Categorized | Economics, Featured, Politics

Obama Unveils the Newest Deal

In a broadcast today, President-elect Obama unveiled the beginnings of his economic agenda. It’s a broad initiative tying massive infrastructure, health care, energy, and education  investment with job creation. The details are as yet undisclosed, but the Newest Deal appears to be as ambitious as Franklin Roosevelt’s version.

Obama vows to:

  • “Launch the most sweeping effort to modernize and upgrade school buildings that this country has ever seen.”
  • Make the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s.
  • Provide universal access to broadband internet connectivity.
  • Ensure that our hospitals are connected to each other through the Internet.

You can watch the video broadcast here:

There’s two concerns with these proposals:

New Deal programs have never been proven to work. in fact, there is widespread criticism within the economic community that suggests quite the opposite is true, that Roosevelt’s policies prolonged the Great Depression by at least 7 years.

UCLA economist, Harold L. Cole, argues that increased regulation, tariffs, collusion with organized labor, and significant transfer of resources from the private to public sector sharpened the economic collapse, worsened unemployment, and brought about monetary contraction (deflation).

“The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes,” Cole said. “Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”

America could afford the first New Deal. Government debt was only 20% of GDP when Hoover initiated the massive spending projects that Roosevel fashioned into his “New Deal.” Roosevelt doubled the national debt prior to the outbreak of World War II, pushing it to about 40% of GDP.

Without accounting for the heavy costs of recent bailout programs, federal debt has already crossed the 69% of GDP threshold. With ever-more bailout programs and a shrinking economy, the debt burden is only going to increase. At some point this will be unsustainable.

Politicians get elected by promising to “do something,” regardless of whether or not that “something” proves effective or fiscally possible. What politician dreams of achieving the nation’s highest office and then doing nothing?

It sounds nice to hear a confident man proclaim he knows exactly how to “fix” a crisis. But let’s be realistic. American schools are already over funded on a per pupil basis. Building new, green facilities will not improve education.

Hospital administrators, medical doctors, nurses, insurance entrepreneurs, and other health care professions are not dumb. If all that were wrong with health care was increased internet connectivity and other IT solutions, the problems would all have disappeared a decade ago.

Saying that he will “save lives” by telling doctors to use “technology and electronic medical records” is supremely arrogant and ignorant. Unfortunately, this kind of rhetoric leaves the real problems unaddressed, such as inter-state insurance competition, restrictive licensing barriers in the labor market, regulatory restrictions on care providers, and biggest of all, debilitating tort law.

Can America afford the “Newest Deal?” It is more likely that Obama’s policies will prolong the recession, making it far worse than is necessary. There are fundamental reasons why the economy is undergoing this contraction; Obama’s proposals are like putting a bandaid on a gushing arterial wound. Wasting time with the bandaid will cause the victim to bleed to death.

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4 Responses to “Obama Unveils the Newest Deal”

  1. gov records says:

    Amazing Article, Glad I found it.

  2. Hiring people to change light bulbs in federal buildings will save the economy?
    I always wonder if politicians actually believe the crap that comes out of their mouth.
    Apparently, Obama has never heard of the “broken window fallacy”. Maybe one of these light bulb changers would have came up with something remarkable in their garage while unemployed. Maybe this something would in turn create hundreds or even thousands of jobs. Maybe some of the capital that is being redirected from the private to public sector under Obama’s plans could have been invested in this company, but now we will never know. All we are left with are temporary public work jobs.
    Looks like a good time to start a light bulb changing company. There could be big government contracts in your future.

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