Obama and his imbalanced ledger
FACT CHECK: A tricky juggling act as Obama urges more spending and a freeze on spending
The ledger did not appear to be adding up Tuesday night when President Barack Obama urged more spending on one hand and a spending freeze on the other.
Obama spoke ambitiously of putting money into roads, research, education, efficient cars, high-speed rail and other initiatives in his State of the Union speech. He pointed to the transportation and construction projects of the last two years and proposed "we redouble these efforts." He coupled this with a call to "freeze annual domestic spending for the next five years."
But Obama offered far more examples of where he would spend than where he would cut, and some of the areas he identified for savings are not certain to yield much if anything.
For example, he said he wants to eliminate "billions in taxpayer dollars we currently give to oil companies." Yet he made a similar proposal last year that went nowhere. He sought $36.5 billion in tax increases on oil and gas companies over the next decade, but Congress largely ignored the request, even though Democrats were then in charge of both houses of Congress.
A look at some of Obama's statements Tuesday night and how they compare with the facts:
OBAMA: Tackling the deficit "means further reducing health care costs, including programs like Medicare and Medicaid, which are the single biggest contributor to our long-term deficit. Health insurance reform will slow these rising costs, which is part of why nonpartisan economists have said that repealing the health care law would add a quarter of a trillion dollars to our deficit."
THE FACTS: The idea that Obama's health care law saves money for the government is based on some arguable assumptions.
To be sure, the nonpartisan Congressional Budget Office has estimated the law will slightly reduce red ink over 10 years. But the office's analysis assumes that steep cuts in Medicare spending, as called for in the law, will actually take place. Others in the government have concluded it is unrealistic to expect such savings from Medicare.
In recent years, for example, Congress has repeatedly overridden a law that would save the treasury billions by cutting deeply into Medicare pay for doctors. Just last month, the government once again put off the scheduled cuts for another year, at a cost of $19 billion. That money is being taken out of the health care overhaul. Congress has shown itself sensitive to pressure from seniors and their doctors, and there's little reason to think that will change.
OBAMA: Vowed to veto any bills sent to him that include "earmarks," pet spending provisions pushed by individual lawmakers. "Both parties in Congress should know this: If a bill comes to my desk with earmarks inside, I will veto it."
THE FACTS: House Speaker John Boehner, R-Ohio, has promised that no bill with earmarks will be sent to Obama in the first place. Republicans have taken the lead in battling earmarks while Obama signed plenty of earmark-laden spending bills when Democrats controlled both houses.
It's a turnabout for the president; in early 2009, Obama sounded like an apologist for the practice: "Done right, earmarks have given legislators the opportunity to direct federal money to worthy projects that benefit people in their districts, and that's why I've opposed their outright elimination," he said then.
OBAMA: "I'm willing to look at other ideas to bring down costs, including one that Republicans suggested last year: medical malpractice reform to rein in frivolous lawsuits."
THE FACTS: Republicans may be forgiven if this offer makes them feel like Charlie Brown running up to kick the football, only to have it pulled away, again.
Obama has expressed openness before to this prominent Republican proposal, but it has not come to much. It was one of several GOP ideas that were dropped or diminished in the health care law after Obama endorsed them in a televised bipartisan meeting at the height of the debate.
Republicans want federal action to limit jury awards in medical malpractice cases; what Obama appears to be offering, by supporting state efforts, falls short of that. The president has said he agrees that fear of being sued leads to unnecessary tests and procedures that drive up health care costs. So far the administration has only wanted to pay for pilot programs and studies.
Trial lawyers, major political donors to Democratic candidates, are strongly opposed to caps on jury awards. But the administration has been reluctant to support other approaches, such as the creation of specialized courts where expert judges, not juries, would decide malpractice cases.
OBAMA: Praised the "important progress" made by the bipartisan fiscal commission he created last year.
THE FACTS: The panel's co-chairmen last month recommended a painful mix of spending cuts and tax increases, each of them unpopular with one constituency or another, including raising the Social Security retirement age, cutting future benefit increases, raising the gasoline tax and rolling back popular tax breaks like the mortgage interest deduction. But Obama has yet to sign on to any of the ideas, even though he promised when creating the panel that it would not be "one of those Washington gimmicks."
Obama missed another chance Tuesday night to embrace the tough medicine proposed by the commission for bringing down the deficit. For example, the president said he wanted to "strengthen Social Security for future generations" -- but ruled out slashing benefits or partially privatizing the program, and made no reference to raising the retirement age. That left listeners to guess how he plans to do anything to salvage the popular retirement program whose trust funds are expected to run out of money in 2037 without changes.
OBAMA: As testament to the fruits of his administration's diplomatic efforts to control the spread of nuclear weapons, he said the Iranian government "faces tougher and tighter sanctions than ever before."
THE FACTS: That is true, and it reflects Obama's promise one year ago that Iran would face "growing consequences" if it failed to heed international demands to constrain its nuclear program. But what Obama didn't say was that U.S. diplomacy has failed to persuade Tehran to negotiate over U.N. demands that it take steps to prove it is not on the path toward a bomb. Preliminary talks with Iran earlier this month broke off after the Iranians demanded U.S. sanctions be lifted.
State of the Union shows Obama is now pro-business. He should be pro-growth
By Donald J. Boudreaux, professor of economics at George Mason University
In last night's State of the Union address, President Obama urged greater US competitiveness. But there's a big difference between cozying up to businesses and promoting policies that foster economic growth
Much is being made of president Obama’s new-found friendliness toward business, punctuated by his call “to make America the best place on Earth to do business” in last night’s State of the Union address. While moderates seem pleased, liberals dislike it, and conservatives suspect that the president isn’t sincere.
As an economist, I worry that Mr. Obama is sincere. But my concern about the president’s cozying-up to business differs greatly from the concern that animates the political left.
Contrary to popular presumption, being friendly to business is not the same as being pro-economic growth or pro-free-market. Adam Smith explained that a nation is wealthy only if its people have ready access to goods and services that make their lives healthy, comfortable, and enjoyable. The greater this access, the wealthier the nation.
Of course, to make available the goods and services that consumers want requires businesses. Unfortunately, throughout history, businesses have too often been saddled with excessive taxes and regulations in well-intentioned but misguided attempts to help workers and consumers.
Economists (especially the free-market variety) – concerned always to keep outputs of goods and services as high as possible – typically defend business against counter-productive government interference. We economists do so, however, not because we have special fondness for business. We do so because we understand that government interference in business often results in fewer goods and services for ordinary men and women – as consumers – to enjoy.
In short, an economy’s success is best measured by how well it pleases consumers, not by how well it pleases businesses.
Surprise: Businesses don't like competition
Each business sees matters differently. It wants to profit as much as possible. In a free market, businesses profit only by pleasing consumers. But a business that obtains special favors from government can profit without pleasing consumers. And it’s here that trouble starts.
Consider Obama’s commitment to make America more “competitive.” (He used variations of the word “compete” nine times in his address as part of his argument that American firms and workers are threatened by their foreign counterparts.) “Competition” sounds good. But businesses don’t like competition; they like protection from competition – along with subsidies, special tax breaks, and other government favors that relieve them from the need to cater energetically to consumer demands. So a pro-business president is prone to curry favor with businesses by shielding them from competition.
Tariffs and other import restrictions are examples of pro-business policies. They increase the bottom lines of those businesses that no longer must compete vigorously against foreign rivals. Such pro-business policies are also anti-consumer and anti-market. They rob consumers of choice; they shrink consumers’ spending power by enabling protected businesses to raise prices; and they stymie economic growth, in part by channeling entrepreneurs’ efforts into lobbying government for favors and away from figuring out how to build better mousetraps.
The irony is that such policies – which really should be labeled “crony capitalist” – are often labeled “competitiveness” policies. Because these policies increasethe profits of some domestic businesses, they are mistakenly believed to make the domestic economy more “competitive” when, in fact, they make it less so.
This abuse of language is further fostered by the habit of speaking of international trade using sports and martial metaphors, such as “level playing field” and “trade war.”
Trade: Why everyone wins
Trade, though, is neither a sport nor a battle. It’s simply what happens when two or more consenting adults exchange with each other on terms that each party to the trade finds agreeable. Unlike in football games or shooting wars, in which the victors win only by making others lose, in trade every party to every exchange wins; every party gains.
And these gains only increase as trade expands across borders. It’s true, as Obama recalled, that there was “a time when finding a good job meant showing up at a nearby factory or a business downtown. You didn’t always need a degree, and your competition was pretty much limited to your neighbors.” But don’t be blinded by nostalgia. That was also a time of far fewer miracle drugs, of more expensive clothing, of automobiles that broke down frequently, of televisions that cost an arm and a leg and received only four channels, and of no cellphones, personal computers, and the Internet.
The fact that trade is mutually beneficial means that Obama’s and others’ concern about America’s increasing trade with foreigners – especially today with China – is unjustified. Americans aren’t losing in these trades, and the foreigners aren’t defeating us.
Yes, America has a trade deficit. But contrary to popular myth, this fact does not mean that America is economically “uncompetitive.”
An American trade deficit means that foreigners are keen to invest in America. And that’s just what they’re doing, in a big way – bigger even than in China, a nation whose impressive economic growth is interpreted by many Americans as a threat to our economy.
Did you know that in the decade from 2000 through 2009, the total amount of foreign direct investment (FDI) received by China was $686 billion, while the total amount of FDI received by the U.S. was $1.8 trillion – by far the largest inflow of capital from foreigners received by any country on earth? America’s receipt of FDI dollars exceeded China’s by 162 percent. On a per-capita basis, the figure is even greater: The amount of FDI America received per person from 2000 through 2009 was ten times (!) greater than was received by China.
So when Obama said in his speech on Tuesday night that “We need to out-innovate, out-educate, and out-build the rest of the world,” he wrongly implied that America currently doesn’t do so well in the international economy. But it does – which is not to say that there isn’t a lot of room for improvement.
The president is correct that tax and regulatory reforms – along with reining in Uncle Sam’s deficit spending – are in order. Especially welcome is his call to lower corporate tax rates. And if calling such reforms “competitiveness policies” improves their chances of being implemented, I’m all for it.
But let’s not be fooled into thinking that America’s current economic troubles are caused by America’s open participation in global trade. Keeping straight about this fact will guard against our turning a blind eye to politicians who try to pass off policies that are pro-business as policies that are pro-growth.
Gov: ‘No Barack Obama birth certificate in Hawaii’: "Nationally-syndicated radio personality/entertainment reporter Mike Evans, a man self-described as a long-time friend of Gov. Neal Abercrombie (D-Hawaii), made the Drudge Report today after he made a shocking claim on Minneapolis’ KQRS-FM radio morning show Jan. 20. In short, Evans told the show host that Governor Abercrombie told him, “There is no Barack Obama birth certificate in Hawaii. Absolutely no proof at all that he was born in Hawaii.”
Rand Paul unveils plan for $500 billion in budget cuts: "Critics lashed out Wednesday at a proposal by U.S. Sen. Rand Paul to slash numerous federal programs, including food stamps, to save $500 billion in a single year. ... Paul introduced legislation in the Senate on Tuesday that would slash $42 billion from the U.S. Department of Agriculture's food stamp program -- a 30 percent reduction from the current funding level. It also would eliminate numerous other programs, including the Corporation for Public Broadcasting, the Consumer Product Safety Commission and the National Endowment for the Arts. Paul said the proposal, which also would cut $16 billion for the wars in Afghanistan and Iraq, would roll back federal spending to 2008 levels and eliminate what he considers the most wasteful programs."
Putin: Retribution “inevitable” for airport attack: "Prime Minister Vladimir Putin vowed 'retribution is inevitable' for the suicide bombing that killed 35 people at Russia's busiest airport, while President Dmitry Medvedev demanded robust checks at all transport hubs and lashed out at the airport for lax security. ... No claims of responsibility have been made for the attack Monday at Domodedovo Airport, which also left 180 people injured. Suspicion is likely to fall, however, on Islamist separatist insurgents from Chechnya or elsewhere in Russia's restive Caucasus region who have been battling Russian authority for over 15 years."
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