- The Economic Education Of Barak Obama

Barak Obama has never had to deal with the pressure of producing a profit, so he’s never learned how difficult it is. The closest thing that America’s community organizer in charge has ever done to a private sector job was teach at law school, and no one is as cloistered from the pressures of producing results as those in higher education.

To be completely fair about it, Barak isn't the only person in Washington who has some learning to do. Listening to Chris Dodd and the other imbeciles (of both parties) in congress talk about banking policy is like watching over a mine field planted outside an insane asylum. While he and the other inmates go chasing around the yard after imaginary demons, you sit there knowing it's just a matter of time before it ends badly. You just hope that not too many innocents get hurt in the process. But I digress.

The act of ‘getting more money’ has never been a troublesome issue at all from Barak Obama’s perspective. In his world you either ask your benefactor (usually the government) for more while describing your intentions, confident in the knowledge that no one will ever come back and ask you if the results you achieve matched your expectation. Or you simply go and take it from the taxpayers. That’s how you manage ‘more money’ in academia and government. And it’s this lack of a reference point for the difficulties of the private sector that has skewed Obama’s worldview in important ways; ways that we’re just beginning to see.

When I watch Obama and his team falter on economic policy, I’m reminded of how little he knew about this sort of thing going into the job of president. This in itself doesn’t strike me as such a big deal. There is no doubt that the job of president is harder than anyone who’s never had it thinks it is, and it always involves a measure of on the job training. But as we now stand, the markets are in open revolt against the Obama administrations ‘top down – managed economy’ and we hear expert after expert from the Democrat party trying to lower expectations by describing how hard it all is to get a handle on.

Well of course it’s hard… we already knew it was hard. In fact the only people who didn’t, seem to be the people in Washington who now say that they’re the only ones who can solve this. There is no entity in the private sector which has as thoroughly mismanaged its finances as the US federal government. And yet the government now wants us all to believe that the best way to solve these issues is to make the private sector work more like Washington instead of making Washington work more like the private sector. This is the kind of lunacy that only the self congratulatory dimwits in government could think was rational.

Washington and “Team Obama’ have had a lot to learn about how an economy works. They’ve already apparently learned ‘how hard it is’, and there are a few more things they’re about to learn which are even harder. Lets do a quick recap of where we are in the lesson plan:

Congressional Democrats pass an 800 Billion dollar ‘stimulus bill’ which is little more than a combination of political payback and liberal pork. By their own estimate only 60% of the bill is designed to do anything to help jobs, and of the 3 million jobs it targets, 600,000 of those will be government bureaucrats. This (and the other recent acts of the Democrat congress) have expanded our total debt to GDP ratio from 3% last year to 25% now. Add in a few more bailouts for the politically connected car companies and banks, and we could very well be looking at a total debt in 2010 that's 40% of GDP.

In order to fund the giveaway bill and the other government inspired wealth redistribution plans, the Treasury has to go out and borrow several Trillion dollars more than usual from the Chinese. But our government is already so in debt that the Chinese are reluctant to continue to feed our habit for cheap money. For the time being jawboning looks like it will be incentive enough so Hillary Clinton (popular with socialists the world over) is sent to beg and plead with the Chinese. But in the process, the Whitehouse has realized that it can’t fund all their plans with debt alone, so they announce a soon to be enacted tax increase on the rich.

They don’t worry about the disincentive this created for 'the rich' or the inspiration they'll have for legally avoiding those taxes. I know that if Obama wants to tax me an additional $20,000 per year, I’ll happily spend $19,000 per year avoiding it. (And I'll be sure to hire an international law firm to help me.) But Obama and his team apparently haven’t realized that sort of thing yet, so this brings us to the present day in the economic education of Barak Obama. Now let me detail a few other things he’s going to have to learn over the next few months:

When the rich are taxed, the government is taking away what would otherwise be investment capital in the financial markets. So instead of that money being used to create jobs and invest in new business and technology, the money will be used for some political purpose instead. Whether you agree with the political goal it’s used for or not you still must admit that removing the money from the markets will certainly cause stock prices to fall, and interest rates to rise.

As interest rates rise, and less capital is made available for business, economic growth will slow and tax revenue will fall, so taxes will need to rise again. Think of Barak trying to run up a very long and increasingly rapid escalator where reaching the top means that taxes have reached 100% and economic activity has fallen to zero. But even if he just keeps up, other market participants will see the writing on the wall and realize what’s coming next. And what’s coming next is that the Whitehouse will give in to the temptation to monetize the debt.

You see, as Democrat operatives and journalists have ceaselessly told us all, managing an economy from the top down is really hard. But buying the debt with newly printed dollars is actually quite easy. You simply print more money, buy the bonds (keeping interest rates low in the process) and throw the debt in the fireplace. In fact, in an economic emergency the added ‘liquidity’ could be credibly described as a good thing for the sake of the economy. This will give a party spokesman the opportunity to hail Barak’s great leadership at ‘slashing the government debt’ even in the face of continued economic crisis. Many Americans (and the New York Times) will think that’s a good thing but most won’t notice.

Of course, even though most American’s won’t notice, the Chinese certainly will. You see when they monetize that debt they will be lowering the value of the dollar, and that in turn will lower the values of all the dollars that the Chinese are owed. They won’t like that. And I don’t think they’ll take it sitting down. Expect them to stop buying US debt and for the value of the US dollar to collapse relative to the price of hard assets. There is a small chance that the administration will be able to negotiate a settlement with the Chinese, but given the performance of Team Obama so far, I’d bet against it. Their already demonstrated audacity seems to be their guiding principle to me, so personally, I have little hope.

Barak could forestall all of this of course, but it would involve abandoning his entire political philosophy so I don’t think it’s very likely. Instead I think he’s simply going to learn it all the hard way. He hasn’t had any experience dealing with economic reality, and we’re all going to pay the price for that now. This seems fitting since he was elected by people who are in the same place as he is with their economic education. The most pampered and spoiled generation in the history of America made their choice and they chose someone as untouched by economic realities as they are. So be it. They’re all learning together now.

And as an aside, for those who think this opinion is just partisan politics let me say this: I think John McCain would have very likely been just as bad at all of this as Obama is turning out to be. McCain was well known as an economic illiterate and has shown me nothing the change that view of him.

The fact is, I don’t intend this as criticism of President Obama exactly, just a recognition of the facts. He has no experience in dealing with economic reality, so it wouldn’t be fair to expect him to be good at it. And for the record, I don’t expect it, and neither apparently do the financial markets. They know exactly what’s going to happen and are changing to reflect that increasingly bleak view. He’s never had to deal with any of these issues before but the simple fact is, this is something that Barak Obama is going to have to learn. I only hope he can figure out which of his preconceived notions he needs to abandon before it’s too late for the rest of us.