Last night President Obama delivered his constitutionally-mandated State of the Union address. It was, of course, little more than the official start of his re-election campaign. Still, the 65 minutes he spent in the House well delivered more than a few interesting tidbits. I thought we could have some fun digging into the speech‘s rhetoric and laying bare the facts.
Obama: “We have subsidized oil companies for a century. That’s long enough. It’s time to end the taxpayer giveaways to an industry that’s rarely been more profitable, and double-down on a clean energy industry that’s never been more promising.”
This is the third SOTU address in which he floated the idea of ending oil subsidies. It’s also going to be the third time this falls on deaf ears. He couldn’t get this passed in 2009, when his party controlled the House and had a filibuster-proof majority in the Senate – and that was with a specific legislation calling for $36.5 billion in energy taxes over ten years. The administration never followed up a similar proposal in last year’s SOTU with draft legislation. It seems equally doubtful that a candidate who received nearly $3 million in campaign donations from the oil industry (thus far) is in any rush to see this put into law. Further, we’ve seen the results of the investment in “green energy” companies like Solyndra. In blackjack, that’s the equivalent of “doubling-down” on a 9 when the dealer is showing an ace.
Obama: “Our health care law relies on a reformed private market, not a government program.”
Perhaps the President needs to go back and re-read that health care law. First of all, the reform relies primarily on an individual mandate, enforced through the IRS. If that enforcement doesn’t qualify as the biggest government program in history, then obviously I’m not as good a student of our nation’s history as I thought. And there are other, already existing programs that will be greatly expanded should the Supreme Court not throw the whole thing out this summer. For instance, Medicaid grows to cover anyone up to 138% of the official poverty line, which the CBO scored as requiring a funding increase of $434 billion per year. In and of itself, that would make Medicaid the single largest line item in the federal budget – and most state budgets, too.
Obama: “Take the money we’re no longer spending at war, use half of it to pay down our debt, and use the rest to do some nation-building right here at home.”
This is a wonderful assertion, except that it ignores the reality of the federal budget. The Iraq campaign was financed entirely on debt. Ending that war doesn’t actually result in any savings, except in the strange and convoluted world of Washington finance. It just means we’re able to borrow less money and keep everything else funded at the same levels. Of course, the President largely ignored the problem of the federal debt, so I suppose he thinks keeping deficits at staggeringly high levels in order to score a few rhetorical points is money well spent.
Obama: “Through the power of our diplomacy a world that was once divided about how to deal with Iran’s nuclear program now stands as one.”
I’m not sure which world he meant by this, but it obviously wasn’t this one. Yes, the European Union seems likely to join the US in applying stringent sanctions. But Russia and China have no intention of doing so, and both countries used their veto power in the UN to prevent that body from enforcing them. Besides, the sanctions will have limited effect on the Iranian economy, since the Iranians switched from accepting dollars and euros to rials or rubles. Just for good measure, Israel seems hell-bent on taking unilateral military action if they deem it necessary. It’s hardly the unified front the President presented.
Obama: “The Taliban’s momentum has been broken, and some troops in Afghanistan have begun to come home.”
Apparently, the President failed to read his latest NIE. In that document, the Taliban is expected to gain strength by using the ongoing talks to re-establish their legitimacy in the Afghani countryside while stalling until we pull out. This assertion is as hollow as LBJ’s that “the Government of South Vietnam has grown steadily stronger.” Of course, we all know well that turned out.
An overarching theme last night was the idea of economic “fairness.” As described by Mr. Obama, fairness is “an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules.” Yet, at no point did he actually outline how to make that a possibility. He suggested that millionaires aren’t paying their fair share of income taxes – yet according to the IRS the effective rate for those people is 26.5%. Only 10% of people making under $100,000 per year are paying a higher effective rate – and less than 5% of millionaires pay a lower rate. Thanks to that disparity, millionaires accounted for 36.5% of the federal government’s income. Unfair? You bet it is – but I doubt asking the 47% of Americans whose effective tax rate is negative to pony up is what the President had in mind when talking about “fairness.”
Finally, one thing was ominously missing from the speech: any discussion of individual freedom and liberty. The entire speech was a discussion of increasing the role and prominence of the federal government in our lives. “With or without this Congress, I will keep taking actions that help the economy grow,” declared the Mr. Obama. Quite frankly, I can’t think of a scarier statement by any President in our recent history. Putting aside the obvious constitutional questions raised by a President acting unilaterally, consider that some 13 million more Americans are looking for work since he assumed office and real GDP growth (accounting for inflation) is -7.3% over the same period, I don’t want this President touching the economy. Especially when he has demonstrated an incredible desire to amass power in the West Wing and during an election year.
President Obama’s “Son of Stimulus” (aka the American Jobs Act) is already dying the slow, tortuous death of a thousand paper cuts. And for good reason: the majority of Americans don’t buy the President’s latest smoke-and-mirrors plan. After all, stimulus was tried in 2009 and failed miserably. We were assured that spending nearly $800 billion in direct stimulus, plus billions more for “cash-for clunkers,” the automotive industry bailouts and banking industry bailouts would curb unemployment to 8% and have us under 7% by this point. More telling than the fact that was a terrible overshoot, is that nobody in the administration is willing to put any kind of number on how many jobs this latest round of stimulus would create. I doubt anyone in the White House actually believes this would really do much for the economy.
Americans intuitively understand that stimulus spending doesn’t really do much, except exacerbate the underlying cause of our economic malaise. Economists will tell you that the reason we’re in such a mess is because consumer demand – which fuels around 70% of total economic activity – is depressed. If only that were true.
The real cause for depressed sales is much more basic: people can no longer afford to buy consumer goods. They still want iPads®, flat-screen TV’s and new cell phones. But when they sit down with their bills each month, they aren’t willing to incur new debt to purchase them. After all, the debt frenzy that drove the last 20 years of economic growth met its inevitable end with the financial collapse of 2008. We’re still busy digging our way out from that mess and until the typical household reduces their debt burden, don’t expect them to begin spending again.
The same goes for government. The massive expansion of federal debt leaves Americans feeling equally queasy – after all, we just learned a valuable lesson about what happens when people and companies are over-leveraged. When public debt exceeds the total value of the economy and projected spending continues to go up, not down… Well, let’s just say we aren’t interested in finding out if an over-leveraged government can suffer the same fate as an over-leveraged household.
As I’m sure we’re all aware, the major political players in Washington agreed to debt ceiling deal last night. Reuters has a terrific breakdown of the final deal here. I’m not happy with this “deal” at all and if I were in Congress, would certainly vote “No” on passage.
Why? Simply put, this agreement does absolutely nothing about either the current deficit or the even larger problem of the national debt. In fact, passage guarantees that the debt will double over the next decade. And just for grins and giggles, there are also some really rosy ideas about anticipated economic growth baked into the framework – ideas that in light of last week’s GDP reports are proven to be a complete sham.
Let’s start with the sham of an idea that this deal somehow trims the deficit. The only guaranteed cuts in the whole package are for FY2012 – and they total all of $6 billion. Even if you use the overly-optimistic CBO estimate of “only” a $1.049 trillion deficit for FY2012, that amounts to about ½ of 1% of the deficit. To put this in perspective, it’s the equivalent of the average American cutting their total annual spending by $37.85, or the typical price for a dinner for two. This is every bit a dog-and-pony show, not budget cutting.
Secondly, this deal does little to curb long term spending, either. The final total of $2.4 trillion takes place over the remaining 9 years. However, the combined deficits over the next decade are forecast to equal another $13 trillion. That would bring the national debt to a total of around $28 trillion by 2020. Even if future Congresses don’t reduce that $2.4 trillion in deficit reduction (good luck with that), the federal debt will amount to $25.6 trillion in 2020. This package doesn’t do anything to actually begin reducing the debt. Only in Washington could a package that will grow the federal government’s debt obligation by 77% be considered a “debt-reduction plan.”
Finally, there’s the kabuki-theater method of arranging these “cuts.” Part of the reduction comes from presupposing that the Pentagon can find $350 billion in cost savings as a result of the wars in Iraq and Afghanistan ending. The deal-makers completely ignored the fact that we recently got involved in another war in Libya and also imagine that we won’t get involved in any others before 2020. I would like to go on record now as believing in the tooth fairy and unicorns, since those are less farfetched assumptions. There is a “super committee” that’s supposed to recommend budget cuts on a straight up-or-down vote; failing that, across the board reductions in all government programs. Well, almost all – federal employee pay, Medicaid, Social Security, welfare and veteran’s benefits are excluded. Considering we’ve already had 16 deficit committees in the past 20 years, each of which has said that the principle way to reduce the debt is to transform entitlement programs – and this deal exempts most of them from automatic cuts – how successful do you suppose this one will be? Expect another political dog-and-pony show, only this one should be a spectacle that would make PT Barnum proud. After all, it’s taking place during an election year. The posturing and grandstanding over recommendations that have no chance of passing both Congressional houses will liven up campaign ads and the evening news, but mean nothing.
So, no, I can’t support this deal. It just lends further proof that Washington is run by inept morons and snake-oil salesmen.