The Fairy Tale of Obamanomics Has an Unhappy Ending

California’s weakness will serve as an example of where the Democrats and Barack Obama are taking the entire nation.

By Robert Wallace
America’s Right

Kevin Hassett’s headline says it all: California’s Nightmare Will Kill Obamanomics. His article basically argues that California’s budgetary fiasco is going to be seen as a prelude to a federal fiasco, and that the timing is perfect for shooting down ObamaCare.

The California morass has Democrats in Washington trembling. The reason is simple: If Obama’s health-care plan passes, then we may well end up paying for it with federal slips of paper worth less than California’s. Obama has bet everything on passing health care this year. The publicity surrounding the California debt fiasco almost assures his resounding defeat.

It is a good thing that the Obama health care plan will be shot down. At this time there are basically two possibilities: Either it gets passed with a public health care option, which will lead invariably towards socialized medicine, or it gets passed without one and will be an expensive exercise in chair-shuffling with no real health or economic outcome to speak of.

But on the other hand it’s very, very bad that we’re in the position we find ourselves in. Just as happened during the Great Depression, we’ve got presidents (Bush and Obama) who had no clue how to deal with the crisis. Bush was convinced by his advisers that if he didn’t bail out the banks we’d all go down the tubes. It turns out this his experts, like Obama’s experts had no idea what they were talking about. Crazy Uncle Joe has admitted as much on George Stephanopoulos’s blog:

We misread how bad the economy was . . . The truth of the matter was, no one anticipated, no one expected that that recovery package would in fact be in a position at this point of having to distribute the bulk of money.

It’s not like his admission is showing us something we didn’t already know. Here’s a graph (this version from the Innocent Bystander’s blog) that I’ve seen all around the web in the past couple of weeks. It shows that the actual unemployment rate is higher with the stimulus than the Obama administration projected it to be without the stimulus. Uncle Joe–famous for his over-the-top statements–is actually understating matters. They didn’t just misread the economy. They weren’t even reading the right book.


It’s bad enough that they “misread” the economy, but the real issue is that they should have known better than to bet the country’s entire future solvency on the ability of whiz-kids in Washington to predict the future. (Aside: Climate is much more complex than economy. How are those global warming projections holding up these days?) We’ve seen this movie before. It was trust in the “experts” over common sense that got us most of the fiascos we’ve seen in the 20th century, from the New Deal to Vietnam.

Not incidentally, this is what scriptures are talking about when they condemn prophets who tell the people what they want to hear. The message of the experts selling you on policies and politicians is always this: if we’re smart enough we will find an easy solution that lets us win without tradeoff. Without sacrifice. It’s really complex–so trust us–but it will also be easy. Hassett outlines how this sales pitch has led to ruin in California:

It takes years and years to make a mess as terrible as the California debacle, but the recipe is simple. All that you need is two political parties that are always willing to offer easy government solutions for every need of the voters, but never willing to make the tough decisions necessary to finance the government largess that results. Voters will occasionally change their allegiance from one party to the other, but the bacchanal will continue regardless of the names on the office doors.

It’s not hard to see why these types of politicians win in both parties. They win because it’s popular to tell us that we can have our cake and eat it too. We can all have zero-down-payment McMansions and a stable financial system! We can all have cheap, plentiful energy and national security through energy independence and feel-good cap-and-trade measures! We can have it all!

Well, we can’t have it all. More often than not, life is not complex and easy. It is simple and hard. One simple rule that might help? Don’t buy things you can’t afford. Not McMansions and not feel-good crap-and-trade fantasies. Another simple rule? Never invest in a business you cannot understand. That one’s from Warren Buffett, and it could be easily rephrased: Never vote for someone promising hope and change that they cannot explain.

According to the all-knowing Wikipedia:

Well into the 20th century, coal miners in the United Kingdom and the United States brought canaries into coal mines as an early-warning signal for toxic gases including methane and carbon monoxide. The birds, being more sensitive, would become sick before the miners, who would then have a chance to escape or put on protective respirators.

If California is our canary, it is currently laying stone cold at the bottom of the cage with feet sticking straight up into the sky.

Of course we’re not in a coal mine. Coal mines are places that you have to go to get coal, which is useful for our economy. It’s essentially a responsible, productive endeavor. Nothing about Obamanomics is remotely responsible or productive. As Hassett says:

The federal picture is so bleak because the Obama administration is the most fiscally irresponsible in the history of the U.S. I would imagine that he would be the intergalactic champion as well, if we could gather the data on deficits on other worlds. Obama has taken George W. Bush’s inattention to deficits and elevated it to an art form.

He then goes on to say that at least Reagan had a story. His deficit spending came about through lowering taxes, which he believed would kickstart the economy and lead to tax revenues down the road. Hassett says that Obama “has no story.” That’s not entirely true. Many economics undergrads will be happy to point out that the economic impact of government spending is considered to be greater than for lowering taxes. The basic idea is that when government spends a dollar it is injected straight into the economy. When a person saves a dollar in taxes, some of it might be used to pay off debt or put into savings. So government spending is better.

The usual problem with this is that the government often spends money on extremely unproductive activities that don’t actually contribute to production of goods and services. They are just spinning their wheels. Investors, on the other hand, are far better at seeking out opportunities for real growth and thus for real economic productivity.

The bigger problem in this case, however, is that the government spending comes at the price of printing money. Hassett points out that California is now sending out IOUs instead of cash. He writes: “Instead of cash, those who do business with California will get slips of paper.” Since our currency is no longer gold-based, however, the difference between “cash” and “slips of paper” is entirely one of perception. Our cash is only “slips of paper” backed by the Federal government’s solvency. The more cash we print the less reliable that solvency is, and the more our cash becomes just “slips of paper.” Monopoly money.

So it’s not that the Obama administration doesn’t have a story. They do. It’s quite a good story. It’s got adventure and risk, hope and change, and even a super hero who can lower the sea levels and heal the world with his presence. The problem is that if we were shelving it in a library it wouldn’t go in the economics section. It wouldn’t even be with the non-fiction books. It would go in the fantasy section with the hobbits and elves.

Hassett also hammers Obama for being short-sighted, writing: “The Obama administration has no shame, and is willing to abandon reason altogether to achieve its short-term political goals.” Here, again, I disagree. Obama is quite concerned with his own long-term legacy, and that is precisely why he’s not concerned with the threat of imminent financial collapse. Quite the contrary: Obama believes that crises are opportunities. He wants the US on the edge to cultivate an atmosphere of fear and immediacy that provides him ample political capital to enact his sweeping collectivist reforms. And if the US goes through major upheaval in the short-run, well, you can’t make an omelet without breaking a few eggs. Or a country.

The good news is that California’s meltdown is a great example of just what happens when you try to run a government while confusing a children’s fantasy story with an economic playbook, and there are growing signs that Democrats are unwilling to follow Obama off of a cliff.

The cap-and-trade vote in the House was essentially a referendum on Obama’s leadership of the Democratic Party. And he passed it, but only by an exceptionally narrow margin. As the crisis in California deepens American fear of deficit spending is going to heighten, and Obama will find it more and more difficult to keep his own party in line. With naught but a fairy tale and sinking poll numbers, the Democrats in the House and Senate are eventually going to see the writing on the wall and start looking for an alternative to Obamanomics.

—————
Robert Wallace has an academic background in mathematics and systems engineering. He has been writing for America’s Right since December 2008.

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Comments

  1. Robert Wallace says:

    Chuck in San Diego,

    I don't think we're in *totally* uncharted territory here. Not yet, at least. California issued IOUs instead of cash as recently as 1992. As I recall, it only lasted a few weeks before they managed to get a budget together.

    Don't get me wrong: I think the situation is far, far worse than in 92. We're headed for uncharted territory.

    We're just not quite there.

    Yet.

  2. Robert Wallace says:

    Rix-

    A bet is a great idea. I recently entered a long-term bet with another friend over whether or not Blue Ray DVDs would take over the market in 5 years.

    So what we've got to do here is propose a definite, measurable metric to decide who wins and who loses.

  3. Rix says:

    I have already commented on this very issue, but heck, I'll repeat: keep dreaming. California will not be the nation's canary; instead, it will become a bottomless vortex sucking in billions of federal money borrowed you-know-where. In about two years, with 2010 elections behind and Democratic majority in both Houses preserved amid numerous fraud allegations, federal property in California will start going as collateral for new Chinese loans. Wanna bet?

  4. Rix says:

    Robert:

    My best bet so far was a 10 to 1 payoff on Sarah Palin being the VP pick. I also predicted Obama's win in 2008 as far back as the day of his DemCon speech in '04, though stupidly put no money on it.

    So I say my bet is on Democrats to hold onto majority in both Houses in 2010. All Independents count according to caucus they sit with; a 50-50 tie in Senate goes against me. The bet is off if preterm POTUS election is called for any reason. Odds are 1 to 1 or your best offer.

    To think of it, my bet is an absolute win-win. If GOP breaks the strangehold Dems have on the Congress I'll likely gain much more in taxes that I could possibly dare betting on. :)

  5. PRESIDENTIAL PROZAC says:

    If I had a relative as suicidal as this government is right now, you better believe we would be having an intervention.

    Barry belongs in a straitjacket.

  6. John Feeny says:

    For me (and a lot of others, I would imagine), here's the real question: how many people believe that this has been a planned, calculated attempt to weaken the country? Obama's ties to anti-American sentiment are obvious; however, how to explain Bush? He clearly is an example of a 'progressive' Republican, in that he isn't really a Republican at all; nor would I say that he's a Democrat, as that group is currently constituted. I think to explain Bush one would have to look to his ancestors, many of whom had both business alliances with and sympathies for National Socialsim, and I think we all know what that is.

  7. conservative generation says:

    The left never thinks what they are doing doesn't work, they just haven't done enough of it yet. Great post.

  8. Black Dog says:

    I used to drink greyhounds. Lots of them. I quit drinking in 2007. April 30, 2007 at 3:48 p.m. was the precise moment I decided to clean up my life.

    Hopefully someone in California will get the message
    too.

  9. Chuck in San Diego says:

    Think about it this way: The state is now reserving the right to pay both it's employees and vendors who serve the state with IOUs.

    If YOU were a vendor—say a plumber–and you just performed $5000 of work at a state facility (like a school), and you sent your bill, and then they gave you a IOU instead of money, what would YOU do?

    You'd probably say, "To hell with you, I'm not doing ANY more work for you until you pay your bills."

    And, the word will get out fast, so no new vendors will fill those holes to take on jobs without payment in advance.

    Vendors don't serve deadbeats. The only losses the vendors will absorb are the initial hits. Then, they'll walk away from the job requests. It's better to stay home and do nothing than squander your time and materials on customers that don't pay.

    As a a result, state-owned resources (schools, state buildings, etc) will crumble. Leaks, breaks, etc will go unfixed. Computers and hardware will stay broken. Playground equipment and fences and walls will break and stay broken. Carpets soiled with kid vomit will stay soiled. Be prepared for some very scummy schools.

    And these resources become less safe, which means everyone who uses them—including our kids—will be less safe.

    We are all in uncharted territory here.

    How bad will things get before we find a way out?

    How long does this go on?

  10. LIBERAL LUSITANIA says:

    Elections have consequences,
    Sucks to be you California.

  11. GO EAST YOUNG MEN GO EAST says:

    Last person out of California hit the lights.

  12. vcw39 says:

    Let them stay there and eat their IOU's. The voters caused this problem, let them keep their problem.

    Word verification = purge

  13. Gail B says:

    MAYBE, just maybe–

    Maybe California will look around and realize that what they really need is a good conservative to steer their state in the right direction, to kick the likes of Pelosi and Boxer out because of the similarity in the tanking economy of their state and the nation, and turn the tables on the contemporary liberal Democrats.

    It's worth a concerted prayer!

  14. Gail B says:

    Way to go, BLACK DOG!!

    Hang in there!

    (What's a "greyhound?")

  15. Bodenzee says:

    Are these IOUs negotiable?

    What is the difference between these IOUs and currency?

    Has Article I, §10 been repealed?

  16. Anonymous says:

    Thank you for the insightful article. I am beginning to wonder if there will be any elections in the future. If things continue to spiral downward many states and individuals may pull away from the federal government to preserve themselves from the California mess. It is not going to take much to tip this scale. Obama has only been in office a short while and already our financial, manufacturing and capitalistic endeavors have taken a hit. Many have lost their jobs and we will continue to see more layoffs as companies cut back or leave the United States to remain viable. Most importantly – the bill will come due and this is when I think you will see the rift occur. Neither party currently offers a solution. They are both battling each other instead of preserving this nation. California is also a prime example of the "Me First" syndrome that has affected this country. All you have to do is read the history of Greece and Rome to see where we are headed.

  17. DID YOU FEEL THAT? says:

    Bankrupt California…. what the hell kind of chaos is the MAJOR earthquake that is LONG overdue there gonna cause?

  18. Da TERMINATUH says:

    state terminated

  19. IOU TILL YOURE BLUE says:

    We should pay all liberals EVERYWHERE in IOU'S since they aren't so keen on money anyway.

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