From the July 17, 2009 Examiner (San Francisco)
July 17, 2009
by Irwin Stelzer
Death by a thousand cuts. Or in the case of the efficiency of the U.S. economy, by at least four: Energy policy, health care policy, trade union resurgence and fiscal madness.
Start with energy. President Barack Obama says our entire energy sector needs a makeover. Never mind that we are fortunate to live in a country in which inexpensive energy has produced the world’s most productive agriculture, a population capable of navigating America’s huge spaces in air-conditioned comfort, and permitted the substitution of energy plus brain power for back-breaking labor. Obama is going to fix it with wind that sometimes blows, solar power where the sun sometimes shines and perhaps even nuclear power. Cost is no object.
Unless environmentalists stop him — some oppose using desert acreage for solar panels, see wind turbines as eye sores and complain that we have no plan to dispose of long-lived nuclear waste. And as for coal, as we New Yorkers say, fugetaboutit.
All of this means that the electrical energy needed to power battery-driven vehicles won’t come cheap, if indeed it is available.
Energy is not the only sector that is likely to be less efficient than in the past. It is no coincidence that America’s superior productivity performance has coincided with the decline of trade unions, with the important exception of the auto industry.
And we have seen how union compensation scales and work rules have contributed to the bankruptcy of General Motors and Chrysler — a fate the nonunion car manufacturers have avoided. Yet, congress and the president are preparing to spur union growth by eliminating the secret ballot in union-recognition elections and, rumor has it, by exempting union members from the tax on employer-sponsored health care benefits that now seem to be the only way to pay for the Obama’s health care plan. Yes, this is the very same tax that candidate Obama belabored Sen. John McCain for proposing, and swore he would never impose.
There is worse. The president is about to engineer the takeover of the health care sector, unless private sector insurers can figure out how to compete with a new government entity that needs no profit and can set insurance premiums secure in the knowledge that taxpayer funds are available in a pinch.
Estimated cost through 10 years: $1.3 trillion to $1.6 trillion, adding to the upward pressure on taxes, especially on wealth-creating entrepreneurs, created by the administration’s runaway deficits.
It is not clear that the president will get all that he wants. But it is clear that whatever emerges from Congress will add to the cost of doing business, or to the tax burden of consumers, or both, further reducing American competitiveness.
Then there is the deficit, or more precisely the deficits — red ink as far ahead as the eye can see. Inflation might be tame right now, but sooner or later the flood of dollars will push prices up.
True, the Federal Reserve might call back some of those dollars, but Ben Bernanke, the chairman, would have three problems. He would have to know when to do that without aborting a recovery; he has written about the policy error in the 1930s when the Fed tightened too much, too soon, and therefore might be reluctant to move on time; and he might be reluctant to tighten just before the November elections, lest it affect his chances for reappointment.
Meanwhile, the administration simply has no credible plan to reduce the deficit to preserve the value of the dollar and to prevent interest rates from rising as wary investors price the risk of inflation into the price they are prepared to pay for government IOUs.
Obama long ago abandoned the pretext that his spending plans are merely temporary, aimed at stimulating the economy. They are, instead, commitments to continue spilling red ink on the government books long after the recovery takes hold.
Two thoughts pierce the gloom. The first is that the American economy might be large enough, and resilient enough, to remain competitive even bearing the weight of the new inefficiencies.
The second is that voters will demand a change of course before Obamanomics is permanently embedded in our system. Voters’ top worry is that they are leaving their children a mountain of debt, and they are right to worry.
Already, Obama’s approval rating among independent voters has fallen from 60 to 45 percent, and almost half of all voters think the administration has moved too far left. Even if the president doesn’t get the message, Congress might.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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