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Tuesday, November 25, 2008

President Elect Obama: Something Doesn't Add Up

Yesterday, President Elect Obama announced his economic stimulus proposal.

The president-elect said he wanted Congress to act “right away” on a stimulus measure that would blend spending and tax cuts. Asked for details, he said without elaboration that he wanted a measure “of a size and scope that is necessary to get this economy back on track.”

Democratic officials in Congress said the stimulus plan could include aid to cash-strapped states to provide health care to the poor, along with road and bridge funds. More money for food stamps is also likely, they said.

Obama renewed his campaign-long call for middle-class tax cuts but said he would let his advisers make a recommendation on whether to roll back Bush-era tax cuts for the wealthy.He offered few details about the economic stimulus measure he wanted from the new Congress, saying he would ask his new team of advisers to consult with lawmakers.

As a candidate, he supported a $175 billion measure, but the economy has worsened since then, and many lawmakers and economists argue for a more robust jolt. Obama said his goal was to create 2.5 million jobs by “rebuilding our infrastructure, our roads, our bridges, modernizing our schools and creating the clean-energy infrastructure of the 21st century.”

Today, here is what President Elect Obama said about fiscal restraint.

We cannot sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness, or exist solely because of the power of a politician, lobbyist, or interest group," he said.

Obama said he would ask his economic team to "think anew and act anew" to meet new challenges.

"We will go through our federal budget -- page by page, line by line -- eliminating those programs we don't need, and insisting that those we do operate in a sensible cost-effective way," Obama said.

Herein lies the rub, as Shakespeare might say. President Elect Obama wants to stimulate the economy through increased government spending. He wants to create jobs through a series of public works projects like building roads, bridges and highways. At the same time, he wants to cut funding to projects and programs that he thinks are inefficient and no longer useful. The problem is that cutting those programs would contract jobs.

Let's say the government is funding some useless study on mice. While there maybe no reason to fund this study, the funding creates jobs. Whoever receives said grant hires researchers, rents space, buys equipment. Some of the research may even be outsourced. The project may even hire consultants. All of this goes to expand the economy. This program may in fact be inefficient and even worthless but it also creates jobs. Cutting it will cut jobs. Cutting a mass number of wasteful programs will also cut a mass number of jobs.

What President Elect Obama is going to realize soon is that any plan in which the government leads in job creation is not a plan in which efficiency is of any priority. FDR didn't begin cutting "inefficient programs" while he expanded government. It would have been a counter productive move. Barack Obama will take jobs out of the economy at the same time he is putting jobs into the economy. What Barack Obama is proposing is creating jobs through one set of new government spending while at the same time cutting jobs through the elimination of other government spending. Does anyone else see this as totally fallacious?

This of course exposes the fallacy of using the government as the driver of economic growth. In order for any such plan to work it requires a massive growth in the size, scope, and spending of government. You can't cut government spending and expect the government to create jobs. Ultimately, the success of Obama's plan will come down to just how efficiently the new spending will be compared to how inefficient the old spending was. Even if Obama is able to spend efficiently the gains will still be marginal. In Barack Obama's plan, there is nothing to stimulate job growth in the private sector (like the plan I developed) In such a plan, making government more efficient is vital. Instead, President Elect Obama's plan relies on making the government as big, powerful, and expansive as possible. Such is, in my opinion, a recipe for economic disaster.

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