Obama's fatal conceit

Obama gave a dire speech today at George Mason University. It sounded impressive, but only if you take it at face value and fail to check the facts or question the logic. He was in full-blown Keynesian mode, arguing that massive government spending is the only thing that can save the day. Here are some key quotes, followed by my rebuttals:

We start 2009 in the midst of a crisis unlike any we have seen in our lifetime - a crisis that has only deepened over the last few weeks.

As I've been pointing out for some time, the economic and financial fundamentals have actually been improving over the last few weeks.

Manufacturing has hit a twenty-eight year low.

He's evidently referring to the ISM manufacturing index. But that index does not measure manufacturing activity, it only measures the percent of respondents who see things getting worse or better; it's a diffusion index, not a level index. Industrial production, as measured by the Fed, is down only 6% from its all-time high, and is 83% above the level of 28 years ago. This is a gross misrepresentation of reality. Shame on all those intelligent economic advisors who let him get away with such a blatant twisting of the statistics.

Many businesses cannot borrow or make payroll.

The economy is not suffering from a shortage of credit, as I've noted repeatedly. All measures of lending to U.S. businesses show rising trends. Bank lending is at or near all-time highs.

We arrived at this point due to an era of profound irresponsibility that stretched from corporate boardrooms to the halls of power in Washington, DC.

Corporate boardrooms had very little to do with this crisis. The principal causes of the crisis stretch back to the creation by Congress of Freddie Mac and Fannie Mae, unique for-profit enterprises that were encouraged to take on increasing levels of risk that were ultimately guaranteed by taxpayers. It was not for lack of regulation that everything came tumbling down—there were plenty of rules in place and plenty of regulatory bodies, but they either failed to act or were discouraged from acting by politicians. Congress bears a heavy burden of the responsibility for the crisis, yet Congress is now being put in charge of fixing the mess.

We cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government ... can break the vicious cycles that are crippling our economy - where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.

The first clause is absolutely correct, but then he suspends disbelief and reverts to flawed Keynesian thinking and contradicts himself. Spending is not the source of economic growth; were it so we could simply spend our way to prosperity. We can only consume what we produce. Recovery efforts should be directed at increasing work, investment, and production, not at trying to stimulate consumer spending

We need to put money in the pockets of the American people, create new jobs, and invest in our future.

Every dollar the government puts in the pockets of the people is a dollar that comes from the pocket of someone else; how can that result in a bigger or stronger economy? How can the government create jobs that are better or more productive than those created by the private sector? How can government decide what investments are going to produce attractive returns for our future?

We will modernize more than 75% of federal buildings and improve the energy efficiency of two million American homes, saving consumers and taxpayers billions on our energy bills.

Is "modernizing" federal buildings going to produce a return on investment superior to what the private sector could get if its money were not appropriated? I doubt it. Is improving the energy efficiency of a small sector of our economy going to make any difference at all to the planet Earth?

To get people spending again, 95% of working families will receive a $1,000 tax cut.

The majority of working families pay little or no income tax, so this is not a tax cut he's talking about, it's a handout. This is likely to restrain the economy's ability to grow, since it rewards those who aren't producing a lot and punishes those who are (since they won't receive the handout and will have to foot the bill for it). And besides, we've tried rebates before and the results have been dismal. It's almost as bad as throwing money down the drain.

We'll continue the bipartisan extensions of unemployment insurance.

This will only delay the onset of recovery, since it reduces the incentive of the unemployed to find work. We've done this every time the economy slows down, and the main result is to simply increase the ranks of the unemployed. It's a nice humanitarian gesture, but like every government action, it leads in many cases to unintended consequences.

The American Recovery and Reinvestment Plan won't just throw money at our problems - we'll invest in what works.

The fatal conceit of politicians is on display here: how in the world are government bureaucrats going to decide "what works?" A handful of people are going to be making multi-billion dollar decisions using taxpayer money. The potential for waste, fraud, and inefficiency is staggering.

I could go on, but for now, 'nuff said.