liberals and haven’t been in a long time, if they ever were.
[Update a couple minutes later]
The prescience of Robert Heinlein — he saw the future of the US auto industry.
A History Lesson
I understand the Senator’s need and desire to to protect the jobs of his constituents at NASA’s Marshall Spaceflight Center, but attempting to force an either/or choice between Federal and commercial space transportation is not the answer. That’s as false a choice as Moon vs. Mars and manned vs. robotic space exploration. Both NASA and NewSpace have valid and valuable roles to play, so let’s please not waste time and energy creating a schism where one need not exist.
Well, actually, while that’s true for wealth-producing activities, which is a non-zero-sum game, when the only real goal is job (and not wealth) creation, it is a zero-sum game with a fixed federal budget. So it’s not surprising that Shelby, a man of few political principles other than getting reelected, will make the choice that he thinks best achieves that goal, history and reality be damned. I guess Elon should have invested in a production facility in Huntsville.
Congress’ Plans For Our Health
This looks like an incipient disaster.
“Saved Or Created”
Fictional job numbers from the administration? I’m shocked. Of course, if we had a press corps that was a watchdog, instead of a lapdog, they wouldn’t continue to get away with this sophistry.
[Update a few minutes later]
“Drop dead, American business:”
So the question is, why does Obama advocate a policy that so flies in the face of everything that economists have learned? How could Obama possibly say, as he did last month, that he wants “to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens?” Further, how could Treasury Secretary Tim Geithner call a practice that top scholarship has shown increases wages and employment in the U.S. “indefensible?”
I have to admit I am at a loss. Maybe it is good politics to bash American corporations, and Obama isn’t really serious about making this change happen. But if the change is enacted, and domestic corporate taxes aren’t reduced to offset the big tax hike, the result will be a flight from the U.S. that rivals in scale the greatest avian arctic migrations.
As I said yesterday, it’s Munchausen By Proxy. By keeping the economy permanently sick, they hope to entrench their power, as FDR did.
[Update early afternoon]
Cue the laughter. It’s pretty sad when Chinese students are a lot more business savvy, and understand basic economics better than our own home-grown press. Or the US Secretary of the Treasury…
So How’s That “Stimulus” Working Out?
Like this:
…thanks to Barack Obama and democrats, the US Unemployment rate is worse today than if they never would have passed their stimulus package. The Obama Administration predicted the unemployment rate with and without President Obama’s stimulus package, the one that is supposed to “create or save” 3 million jobs.
Unfortunately, the red line shows the actual trend since the Stimulus was passed.
It wasn’t stimulus, it was scamulus. And it’s scandalous. Or it would be if we had a press that was a watchdog, rather than a lapdog, when Democrats are in power.
[Afternoon update]
Andy McCarthy noted Austan Goolsby’s dancing around this issue this morning, with two left feet:
I caught a panel on which Obama economic advisor Austin Goolsbee conceded that the administration had previously predicted unemployment would top out at around 8%, that it was now up to 9.4%, and that double-digit unemployment was a distinct possibility in the near future. Goolsbee didn’t resort to the administrations’s blather about “saving or creating jobs,” but he did repeat its fustian about how last month’s loss of 345,000 jobs (resulting in a half percentage point jump in the jobless rate) is somehow good news because it beat predictions (I don’t recall him saying whose) of even more dire loss numbers. It made me wonder why, if those predictions either existed or were serious, the Obama administration would have previously predicted that unemployment would top out at 8%?
Because they’re economically clueless, and willing to drive the economy deeply into a ditch if it will expand and entrench their political power?
[Monday morning update]
More thoughts from Stephen Green:
Let’s pretend for a moment that, god forbid, you break your arm. And somehow you end up with a team of doctors all trained at Obama University. As you lie there on the table in the ER, one doctor treats your arm by banging on the unbroken one with a ball-peen hammer. The second doctor takes the unusual course of setting your hair on fire. And the third one uses leaches.
Undeterred by your arm’s stubborn refusal to set, soon the doctors start blaming one another. And even though all of them are doing nothing but compounding your injury, none will take any blame. In fact, the louder you scream, the harder they go to work on you.
That, apparently, is what’s going on in the West Wing these days. Our economy is being managed by Dr. Howard, Dr. Fine, and Dr. Howard.
It’s Munchausen Syndrome by Proxy.
[Bumped]