29 Apr Obamanomics and the Undermining of the American Dream – VIDEO ADDED
The following is the transcript of the speech I gave to the College Republicans of USC the evening of March 31. The event was sponsored by the David Horowitz Freedom Center, a group I am increasingly impressed with, and featured Sally Pipes of the Pacific Research Institute speaking about Obama’s health care plan, yours truly speaking on Obamanomics and the dangers it poses to the American dream, and lastly Dr. Victor Davis Hansen of the Hoover Institute (who is perhaps one of the rare beacons of conservative intellectualism still thriving). It was an honor for me to share the podium with such an esteemed panel of speakers, and it was certainly a blessing to be a part of an event at such an unparallaled university. Pipes and Hansen were characteristically outstanding, and I am just glad that the audience tolerated such a vastly inadequate middle act. DVD’s will be available soon. In the meantime, the transcript willl have to suffice.
It is a true honor to be here tonight, not only as a representative of the Horowitz Center, and not only as an opening act for the brilliant Victor Davis Hansen, but also as a proud member of the Trojan family. Cardinal and Gold runs through my veins almost as much as the free-market conservatism I am going to discuss tonight does. Thank you to the center and the university and the College Republicans for having me tonight.
Howard Dean said on CNBC a few days ago, and I quote verbatim: “Income inequality is a problem … What is the right balance between those on the top … and those on the bottom? When it gets out of whack you need to do some redistribution. This [health care plan] is a form of redistribution.”
I am actually passionately opposed to what Governor Dean has said here ideologically, and frankly offended by it as an American. However, and I mean this very sincerely, Howard Dean, the Chairman of the Democratic party, ought to be commended for the brute honesty embedded in this statement. It is appalling to me that he is willing to admit that legislative policy, social policy, and economic policy in this administration are driven by a desire to take from one group of people, and give to another group of people. But I am impressed by his candor and appreciative of his admission. I am here tonight to discuss the economic philosophy of the Obama administration. The Obama administration has not been as forthright as Governor Dean in owning the objectivesbehind their philosophy. I will start with a rarely played ditty directly from Obama’s own mouth:
“While many stakeholders made sacrifices and worked constructively, some did not. In particular, a group of investment firms and hedge funds decided to hold out. They were hoping that everyone else would make sacrifices and they would have to make none. I do not stand with them. I stand with Chrysler’s employees … I do not stand with those who held out when everyone else was making sacrifices. I support Chrysler using our bankruptcy laws … This is not a sign of weakness … Because of the fact that UAW and the banks have already agreed, this process will be quick, and it will be controlled, and it will not disrupt the lives of the people who work at Chrysler. This has the full backing of the key stakeholders at Chrysler… It was unacceptable to let a small group of speculators endanger Chrysler’s future by refusing to sacrifice like everyone else.”
The “speculators” he refers to were 75-year old widows who bought a contract that said in clear English, “you get paid before other people”. The evil “hedge funds” he refers to were vanilla bond mutual funds owned in 401k plans all over this country. It is patently false that sophisticated, malignant, evil, institutional investors were the ones not agreeing to a bankruptcy plan with Chrysler (and later General Motors) that would categorically dismiss our country’s bankruptcy laws, and coerce first position debt holders to subsidize financial payments to junior creditors that ended up receiving tens of billions of dollars which legally and contractually belonged to the bondholders. No, the people he refers to were investors like you and me. They were 401k plans and pension plans that make payments to retirees. The bondholders of Chrysler agreed to dismiss 50% of the principal they were owed – a completely voluntary dismissal of 50 cents for every dollar they were owed – and a week later were told that the bankruptcy laws of our country were being abrogated, and that our President “did not stand with them”. I would suggest to you tonight that it does not matter who these bondholders were, though I confess to being offended by the rank politicization of the process by which the laws of our land were so flagrantly violated. Dishonesty is especially unbecoming in an era of “hope and change”. But frankly, in the United States of America, we do not get to pick who deserves the protection of the law, and who does not.
A free market economy relies on one thing above all else to optimally operate, and that is “price discovery”, as the 20th century’s greatest economist, Friedrich Hayek, taught us. The price mechanism is irreparably harmed in a system where no one knows what the rules are. We have a legal structure to enable consumers, producers, investors, savers, bondholders, stockholders, creditors, vendors, and every other market participant to know what can and can not be expected in various sets of circumstances. Proper pricing in the capital markets becomes impossible when investors fear a change in the rules. Yields move up with perceived risk – it is Investing 101 – and risk is certainly escalated when contracts can be arbitrarily abrogated by the President of the United States. In the case of General Motors, the bondholders were owed $27 billion, and received 10% of the company in the government-mandated bankruptcy. The unions, on the other hand, were owed just $10 billion, yet received 39% of the equity of the company. Does anyone who seriously understands the math of what I just said really believe this does not disrupt price discovery?
I want to come back to the specific consequences that this egregious incident with Chrysler and General Motors has created. But my bigger point in leading off with it tonight is not just to highlight a truly disturbing incident perpetrated by the Obama administration. Backroom deals that favor political supporters (like unions) are not new. Frankly, I would prefer to believe that the Obama administration was driven by mere political-back-scratching in this case. But I do not believe that. I think it is far worse. For what we have seen in unambiguous terms in the first 14 months of the Barack Obama term in office is one thing: an economic philosophy driven by a belief in redistributionism (or collectivism, if yoiu prefer, or for that matter, egalitarianism). Barack Obama’s key operating tenet is that some people have too much, and need to give those things up for those who do not have enough. And he is working tirelessly to enforce this insidious economic dogma through the heavy hand of government.
You will hear me tonight be so vociferously critical of the Obama administration that you may end up with the wrong impression that I was a blind supporter of the Bush administration. Nothing could be further from the truth. My actual belief is that President Bush had no guiding econever got thomic philosophy whatsoever. He dabbled with Keynesianism, as in the case of his disastrous “stimulus lite” bill of early 2008 (this failure of a policy, railed against by the supply-side advisors Bush had throughout his economic team, has never received the negative press attention it desserved). He successfully took his turn as a supply-sider, cutting marginal income tax rates in 2001, and then cutting capital gain and dividend taxes in 2003 (these two tax cuts being the highlight of his Presidency). He was always a deficit dove, signing into law the biggest unfunded liability in U.S. history via the prescription drug benefit bill. And he was certainly not a pro-dollar President, seeing the value of the greenback slide roughly 40% against the Euro during his Presidency. He was at times a Free Trader, such as in his relentless efforts with Congress to pass the Central America Free Trade Agreement, yet other times a rank protectionist, like when he imposed the silly steel tariff during his first term. Bush’s economic legacy is a mixed bag of inconsistent policy and procedure, hence my conclusion that there was no definitive philosophy guiding President Bush’s economic governance.
But as scary as President Bush’s lack of an economic philosophy was, President Obama’s clear possession of one is even scarier. President Obama is not the moderate pragmatist that Bill Clinton was, who raised marginal income rates, but cut capital gain investment rates; who signed NAFTA into law, but loaded it up with restrictions; who passed sweeping welfare reform into law, yet oversaw larger entitlement distributions than any President in American history. When it comes to economic policy, my contention is that Bush was driven by nothing in particular, while Clinton was driven by pragmatic benefits – particularly at the polls. I would prefer both of those guiding lights – as flawed as they surely are – to the guiding light of Obamanomics: the un-American, un-Constitutional, unfathomable attempt to Europeanize American markets. My friends, General Motors, Chrysler, and “health care reform” are but the tip of the iceberg. While we have had endured a century of often frequently flawed economic governance in our country, we have never had a President so clear and overt in his underlying agenda: the creation of so-called “economic justice” by government fiat.
Consider the stimulus bill, passed into law just weeks after Obama’s inauguration. At a price tag of $800 billion, a wave of government spending was passed into law that would have made Lord Keynes himself blush. Keynes advocated stimulating aggregate demand via deficit spending, no doubt. But even Keynes began at a point of budget equilibrium when making such a recommendation. This stimulus bill – Keynesianism on steroids – started off with a deficit that was in excess of $1 trillion, and then threw $787 billion of new spending on top of that. Thus far, the bill has obviously done very little to create new jobs, though I concede that at some point we will see an increase in employment in our country (that is what most unemployed people do – get employed). But here is the problem: President Obama concedes the indisputable fact that virtually all job growth this bill aims to create is in the public sector. He praises the creation of additional government jobs, delineating the value of government service from the greed of private sector productivity. This is as scary as anything I have heard come from this President’s mouth. Do we believe that the best allocation of resources in our society will come from the hands of taxpayer-supported bureaucrats, or do we believe in our great tradition of freedom and prosperity that our individual pursuit of happiness will lead to the most efficient allocation of resources? Is there any country in the world that can boast generational improvements in standards of living like America can, based on a free market economy that rewards the pursuit of prosperity?
I am not making it up that President Obama sees a moral superiority in government service to that of private sector employment. He has said so explicitly. I think the fact that 7% of his cabinet appointments have any private sector experience says a great deal, but Obama’s own words help to illuminate the conversation as well. His famous “Country I Love” ad campaign in the 2008 election boasted that he “turned down those Wall Street jobs”, and instead went to pursue a life of real service ion public office. Perhaps the most haunting part of his woeful 2010 State of the Union address was this quote, which I offer verbatim: “All student loan debt will be forgiven after twenty years, but in only ten years if they choose a career in public service” … Never mind the fact that waiving loans extended to people who voluntarily took them does not seem like a legitimate function of the government, and never mind the fact that the only way the government can forgive those loans is through the confiscation of those funds from a different source (i.e. redistributionism), what exactly is the basis for doubling up on the promised goodie if one take a job in public service? Since when is it the job of the executive branch to set policies in motion that attempt to guide young people into a government job versus one in the free and open marketplace?
The President’s disdain for the private sector has been on open display throughout the financial crisis, but of course populist rhetoric and frequent Wall Street-bashing, whether stemming from justifiable anger or rank ignorance, is certainly a bipartisan activity these days. Has the President’s chosen path been one of reforming inept organizations? No. He bellyaches ad nauseum over the bailouts extended to Wall Street, yet never remembers to tell us that he voted for these highly lamentable bailouts. His policy response has been to massively expand upon the bailout money given to Fannie Mae and Freddie Mac – not to cut it back. His dealings with Wall Street has not been to craft a new set of rules and regulations that limit leverage or make clear that there is no longer such thing as “too big to fail”; rather, he seeks to address the financial crisis by setting compensation caps on those employed in the financial services industry, a solution that his advisors have uniformly admitted has nothing to do with the cause of the crisis, yet still accomplishes the punitive function the President wants. I do not have the time this evening to explain how silly the attempt to dictate what executives at shareholder-owned companies may be paid is, and I do not have the time to demonstrate the basic and obvious consequence that such an action would be – pushing the greatest talent and resources in our financial industry into the hands of foreign competitors. But what I do want to explain tonight is that the belief or hope that the President’s desired control over such things will stop at financial services companies is not grounded in reality. What is next? 501c3 organizations that pay salaries to their employees? You bet. A compensation committee or compensation czar for any industry dealing with governmental permits and regulatory approvals? I have no doubt. The slippery slope here is all too easy to demonstrate, and I would suggest to you tonight that it is well underway in our country.
Obama’s stimulus bill that I alluded to earlier tonight has been a political and economic fiasco for the President. At a cost of roughly $300 billion through lower tax revenues (yes, only 38% the actual stimulus price tag), the President could have achieved 2.5 times the job creation that the stimulus has created by simply eliminating the devastating 35% corporate tax rate American companies currently pay (far higher than the vast majority of European countries, including our friends in France and England). The President has consistently bashed the idea of cutting taxes on corporations, not because he is too economically ignorant to understand that corporations simply pass on that tax liability to their customers through higher prices or to their employees through lower wages, but rather, because it is ideologically at odds with his stated economic philosophy: Giving to those who have less by taking from those who have more.
Earlier in my speech I mentioned Friedrich Hayek, and I will close tonight by reinforcing the central thesis from his magnum opus, The Road to Serfdom. The difference between the totalitarianism of famed 20th century regimes and the collectivism of Euro-socialist states is one of degree, not of kind. America’s exceptionalism has been rooted in her respect for private property and her condoning the pursuit of material prosperity since her founding. The economic policies I lament in President Obama are not mere political differences, though surely those exist as well. The differences are above all else a “conflict of visions”. President Obama’s vision is one in which “those earning over $250,000 are doing pretty well, and ought to pay their fair share”. The American belief is that those earning over $250,000 are, indeed, doing pretty well, and ought to be incentivized to do even better. Indeed, the American ideal is that more and more people feel driven to pursue such income growth, such material prosperity, such uninhibited industriousness, that their dreams can come true as well. The American dream is not to be villainized for being successful. The American ideal values contract law, it values private property, and it discourages progressive redistributionism that ruin incentives, and ultimately turn us all into wards of the state. The Road to Serfdom is a slippery slope, and I fear tonight that unless the radical economic agenda of this President is defeated, we shall be well on the way down the road before we know it. Any government that robs Peter to pay Paul can always count on the support of Paul, the famous quote goes. May we stop this madness before we go past the tipping point.
I close tonight with this delicious nugget from Friedrich Hayek, and a prayer that his words will be taken to heart throughout our great nation, before we lose this Republic once held so dear.
“Independence and self-reliance, individual initiative and local responsibility, the successful reliance on voluntary activity, noninterference with one’s neighbor and tolerance of the different, respect for custom and tradition, and a healthy suspicion of power and authority: Almost all the traditions and institutions in which democratic moral genius has found its most characteristic expression, and which in turn have molded the national character and the whole moral climate of England and America, are those which the progress of collectivism and its inherently centralistic tendencies are progressively destroying.”