September 24, 2012
Obamanomics and Our PHUBAR Monetary PolicyBy Mike Johnson
Boy, do I have a deal for you! For just 100 large, the tenth part of a million, you can save $3,100 a year for the next ten years!
But wait, there's more! There is no need for you to spend even one red cent -- the upfront money comes right out of Obama's stash. That's right, OPM -- other people's money!
Sound absurd? Not in the Age of Obama. Exeter, NH recently installed a 50,000-watt solar array at their Public Works Department. See "Beam Me Up! New Exeter Solar Array Almost Done" by Jason Claffey of the Exeter Patch. The array will save Exeter approximately $31,000 over the next ten years. Is that a good thing? Oh, yes...for Exeter. For the rest of us, maybe not so good, considering that the upfront costs were $100,000. Yep, $3K-a-year payback on a $100K investment. Obama's stimulus, the American Recovery and Reinvestment Act, fronted the $100K.
I was so incredulous that I called the town hall and talked to the spokesperson for the project. We had a long and pleasant conversation in which we agreed that we were political polar (bear) opposites (which did not and should not make for personal enmity). She told me that the facts as presented in the linked reference are accurate. When asked if she found it disturbing that they had spent $100K to save $31K, she told me that in addition to being a good deal for Exeter, there was a significant reduction in CO2.
The Exeter anecdote is an example of Obamanomics and our PHUBAR (phonied up beyond all recognition) monetary policy.
What is Obamanomics? In a piece in the Wall Street Journal honoring Milton Friedman on his 100th birthday, Stephen Moore wrote, "Obamanomics may be the most expensive failed experiment in free-lunch economics in American history."
What is our PHUBAR monetary policy? In the same article, Mr. Moore went on to say, "Equally illogical is the superstition that government can create prosperity by having Federal Reserve Chairman Ben Bernanke print more dollars."
There is no mention of the time-cost of money, of the rate of social discount, or of cost-benefit analysis anywhere in the Exeter anecdote. In point of fact, these values and techniques are of little utility, given our PHUBAR monetary policy. Our current policy of keeping interest rates artificially low -- seemingly institutionalized by President Obama, Turbo Tax Timmy Geithner, and Benevolent Ben Bernanke -- has totally blown away any correlation between yields on Treasury notes, certificates of deposit, and other investment instruments and the common sense of free markets.
Every $100K in Obama's stash has a $40K (40%) borrowed component. The cost of servicing $40K is $600 per year at today's 1.5% PHUBAR 10-year Treasury note yields. The average yield since 1960 has been 6.7%, or $2,680 on $40K. Subtract $2,680 from the $3,100 savings, and you are left with more proof that investing in low-return projects with borrowed money is...well, Obamanomics.
What about the other $60K of up-front money? This was apparently available public money. If you spend it, as Exeter did, it is gone. If you do not spend it, it has worth beyond its face value. This is because of the discount rate, which is, say, 5% in an economy where rates are not set arbitrarily. Simplistically, $60K that you don't spend is worth an additional $3K per year (and you get to keep the $60K), so spending the $60K to save $3.1K is...well, Obamanomics.
No jobs were created, so there is no new revenue stream to replace the $100K.
Is this an unsophisticated analysis? Certainly, but it is a reasonable approximation, given a free market monetary policy, and it is at a scale comprehensible to us little people who cling to our guns and our Bibles. And there are other instances of bad economics with this administration, but at scopes and costs that boggle the mind to the point of being incomprehensible.
President Obama has a green fetish. He has bought into the alarmist interpretation of anthropogenic global warming (AGW). (While there is merit to the scientific theory of AGW, there is still considerable debate as to the validity of the data, interaction of effects, and the interpretation of the results. AGW alarmists take all possible variables to their worst-case extremes. AGW deniers refuse to admit to any risk at all. There is a middle ground of open-minded scientists.) Obama has selected his cast of supporting characters from fellow alarmists: Stephen Chu, Tim Geithner, James Hansen at NASA (National Aeronautics and Space Administration), John Kerry, Jack Lew, Jane Lubchenco at NOAA (National Oceanic and Atmospheric Administration), Leon Panetta, and Ken Salazar, among others.
Much of Obama's profligate spending, as can be seen from the examples in this essay, is associated with his obsession for going green at any price. Too bad he doesn't have a similar enthusiasm about understanding what he is doing. The Economist, in an article titled "Barack Obama's economic record end-of-term report," gave the president a much better-than-deserved report card. Even so, they still were forced to give him an "F" for "Industrial policy" because (paraphrased) "[g]reen energy and high-speed rail are predictable sinkholes for taxpayer money." President is too important a job to allow for an "F."
There are egregious examples of green-at-any-price that received lots of publicity, even from the liberal mass media, with the poster child being Solyndra. Solyndra was a solar energy firm that received a $500M loan from the Department of Energy (DOE) under Secretary Stephen Chu. For business reasons that perhaps should have been obvious at the time of the loan, things did not go well for Solyndra. Chu, ever the optimist, restructured the loan against the advice of the Office of Management and Budget (OMB) under Jack Lew (who is now Obama's chief of staff) such that private investors (one of whom was a major contributor to President Obama) got preference over the taxpayers. When Solyndra went belly-up in August 2011, the taxpayers recovered about a nickel on the dollar. While it is these venalities and perhaps illegalities that have garnered the bad press, the fundamental transgression was awarding such a risky loan in the first place.
As director of the Central Intelligence Agency (CIA), the avuncular Leon Panetta established the CIA Center on Climate Change and National Security. As secretary of defense, Mr. Panetta told the Environmental Defense Fund (EDF) that "[t]he area of climate change has a dramatic impact on national security." On his watch, the Air Force has purchased non-fossil aviation fuel for $59/gallon, and the Navy has purchased biofuel for $26/gallon.
So many examples, so little space. I will forego discussing ethanol and windmills and Chevy Volts, but I can't leave out the regulatory aspect. Kimberly Strassel addresses Obama's "fine-tuning the regulatory apparatus" in her excellent Wall Street Journal article "The Silent Second-Term Agenda." Paul Mirengoff of PowerLine, in an essay titled "Heading for the Regulatory Cliff," discusses several mega-billion-dollar anti-stimulus regulations. They will be foisted upon us in a second Obama term, to be paid for by Obamanomics. For example:
The liberal idea of a bargain, indeed. The three cents on the dollar in the EPA example correlates nicely with the three cents on the dollar from the Exeter anecdote. Obamanomics. Feel-good spending for the liberal psyche. If the money isn't there, borrow it; tomorrow is not your problem. A very different conservative idea was expressed by Paul Ryan in his acceptance speech at the Republican National Convention (RNC).
Debt keeps piling up. Confidence -- investor, consumer, international community -- keeps waning. Investment is stagnant, job growth is flat, the gross national product (GNP) is lifeless. We need look no farther than the past few years to see the results of Obamanomics as government policy.
Things can get worse -- much worse -- and will do so if we don't change our borrow-and-spend mentality. Look at the recent economic performance of Argentina. From a position similar to that of the United States, Argentina suffered a default and is now experiencing 20% inflation.
Bruce Johnson, in an American Thinker article titled "The Impotence of Monetary Policy and the Federal Reserve" states:
As I read this, Bruce is saying we cannot go back to a fair return because the debt service would eat us up. We have already gone down Mark Steyn's death spiral. I hope Bruce is wrong. Yet here we are with Quantitative Easing 3, $40B a month of freshly printed money with nothing behind it and no end in sight. Thanks, Ben.
Private investors do the equivalent of stuffing their cash in their mattresses because the current PHUBAR rates are so unattractive. Good ideas go unfunded, entrepreneurs lack working capital, jobs don't happen, and the government responds with more stimulus or "quantitative easing," fostering stagnation and perpetuating the problem. Stop the overspending Obamanomics, stop the PHUBAR funny money, and give the free market a chance.
Be it serendipity or whatever, we have the spot-on right people to do this. Romney/Ryan in November.
Mike Johnson is a concerned citizen, a small-government conservative, and a live-free-or-die resident of New Hampshire. E-mail email@example.com.
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