Dear President Obama

Dear President Obama:

Shortly after your election I wrote the following letter to you. In retrospect it appears that you ignored all my suggestions. In fact, it seems plain that you did exactly what I was afraid you would do. To drive home the point I have reproduced the letter in its entirety here. It was first published by the New Media Journal on January 14, 2009, shortly before your inauguration. I don’t expect you to change now, either. You seem relentlessly determined to persist in the most breathtakingly mindless, destructive policies ever pursued by a sitting president. But I do reproduce it here to show that your intentions were painfully clear to many of us from the beginning, and that awareness has grown to encompass a huge swath – if not a majority – of the voting public. The emperor truly has no clothes. Your intentions are bare naked before the world.

Dear President Elect Obama:

I understand that our economy is in rough shape. Decades of excessive federal entitlement spending, bailouts and risk guarantees have created an American culture that discounts financial risk. The toxic combination has ushered in a period of unprecedented uncertainty, along with a downturn which, though severe, is not, nor does it have to continue to be as severe as you and others are saying.

I understand you were born, raised and became thoroughly entrenched in Chicago politics. Indeed it is likely the main reason we are calling you “President Elect” today. I am probably tilting at windmills, but as you well know, “hope” springs eternal in the hearts of all men. With that in mind, please hear what I have to say.
For better or for worse, rightly or wrongly, the American people have given you and Congressional Democrats a rare opportunity to rule with little fear of challenge, either from Republican politicians or the public at large. You have the vast majority of the national, even international news media, enthusiastically, perhaps one could even say fanatically, on your side; so they will doubtless continue to regale your leadership, regardless of whether it leads to success or calamity.
So you really have little to fear from any outcome, at least in terms of what will be said about it in the media outlets that most people see. In such an atmosphere it is tempting to do what politicians do best: make sweeping rhetorical promises to save the country, while using the opportunity to go on a massive vote buying spree. This is unfortunately what many Congressional Democrats and some Republicans have in mind when you toss out numbers like a $1 trillion “stimulus” package. It also sounds like what you are preparing to do with your dire warnings of apocalypse. It may soften up the populace for what you want to do, but is adding to the uncertainty and fear in an already jittery market. Please knock it off!
You have said that “At this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe.” Even assuming you and Congress have the best of motives, a “hopey” assumption if ever there was one; if you intend to stimulate the economy mainly through government spending your idea is already headed for failure.
Government, by definition, takes. It does not produce. Government expenditure is by definition a zero sum game. With your $1 trillion proposal, either the government transfers $1 trillion from the productive private sector through taxation, which in-and-of-itself would have a catastrophic recessionary impact, (hint: don’t expire the Bush tax cuts just yet) or the government borrows that amount, removing funds from the investment stream that would otherwise be available for productive enterprises in the private sector. Either way, you are robbing Peter to pay Paul. It’s great to try to shore up the losers, but what happens to the winners?
The private economy is an engine of growth. Companies produce goods and services that people want and need to sustain their lives and be more comfortable and secure. As businesses thrive, the profits accrued generate still more business, more income, more jobs, more prosperity. Even the communists understand that prosperity derives only from growth in real (inflation adjusted) incomes. That only comes with increased labor productivity – i.e. more output per worker. That only comes from companies finding newer and better ways to produce goods and services that are needed and wanted.
Now there are of course the externality arguments that the private market fails to properly provide for “public goods” such as national defense, education, health and so forth. It is a non-sequiter however, to assume that just because the private market fails to adequately provide for these goods that the government does better. In fact, with the exception of national defense, it could be argued that the government has made matters significantly worse. That is certainly true with regard to education and health. Government meddling in these areas is primarily responsible for the messes they are in today.
But that argument misses the point anyway, because your $1 trillion is supposed to be an economic stimulus package. We need economic stimulus now, not ten or twenty years from now, when, if ever, that kind of spending bears fruit. You cannot stimulate the economy by taking resources from its productive sector, the private market, and transferring it to others.
It can’t do it! It is such a simple concept, it is deeply discouraging to find that it has to be explained to anyone, let alone someone charged with leading our nation! To add onto this various other social goals, like creating a false economy in “green jobs” only adds to the misallocation of resources, requiring permanently increased government spending at the expense of the productive economy. It is a prescription for calamitous disaster.
Your proposals for “doubling the production of alternative energy over three years, updating most federal buildings to improve energy efficiency, making medical records electronic, expanding broadband networks and updating schools and universities” are frankly idiotic. None of these will address the current economic crisis, which needs to be addressed NOW, and doubling the production of alternative energy will actually hurt the recovery. It will add, not reduce costs unless and until it can be produced more efficiently and even then will produce only a marginal benefit.
And how do you intend to create “3 million new jobs”; with government spending? In saying that 80 percent of those 3 million jobs would be in the private sector, how do you intend to boost the private sector? As I explained earlier subsidizing one sector by transferring income to them will negatively impact all the others. And does it mean the other 20 percent (600,000 jobs) would be government jobs? If so you are proposing to expand the federal non-defense workforce by over 20 percent. Are you aware of that? Such an action is NOT the answer.
But don’t believe me. You don’t have to. There is a glaring prior example to instruct you in results.
Some have called your plan the “New, New Deal,” recalling the nostalgia of FDR and his depression era New Deal. Please don’t do it to us! FDR’s New Deal insured that our economy remained in chaos from 1933 until World War II. In 1928 the unemployment rate was 3.2 percent. Following the stock market crash in 1929, the economy moved into recession. By 1932 it had fallen to 24 percent. Over the same period inflation adjusted GDP fell 25 percent. Most of this decline was the direct result of federal intervention initiated by President Hoover.
FDR expanded many of the programs Hoover had started and added his own. During this period, non-defense government spending more than doubled. Even with that spending however, the unemployment rate averaged 13 percent for the period. Furthermore, when those make-work programs came to a close, as they had to eventually, the temporarily employed workers were no better off, having to transfer their government make-work experience into real, permanent, productive jobs. Fortunately for FDR, World War II came along and the U.S. military became the replacement employer, though one hopes it won’t take another world war to save us from your “recovery” program.
FDR’s Secretary of the Treasury, Henry Morganthau admitted the failure publicly:
We are spending more money than we have ever spent before, and it does not work. … I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. … I say after eight years of this administration we have just as much unemployment as when we started … and an enormous debt, to boot.
FDR created a massive tangled web of other problems with his overbearing “solutions” – too many to be listed here, but such an outcome is guaranteed when politicians start throwing money around. And the mess increases exponentially when 535 Congressional politicians with self-serving vested interests get involved in the decision making, regardless the President’s motives. It gets even worse when state and local politics comes into play, as it inevitably does.
Don’t repeat history. Don’t make FDR’s mistakes all over again. His image may get boosts from misguided historians and flattering movies like Seabiscuit, but the Great Depression was a drag, and he made it much worse.
If you want to spend that money, there is a much simpler method. It will provide a huge, immediate stimulus to the economy, will not require any kind of burdensome government bureaucracy to oversee its implementation, and is guaranteed to make the most economically efficient use of those dollars. Simply declare a tax holiday. Texas Representative Louie Gohmert already has legislation proposed for the remaining $350 billion of the initial bailout money.
If this is the unprecedented crisis you insist it is; tax relief should be the primary consideration. After all, it is the heavy load of federal, state and local taxes that forces families to take two jobs and work extra hours. There have been mumblings that you are considering tax cuts of $300 billion. Why not make it for the whole $1 trillion?
Given that federal receipts currently run about $2 trillion, this would provide 6 months worth of 100 percent tax relief for every American taxpayer. It would mean immediate income of approximately $3,000 for every man, woman and child in the United States. Is that not better than shuffling a little here, a little there, to be administered by so-and-so, who then doles out a bit over time to whoever he/she wants? Would it not be better to really help people NOW, instead of creating massive new government make work programs that will take years to implement, and likely become permanent whether they provide any temporary relief or not?
I hope – there’s that word again – ardently, that you will take my message to heart and alter your plans accordingly. Perhaps we may after all see your campaign slogan “hope” put into constructive, positive action.
You do not have to. As I have said, your admirers in the press will likely congratulate you whatever you do. The ball is in your court. But this crisis requires a genuine solution. It requires real leadership, real greatness, not merely a continuation of empty campaign rhetoric, with typical Chicago-style backroom payoffs to political patrons. If you want to be truly great, then do what’s truly right. We will all love you for it, for a change your Party will have the right solution to an economic problem and Party will reap the rewards of genuinely saving us from economic collapse. If not, the slogan that brought you to power will be lost in the certain wreck to follow as “just words… just speeches.”
Don’t do that to us, please.
Jim Simpson
Economist, former OMB Budget Examiner, and gravely concerned American
Cross-Posted at

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