For anyone who has watched television in Maryland over the past year, he or she almost certainly has seen the Maryland lottery commercial where the farmer wife excitedly rushes to tell her husband that they're set for life--she just discovered that the new hen they own had laid a golden egg. The camera then focuses on the farmer holding a partially eaten fried chicken leg, and the wife's utter dejected look as she realizes where it came from. (There is then a pitch for the Maryland lottery and its set-for-life jackpot.)
You can almost hear America's global economic competitors snickering as Obama confidently asserts his vision for America's economic future: Perhaps nanotechnology, personalized medicine, decentralized energy systems, virtual organizations or flexible manufacturing networks? Not exactly. He's talking about "investing" in alternative fuels, health care, and education. These are not new targets of government spending; for example, health care costs are going up in part due to an aging population with inevitable Medicare costs, and Obama is looking to increase, at considerable taxpayer cost in the midst of a severe recession, the consumption of health care products and services on a sector already struggling to cope with inflationary pressures. The staggering amount of deficit spending (to be repaid by younger generations struggling to compete in a tough global economy) will lure those looking to exploit soft spots in federal program controls (e.g., Medicare fraud). In any event, the burden of proof is on Obama to explain why the private sector has failed to respond to the intrinsic worthiness of these "investments" and how the government can be trusted to manage them competently, given the questionable history of government spending in these areas.
The real issue is how Obama is going to stoke that goose that lays the golden eggs, the world's greatest economy. After all, the government grows its revenue when businesses and taxpaying citizens are doing well. Proper conditions include a government which is limited, unobtrusive and consistent; a government which does not lose focus, which knows its place and doesn't try to unfairly compete with the private sector, which responds patiently with restraint during challenging times, and whose budget does not crowd out private savings and investment needed to finance business operations and growth.
What kills the goose are things like raising taxes on investment income and individuals with the discretionary resources to invest in the private sector, maintaining globally uncompetitive business tax brackets, increasing the scope and depth of regulations and reporting requirements (which are a de facto form of taxation and constitute barriers of entry for entrepreneurs), and engaging in counterproductive trade wars. We don't unilaterally take on major tax increases (e.g., cap-and-trade) or spending initiatives (like health care) in the middle of a severe recession.
This does not mean there isn't a role for government, but we have to be cognizant of the political equivalent of Newton's Third Law: for every action, there is an equal and opposite reaction. If you raise taxes, or implicitly do so through government mandates (e.g., increasing the minimum wage), individuals and businesses can respond in a number of ways, including moving or shutting down operations, redefining compensation plans (e.g., deferred compensation), or restructuring investments (e.g., from dividend-paying stocks to growth stocks or tax-advantaged bonds). If the government, with its deep pockets, moves to compete against private health insurers, chances are that private insurers will try to maintain margins by stricter underwriting (e.g., refusing to cover people with preexisting conditions), withdrawing from higher-cost or regulated markets, lowering benefit caps or focusing more on niche markets (e.g., supplemental plans).
In addition, we have the Hawthorne effect: paraphrased simply in a political context, the government changes things, not intrinsically, but by how and what it spends, taxes and regulates. A relevant prominent complaint, for instance, against the No Child Left Behind initiative under the Bush Administration, is that teachers would teach to the tests (i.e., government benchmarks). (Without consistent, validated tests and related evidence, government has little objective basis for assessing teacher and school performance.) The recently-passed Obama "stimulus" bill recently included $2.5B for Michigan education, including $500M for Detroit's public schools--with their abysmal high school graduation rate and teacher resistance to workrule changes, merit pay and/or market-based teacher salaries, more administrative authority to fire mediocre teachers, and meaningful competition to the public school monopoly (in particular, charter schools). The issue of Detroit schools is not a question of teacher salaries or (another liberal favorite rationalization) class size; in fact, the school system is one of the area's largest employers. Without meaningful reforms, there is no real change: it's just, as a prominent politician once said, "more of the same" government waste of precious taxpayer dollars.
Does that mean there isn't a need for change or reform? No. The American system has top-notch health-related university and research programs, our quality hospitals and clinics attract visitors from around the globe (including from countries with nationalized health care systems), and the American pharmaceutical industry consistently leads in the introduction of innovative care. I believe that part of the problem deals with government itself--for instance, tying tax-advantaged benefits to businesses, allowing consumers to wait until they are sick to start insurance (which is rather like permitting coastal area residents to wait until a major storm approaches to buy flood insurance), and states creating barriers to entry by requiring specific benefit mandates.
On the other hand, we have arcane government policies which introduce moral hazards: for example, inheritance taxes and government requirement for citizens to drain their lifetime assets before agreeing to assume most or all expenses related to catastrophic injuries or conditions. What incentive is there for citizens to save and invest if their reward is to see people whom have spent money they don't have receive government assistance from the get-go? With respect to inheritance, resulting from post-taxed income and investment, what incentive is there to save if the government taxes your beneficiaries as well? We have policy biases which actually encourage citizens not to save and invest, not to mention Obama's transparent attempt to soak highly-taxed taxpayers and redirect the revenue to workers earning beneath the taxable floor. (This actually gives workers an incentive not to improve one's income by retraining for higher-paying occupations or moving to areas with better job prospects, because they would lose these lucrative subsidies.)
Conservative opposition to the Obama stimulus plan and budget is not simply saying "no", as liberal politicians, journalists or commentators (e.g., Chris Matthews) want Americans to believe. There simply has been no meaningful, cautious, measured response to the severe recession; instead, we've seen a "bait-and-switch" on a so-called stimulus bill, the vast majority of which has little impact on short-term spending, instead of a more tightly written bill focusing on relief spending and merit-based infrastructure initiatives and a massive new budget proposal that provides the largest expansion of new domestic spending in some 40 years, more likely than not to introduce new moral hazards and without proper objectives and rigorous management control, including the heightened risk for fraud.
More worrisome are the impacts on American business growth. Obama and Democrats seem intent on applying a European-style social liberalism to America; they seem to forget that with the increased government footprint comes a cost. You try to save some companies arbitrarily from bankruptcy, and you interfere with the natural dynamics of American capitalism. If you increase barriers to free trade, American businesses lose foreign markets. If you install new compensation mandates or restrictions on hiring and firing, you raise barriers to hiring. We don't need the government micromanaging the auto or banking industries.
What we need is thoughtful reform. For example, why was Madoff able to perpetuate his Ponzi scheme given the existing regulatory environment? Why was AIG allowed to write swaps without proper collateralization? Why didn't we foresee issues concerning using derivatives as part of bank reserves and the impact of mark-to-market accounting in frozen, illiquid markets? By insisting all due speed is necessary and snubbing Congressional Republicans, Obama is really intending to intimidate dissent and rule out authentic bipartisan action.
In short, Obama is doing to the American goose that lays the golden eggs what that Maryland farmer did to the golden hen: The average American has about as much chance of winning in an Obamaian economy as a Maryland resident has of winning the lottery.
