Since You Asked …

President Obama has done a dismal job his first few weeks. His lack of executive experience and competence has become painfully obvious around the world, even to many of those people who elected him in the forlorn hope that Obama would make things better rather than worse. Because Denial is the first stage in the way many people deal with Obama’s true level of performance, many on the Left desperately hope that his idiocy will somehow work out, even prove to be brilliantly successful. As it becomes increasingly obvious that President Obama’s plans are ill-considered and frankly damaging to the nation, however, that dismal hope has shifted to bitter accusations that Obama’s critics have not submitted alternative suggestions; every post I publish which point out Obama’s blunders will be met with at least one challenge from the Left to present my own plan.

First off, it needs to be noted that Republicans in Congress have offered a number of substantive plans – the problem there, is that Pelosi and Reid have shut down the traditional lanes of dialogue between parties to debate bills and propose alternatives. The stimulus bill and bailout packages were essentially rammed through the chambers; debate was killed from the outset. Next, while I consider myself reasonably intelligent and informed on the issues, one would expect that the President of the United States, having a staff of economic experts convened for his benefit and advice and the faculties of his office, would be able to produce a far more detailed, effective, and comprehensive program than any individual citizen; it seems to admit the unfortunate limits of the man to match President Obama with an ordinary run of the mill blogger. That is to say, there is no downside for me to fail in matching up with President Obama, seeing as he is the one who promised solutions and answers, indeed he all but promised miracles and he has all the tools and resources to address the issue, while speaking for myself I made no promises and have only my own experience and intellect to answer the questions. Should I prove to be at least the equal to President Obama in my resolutions, the reader will be compelled either to grant that I am an ideal candidate for POTUS myself, or that the man occupying the office is not nearly equal to the task.

So, to the issues. My approach is simple; Economics boils down to two essential ingredients – contracts and confidence. Every financial action amounts to a contract, whether it is hiring an employee, buying supplies to make the product, a customer purchasing the product or service, or whatever. It involves at least two parties making an agreement satisfactory to them both. And the satisfaction of that agreement depends on confidence. When confidence is strong, a company, business, or worker sees more revenue and activity, but when confidence fails, business falls off and times get tough. Call it a downturn, recession, or even a depression, at the heart of it the rough times all involve a collapse of confidence by the public in the economy. Therefore, the first cause of recovery from such a condition is the rebuilding and restoration of confidence. This is also one of the few areas where the President can have direct and beneficial influence, or he can screw things up and make the situation worse. The president can recommend actions to Congress and the Federal Reserve which increase the flow of money and credit. This action risks increasing inflation, but most economists regard moderately higher inflation an acceptable cost for lowering unemployment and reviving consumer confidence. Therefore, tax breaks for companies which hire significant numbers of new employees, especially by returning core operations and headquarters to the United States, are the historically preferred means for rewarding desired behavior and improving the domestic economy and stabilizing long-term confidence. Actions which demoralize industry, such as punitive taxes or public antagonism by political leaders, deter growth and recovery, which is one reason why things have simply gotten worse under Obama.

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It should be noted, at this point, that both parties are guilty of hyperbole in referring to the present economic condition in dire tones. Democrats have falsely compared the present condition to the Great Depression of the 1930s, in hopes of blaming the Bush Administration for the crisis, while Republicans have done so in hopes of blaming President Obama for turning a mild recession into a catastrophe. Neither comparison is valid, and the behavior only worsens the matter, since few sources in the media or the government are acting responsibly in describing the causes or effects of the situation. Whether inflation, unemployment, housing foreclosures, bank failures, or any other major metric of economic condition is considered, it is plainly dishonest to pretend that the current situation is at all comparable to the Great Depression. In this respect, what a President should do is call out the naysayers and pessimists, emphasizing the core strength of the nation and its workers, validating his own credentials by affirming the nation’s most essential treasure – it’s workers, investors, and yes it’s executives. Obama’s penchant for harassing the top brass at convenient target companies, even when the guys attacked came in to fix the problems caused by someone else, shows character and/or comprehension flaws that do him no credit and make the task of restoring confidence in the economy that much harder. I am not saying that I would lavish praise indiscriminately, but at the same time Obama’s habit of attacking whole demographic segments with general disdain is more characteristic of class warfare than sound understanding of economics. It may sound trite, but ‘praise in public, criticize in private’ also applies to public figures, as much or more so than anyone else.

In the matter of the AIG executive bonuses, for example, President Obama foolishly led a mob of outrage, only to be confronted with evidence that he had not bothered to find out the facts. It turns out that at least some of those AIG executives were brought in after things blew up there – they not only were not responsible for the company’s crisis, they were brought in specifically to set things right. Kind of like blaming firemen for the fire they are trying to put out. Next, it turns out that some of those AIG execs agreed to take only one dollar a year in salary; the “bonuses” were there to serve as actual compensation for their work, and those payments were tied to actual accomplishment of specified metrics. Once those facts became known, the moral thing for President Obama to do was to admit he was wrong and apologize, but being who and what he is, the President chose to switch gears and pretend he had never said what is plainly on the record.

With those AIG “bonuses” and executive compensation in mind, let’s take a look at the new trend among hystero-liberals like Barack “Panic” Obama – tossing out the idea of maximum pay for executives. To understand why this idea is incredibly stupid, let’s imagine for a minute that you buy a lotto ticket, and it wins. Let’s say you get a Cash Option ticket and after taxes it’s, hmm, let’s say 50 million dollars. Set for life, right? Well, there is talk about limiting pay under certain circumstances to a million dollars a year. Using that logic, the government would be telling you that you’d have to wait forty-nine more years to get all of your lottery winnings, even though the government would be sure to grab its take from the top. How many folks would buy lotto tickets if the payout was maximized per year? Not many, the whole system would collapse as demand folded, which is why no one has even suggested trying this stunt on state lotteries and scratch-off tickets. Lotto winners are just lucky, they don’t invest time in education and training and work to get where they are, like professional athletes, rock stars … and corporation executives. Not only that, lotto winnings are paid out of public money, while those executives everyone loves to hate so much are paid out of the company’s money. And yes, the government gave AIG more than a hundred billion dollars, but they not only did not prohibit bonuses which it turns out are both legal and appropriate, the bill which handed over the money specifically assured those payments. Once again, we have to decide whether President Obama is a lazy politician who does not understand economics, or a dishonest charlatan trying to create false outrage in order to advance an agenda he knows to be unconstitutional and which even his own party would shoot down in short order, were they to consider the submissions in clear and ordered debate. Had I been in Obama’s chair when the AIG story broke, I would have begun by getting my facts straight, and by protecting the fundamental priorities of the nation, in this case confidence in the corrections being exercised to right the ship. I would have used the influence that Obama so casually enjoys, to restrain members of my part from starting up witch-hunts or whipping up hysteria in the public forums.

Anyway, on to the core subjects – Economics, Trade, Finance, and Taxation. That’s what this all comes down to, you know, the fundamental forces and their effects on the public. I wrote earlier that consumer confidence is a critical component to recovering from this recession, so that’s our starting point. Any competent President knows better that to play on people’s fears, as Obama has done – it invariably causes greater long-term harm which does not justify the short-term political opportunities which Obama chose to pursue instead of the nation’s interests. I have said it before but it bears repeating; when Obama tries to sell his “stimulus” as virtuous and sure to spur the economy simply because he’s spending so many trillions of tax dollars, he betrays either a dishonest character or a horrible miscomprehension of economics. It is very much possible to simply be wasting money, no matter how much is spent, if the money is not spent in addressing the vital needs of the nation. To spend almost a trillion dollars without creating private-sector jobs, without assisting even one mortgage going through foreclosure at the moment, or establishing a method for restoring confidence in the finance industry, is the government equivalent of taking the mortgage money and spending it on hookers.

There is no painless solution; the key decision is who should pay, and how can the damage be controlled to affect the fewest innocent parties? Protecting jobs is paramount – wealth comes into companies because of working employees, wealth comes to families through wages, and taxes are paid through successful jobs and successful companies. Corporate taxes need to be lowered during a recession, because that rewards increased productivity which only happens by keeping employees and hiring more. Individuals should also not see taxes raised during a recession, because so many of them own and run companies and will lay off people if their taxes go up at a time when their revenues are already suffering. Also, investments in companies depend on individuals with the means and inclination to buy stock, fund ventures, and otherwise put their money where their confidence is. Raising taxes is necessary at times, but doing so during a recession is poisoning the patient.

As to who pays, there is no such thing as “too big to fail”. Take a look at the largest companies in America in 1850, 1900, and 1950. Some really big names went out of business, and harsh as it sounds that’s how the world works. No one gets to hang around just because they have a history. If there is anyplace where evolution works, its in business. Look at phone deregulation. Sure, it was a mess in places, but without it no one would have really developed cell phones, much less the variety of plans available today, in almost every country. Sorry GM, but your business model is a rotting corpse. Sorry AIG, but there is no right to make taxpayers keep you going. Bankruptcy courts exist for the same reasons you got into trouble.

Then there are the investment banks. No one can explain why speculation should be protected, because there is just no way to defend that argument. No one’s offering to pay me all the money my 401k lost in the last 6 months, no one has guaranteed my employer will stay in business, but these investment banks think they should be propped up for rotten judgment and a rather annoying lack of transparency about their practices and promises. Let the crooks go to prison, and let the bad banks fail. And make sure everyone knows which congressmen backed those banks.

Money should be spent, but wisely and with absolutely no sense or appearance of political gaming. Mortgages, for example, are a sound investment and it makes sense for the government to back problem areas provided it gets a take of the return. Enough good mortgages (mortgages with working families who want to keep and pay off their home) exist to cover the losses of the relatively few bad mortgages that will fail. And the return for the government could end up repaying a substantial portion of the program’s cost, in addition to preventing the mortgage company from being rewarded for risky behavior – if the government accepts risk, they must be paid according to the return.

As to trade, we must stop trying to solve everyone else’s problems, or deny that American businesses are the reasonable first focus of business. But protectionist policies do more harm than good, that’s the history of trade, and in any case protecting inefficiency and poor performance is plain stupid. Reward R&D, reward strategic industries, but stop pretending that buying a pickup truck will decide the fate of America’s economy.

Finance is a fancy word for figuring out how to pay for things. We had loans and credit as far back as the pharaohs, along with variations on bankruptcy, bad debt, and alternative payments. After several thousand years, we know the basics – everything has to be paid for, risk never completely goes away, and the possibility that something bad will happen means that sooner or later it will happen. There are laws on the books about transparency and accountability. Time to enforce them. Do that and folks will trust banks again.

As to taxes, it’s even more simple – reward people who pay taxes, not those who do not pay taxes. If you can’t handle that concept, there’s simply no hope you could understand anything more complex, and if you do understand that concept, you will also realize that tax reform has been overdue for more than a generation. Rates and specific deductions are symptoms, not the fundamental problem.

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