Yes, it has been a while - working On the Constitution where I go through each amendment/bill and its effect on society, as well as more On Society (creationism vs. evolutionism, defining success etc), and regular posts such as On Unemployment, Inflation and QE. However, after watching the President’s address and Senator Rubio’s response on Feb. 12, I feel the need to address the State of the Union myself. I use the transcript of Obama’s address from washingtonpost.com.
Early on in his address, President Obama said, “Our housing market is healing, our stock market is rebounding, and consumers, patients and homeowners enjoy stronger protections than ever before… and we can say with renewed confidence that the state of our union is stronger.” Perhaps, right at that instant compared to an early report there would be some “rebounding.” George Bush said the union was strong back in 2007 just before a major stock market crash. Of course presidents are going to say the union is strong, even though now we are on the precipice of disaster if the administration continues its push for expansion of government intervention. In reality, stock market does not reflect economic vitality, the state of our union is doing everything but gaining in strength, and patients and homeowners are hardly enjoying anything at all. Of course the statement I just made is as broad and maybe as untenable as the President’s - but it goes to show how his arguments are emotionally laden. Statements like the one he and I made have to be dealt with by first recognizing your personal situation, consulting statistics that you have been keeping up with weekly, and making a judgment based on the logic of before, during and after situations. However, without much surprise his statement was met with roaring applause.
Pres. Obama began with talk about the sequester, “In 2011, Congress passed a law saying that if both parties couldn’t agree on a plan to reach our deficit goal, about a trillion dollars’ worth of budget cuts would automatically go into effect this year. These sudden, harsh, arbitrary cuts would jeopardize our military readiness, they’d devastate priorities like education and energy and medical research. They would certainly slow our recovery and cost us hundreds of thousands of jobs. And that’s why Democrats, Republicans, business leaders, and economists have already said that these cuts — known here in Washington as “the sequester” — are a really bad idea.” The president says that the sequester was a bad law which congress passed, right? Well, if you remember congress passed the bill, which the president subsequently signed into law. If he thought it was such a bad idea, why didn’t he veto it? And on top of this, in the following months he was seen in the media well before the election defending these automatic ‘cuts.’ I put cuts in quotation because these cuts are trivial reductions… half a program here, half there. The only way we will actually achieve increase in productivity is to make substantial cuts of government. I’m talking about cutting entire departments. The problem with rhetoric in this situation is that now President Obama has been reelected, he can afford to be a bit more revealing to the American public. It is pertinent for principled politicians to take advantage of this in order to put pressure on him to create these legitimate cuts in government spending. Unfortunately for us, the only way it seems anything develops further from talking into taking action is to have a disaster. An economic collapse in the next few years will be the catalyst to produce substantive change in our American government.
The President then goes on to say “Corporate profits have skyrocketed to all-time highs, but for more than a decade, wages and incomes have barely budged. It is our generation’s task, then, to reignite the true engine of America’s economic growth: a rising, thriving middle class.” He refers time and time again that it is the government’s task to strengthen the American economy. He thinks the American economy is strong because we have a strong middle class. However, we had a strong middle class because our economy was strong. Where did the strength come from? It did not come from consumers buying goods - it came from the producers creating goods. The middle class was a result of entrepreneurial creativity. What defined the middle class was the wages that allowed most people to afford a standard of living substantially higher from previous times. The American middle class was born from the productivity from limited government. Because we were freer than the rest of the world with much lower taxation and regulation, we were able to increase productivity and real wages. This is what allowed the middle class to live out their American dream - not the other way around. The outcome of what Pres. Obama proposed will result in further destruction of the middle class.
The first legitimate proposal he made had to do with increasing so-called manufacturing hubs, “… I’m announcing the launch of three more of these manufacturing hubs, where businesses will partner with the Departments of Defense and Energy to turn regions left behind by globalization into global centers of high-tech jobs. And I ask this Congress to help create a network of 15 of these hubs and guarantee that the next revolution in manufacturing is made right here in America.” During the Industrial Revolution, America didn’t have any of these hubs - our entire country was one big manufacturing hub with the government having little to nothing to do with its success. I can say briefly that the government having a hand in production is far less efficient than freeing up production back to the private sector. The president focuses on American energy sector as a major area for manufacturing. Energy independence again cannot be produced as efficiently and without corruption (remember Solyndra?) under government influence than in the free market.
Obama did mention that energy imports are at a decline which is true, “Today, no area holds more promise than our investments in American energy. After years of talking about it, we’re finally poised to control our own energy future. We produce more oil at home than we have in 15 years.” I say this is true, but not for the reasons the president provides. He feels our statistical decline in energy imports is due to an increase in full-efficient car usage and production of oil. The actual reason for this statistic is because Americans are using less gasoline and oil. Because the economy is contracting, citizens use less mechanical means of transportation (perhaps due to lack of daily commute to jobs…). But gas prices are rising, anyway though. Basically, we are exporting the energy that Americans do not need anymore. Our trade deficit contracted because of this reason. This will be a common trend of using less of everything but paying more.
The president goes on to mention that energy is just one of many infrastructure repairs needed to be done, “I propose a “Fix-It-First” program to put people to work as soon as possible on our most urgent repairs, like the nearly 70,000 structurally deficient bridges across the country….And to make sure taxpayers don’t shoulder the whole burden, I’m also proposing a Partnership to Rebuild America that attracts private capital to upgrade what our businesses need most: modern ports to move our goods; modern pipelines to withstand a storm; modern schools worthy of our children.” Unfortunately, the mindset that government repair programs legitimately create jobs is misguided. I am not the first, nor will I be the last, to point out the Broken Window Fallacy. In a nutshell, this fallacy lays out how government cannot create jobs, it can only reallocate resources. By taking resources (i.e. taxpayer money) and shifting it toward repairing and rebuilding damage to our infrastructure, what the public sees might seem like prosperity and job creation, but what is not seen is the potential use of those resources for production. Under this philosophy, natural disasters would be beneficial to the economy (I mean why not, if they create jobs needed to rebuild all the damage?).
Speaking of job creation, Obama then addresses creating an immediate-impact proposal which would increase the amount of money poor and low middle class workers have in their pockets, “Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong. That’s why, since the last time this Congress raised the minimum wage, 19 states have chosen to bump theirs even higher….Tonight, let’s declare that, in the wealthiest nation on Earth, no one who works full time should have to live in poverty — and raise the federal minimum wage to $9 an hour.” No, that’s wrong actually. I have ranted about minimum wage before and how it should cease to exist. Yes, one of the primary objectives of our nation is to increase the standard of living and potential wages that workers earn. But to increase wages unnaturally would result in a decrease of standard of living. It would result in more pressure on those unemployed to attain a job. If employers would not higher them at $7.50/hr, under what logic would those employers higher the same unemployed people at $9.00/hr? And for those Americans who struggle to earn a living at the minimum wage - by increasing the minimum wage, employers would have to seriously decide on whether or not their struggling employees are even worth paying more to! Think about it like this: why would you want to make hiring people more expensive… the way you reduce the demand for something is by increasing the prices. Of course, minimum wage is not everything the employer has to deal with - it’s payroll taxes, workman’s compensation, healthcare regulations etc. In fact, what this administration is doing puts more pressure on employers to survive (which is why we are seeing more companies put employees from full-time to part-time status). Even those minimum wage workers that do end up with a raise, where does that money come from? The employers either have to reduce the profit for themselves or raise up their prices. The president’s proposal would transfer purchasing power, not create it.
Another proposal that the president seemed especially giddy about was that of refinancing, “Right now, there’s a bill in this Congress that would give every responsible homeowner in America the chance to save $3,000 a year by refinancing at today’s rates. Democrats and Republicans have supported it before. So what are we waiting for? Take a vote and send me that bill… why would we be against that?” So $3000 dollars in American homeowners’ pockets, right? Well, where is that money coming from? Again, it is coming from the lender (bank, pension funds etc) who has to take the $3000/yr reduction in the income that is generated from that mortgage. Companies have to make greater contributions to their pensions, insurance companies raise their premiums to those insured, and banks become less viable because of reduced value of assets. We do not see the ramifications of this until interest rates rise. Banks fail as a result of low-yielding mortgages. Who bails them out, you ask? The homeowners with $3000 in their pockets, of course! It’s the circle of life in the eyes of the government. The detraction of this money from the homeowners is seen in the form of a debased currency, because printing money + not raising taxes + creating inflation and denying its existence = politicians favored choice of bailing out anything.
What he should have addressed to the nation is not a false sense of hope and empty promises and “fair share” philosophy. He should have been frank with the American people by saying promises have been made which cannot be followed through, how the government has brought us to bankruptcy, and how their has to be some sacrifices (not more entitlements) by Americans. The government doesn’t care for profits or losses because taxpayers are the ones who have to deal with the consequences. Any investment the government makes is done for political reasons. The only role of the government in this economic situation is spending money (by reallocating resources). Limiting government spending is absolutely key for the rebirth of our nation. It is just as morally unjust to lead our country on by saying everything is getting stronger, as it is for someone leading their partner on through a struggling relationship. Admitting their is problem is not enough. Admitting the right problem and suggesting immediate and legitimate action to be taken is a better course. But politicians wouldn’t want to do this, because they are afraid of the possible outcries of the American public. We need that fear. Our State of the Union should be fearful, if nothing else.