It seems entirely plausible that President Obama will find a way to keep the U.S. auto companies in a Democrat purgatory just above insolvency in order to enact a leftist industrial policy. All of this is about driving a leftist political agenda, not what is best economically.
I saw Bill Gross on CNBC last Friday. He is the head of the world’s largest bond fund company, Pimco. He has always struck me as apolitical. He is a guy who wins or loses making enormous bets in the fixed income market, and he is one of the best. I guess what I’m saying is he has to figure out what the truth is in terms of the economy to properly invest – irrespective of personal political beliefs. He said that his believes that we are headed to a “new normal”. This new normal will be one of extreme regulation and aggressive redistributionist policies. He believes that although in the past our economy has been able to grow at a rate of 3-4%, this new normal will only permit growth of 1-2%. That is a discouraging new reality.
Last year Charlie Gibson challenged then candidate Obama with the fact that his plan to raise capital gains taxes and top marginal rates would hurt economic growth and would lower tax revenues to the government? Candidate Obama acknowledged that that was true, but answered that he would still enact those policies in the name of “fairness”. This deep seated belief of Barack Obama that everyone should receive the same rewards without regard to an individual’s contribution is a fundamental Marxist tenant. “From each according to his ability, to each according to his need,” said Marx. Marxism severs any connection between contribution and reward.
The socialist economies of Europe have not created new net jobs in a generation. With apologies to Marx, in the real world people allowed to reap the rewards from risk taking is a powerful enabler of economic growth that benefits the greatest number of people through creating jobs and creating capital that can be reinvested in the economy. Pro-growth policies in America created 40M new jobs in the last 25 years. Government spending a dollar only takes a dollar away from private enterprise, through higher taxes or increased borrowing that has to be paid back, with interest. It is a zero sum game. Worse actually, because the dollar spent by the government is spent in a woefully inefficient way. Only through rewarding risk-taking is new wealth and capital created. But with Barack Obama and one-party Democrat rule we are headed to a world that many in Europe are now trying desperately to back away from.
The conservative President Sarkozy is now in power in France, attempting to stop the downward cycle of socicalist negative reinforcement. Numerous British politicians are imploring the U.S. to learn from their mistakes and avoid the trap of nationalized, rationed health care. Chancellor Merkle told Obama he was crazy if he thought she was going to spend stupid money on “stimulus” (“Stupid is as stupid does.”). The Obama deficits surge to levels that are unprecedented and unsustainable. From a historical 2% of GDP, Obama’s budget proposes deficits of up to 5% of GDP. The majority of economists agree that deficits at 4% of GDP are economically unsustainable. 5% will be catastrophic. All of this is even more disastrous if Bill Gross’ prediction of GDP growth of only 1-2% is correct.
Testifying before Congress, London School of Economics trained White House Budget Director Peter Ozag (who Obama promised was going to go through the federal budget line by line with a scalpel) admitted that spending and deficits at the levels proposed by the Obama administration are unsustainable. But last week the House and Senate both passed bills that are more or less consistent with Obama’s “ask”. Even more troubling, budget allocations for items like nationalized health care are acknowledged to be only a “down-payment”. The real cost will be vastly higher. But the Democrats are hurtling ahead, without time to even read their massive spending bills as they race to enact their final solution in the creation of the American welfare state.