A brute inflationary monetary policy of the kind we are experiencing today can hardly avoid leading to a growth in GDP that, after all, is largely a record of consumer spending. But we cannot judge an economic policy to be "working" simply by detecting such an increase in GDP. Nor may we say policy has "succeeded" just from increases in government jobs or government-subsidized jobs. An economy's success, properly speaking, is one that increases long-term levels of production with robust private sector employment. In short, inflation and public sector growth do not mean a policy has "worked." As the essence of Obamanomics is easy money and government aggrandizement, there are lots of reasons for pessimism. Here are ten of them
10. The Obama economic team really does not know how we got into this mess. For example, Christina Romer, chair of the Council of Economic Advisors, claims that the "fundamental cause" of the current economic downturn is the decline in asset prices from the levels reached in 2006 and 2007, i.e., from the peak of arguably the biggest and broadest asset bubble in history. In other words, she believes that the retreat from absurd valuations is giving us problems.
9. Obama himself follows the scapegoating line initiated by Bush. He blames both the general asset bubble and its collapse on insufficiently regulated companies, rather than on fiat money and central banking -- the sacred institutions of the failed macroeconomic establishment -- which financed every aspect of the Great Bubble.
8. Larry Summers and Ben Bernanke consider credit and liquidity to be the "lifeblood" of the economy. So they will supply untold quantities of it to somehow "restart" financial markets. They are unaware that economic freedom -- let's call it the "oxygen" of the economy -- makes possible credit, liquidity, and financial markets.
7. The Administration tries to meddle with private contracts -- see its attempts to pre-empt the bankruptcy courts and undercut the functions of mortgage foreclosure clauses. For a few cosmetic results, it chills confidence in all future investments.
6. The federal government burdens what is now left of free markets by raising its own spending and borrowing and, of course, by planning to increase taxes and regulation.
5. Government creates a new welfare system for union members when it preserves zombie auto companies in order to save "jobs." It creates a sham "financial system" when it bails out "systemically important" banks and insurance companies -- those that are too embarrassing to fail.
4. The Administration's efforts to manipulate prices upward (as in the markets for residences and "toxic" securities) are irrelevant, at best, and are more likely to delay a return to normal functioning in those markets.
3. President Obama apparently believes that increasing taxes on some of us and then redistributing the money to favored groups and promoters somehow "stimulates" the economy. Who besides macroeconomists (and their former students) believes this?
2. The Federal Reserve Board has transformed itself into an obedient appendage of the Executive Branch of government. Few seem aware that it is managing our monetary system more recklessly than ever in its history. The historic quattuordecupling of bank reserves in the last six months (that's a multiplication by 14) sets the stage for a doubling or more of the money supply. (The Fed has never before dared to promote annual money supply increases of more than around 10 percent.) When and if a bogus "recovery" does actually begin under these conditions, remnants of sanity will force the Administration to reverse its easy money policy. (Reluctantly, to be sure. Romer recently warned of the dangers of reversing too soon.) That reversal, of course, will bring on still another economic relapse. So, American entrepreneurs, are you feeling brave?
And the number one reason Obamanomics won't work:
1. You can't push off the costs to our descendants. Many Americans worry that their "children and grandchildren" will suffer the economic hardship of repaying the Bush-bama trillion dollar deficits. But they won't. (The little darlings will repudiate the debt one way -- monetary depreciation -- or the other. Explicit repudiation. They will, that is, if the present generation doesn't do it first.) The current follies of economic policy are not an extravagance for which we can charge someone else in the remote future. We are the ones who, passively allowing this conversion to a command economy, will experience the deprivations it supplies to all but the politically connected. The transition starts now, with the private sector mired in paralysis and Washington, D.C., beginning to flex its muscle in earnest.
Mikiel de Bary works in the financial services industry and is a freelance observer of macroeconomics in contemporary society.