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Morning Bell: Big Government, Big Business, Big Problem

Posted By Conn Carroll On February 8, 2011 @ 9:10 am In First Principles | Comments Disabled

In what Politico [1] is calling “the first whiff of the desperation inside the White House about the slowness of the economic recovery,” President Barack Obama spoke to the U.S. Chamber of Commerce yesterday, claiming [2]: “I understand the challenges you face. I understand you are under incredible pressure to cut costs and keep your margins up. I understand the significance of your obligations to your shareholders and the pressures that are created by quarterly reports. I get it.” No. No, he doesn’t.

President Obama went on to say, “Even as we eliminate burdensome regulations, America’s businesses have a responsibility as well to recognize that there are some basic safeguards, some basic standards that are necessary to protect the American people from harm or exploitation. Not every regulation is bad. Not every regulation is burdensome on business. A lot of the regulations that are out there are things that all of us welcome in our lives.” Sounds nice. But then the President went on to defend Obamacare, which requires hundreds of new regulations [3], raises taxes by more than $500 billion [4], and has already forced the Department of Health and Human Services to grant more than 700 waivers to President Obama’s political allies [5].

Any successful market economy does require some basic rules of the road to function. But there is a big difference between a general system of rules that applies equally to everyone and an invasive regulatory scheme that rewards the politically connected. If the President truly wants to “get it,” he should read Bruce Caldwell’s new Heritage paper “Ten (Mostly) Hayekian Insights for Trying Economic Times [6].” As Caldwell notes, Friedrich Hayek stressed the necessity for clear and certain rules for markets to work effectively, but he also recognized the dangers that government regulations brought to the table. Specifically, Hayek noted that new regulations (1) always target the causes of the last crisis, not the next one; (2) insert uncertainty into the market place; and (3) are hijacked by strong special interests. On that last point Hayek wrote:

We must finally mention another instance in which it is undeniable that the mere fact of bigness creates a highly undesirable position: namely where, because of the consequences of what happens to a big enterprise, government cannot afford to let such an enterprise fail.

Caldwell notes that this passage is almost certainly referring to President Jimmy Carter’s first bailout of Chrysler in 1979 [7]. Fast forward to Sunday’s Super Bowl and the federal government is still bailing out Chrysler. Even as the company spent almost $9 million on the longest Super Bowl ad in history, Chrysler CEO Sergio Marchionne announced he was seeking a “better deal” on taxpayer-financed government loans [8].

This is what happens when big government and big business get in bed together: The taxpayer loses. President Obama went on to claim that all of the government “investments” he is pushing would be for “projects that are determined not by politics.” That is simply impossible: If it is the government that is making the investment decisions—whether they be for high-speed rail, electric cars, or solar power—then those decisions are by definition political. How can the President deny this simple fact?

The President ended his speech with an abridged history of the New Deal, noting that “the relationship between the President and business leaders during the course of the Depression had been rocky at times” but that at the onset of war, Roosevelt “gathered his family and he explained that he was going to head up what would become the War Production Board. … Not only did this help us win the war; it led to millions of new jobs and helped produce the great American middle class.”

There are indeed some parallels between the Great Depression and Great Recession. As President Obama noted at the beginning of his speech, today’s Chamber of Commerce supported his Recovery Act, just as 1933’s Chamber of Commerce had supported FDR’s 1933 National Industrial Recovery Act [9]. FDR massively expanded the power and reach of the federal government, causing entrepreneurs to leave their money on the sidelines [10]. President Obama has done the exact same thing. But let’s hope the parallels end there. As President Obama explicitly acknowledged yesterday, the New Deal didn’t end the Great Depression; World War II did. A “War Production Board” where big government and big business are one big happy “family” may have been enough to win World War II, but it will not “win the future.”

Quick Hits:

  • President Obama’s upcoming budget proposal is expected to increase payroll taxes [11] by as much as $100 billion over a decade.
  • That same budget also includes only $775 million [12] in spending cuts.
  • Responding to frustration with an inequitable economy, Egyptian President Hosni Mubarak’s government announced a 15 percent pay raise for public employees [13] and pensioners.
  • The top watchdog over AmeriCorps has told Congress that he has found several cases of fraud [14]—but that the Obama Administration has refused to prosecute them.
  • Senators Joe Manchin (D–WV), Ben Nelson (D–NE), Claire McCaskill (D–MO), and Jon Tester (D–MT)—all of whom are up for reelection in 2012 and represent states that Obama lost in 2008—are looking for ways to roll back the individual mandate [15].

Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/02/08/morning-bell-big-government-big-business-big-problem/

URLs in this post:

[1] Politico: http://www.politico.com/news/stories/0211/49026.html

[2] claiming: http://www.whitehouse.gov/the-press-office/2011/02/07/remarks-president-chamber-commerce

[3] requires hundreds of new regulations: http://www.heritage.org/Research/Reports/2010/09/Implementing-Obamacare-A-New-Exercise-in-Old-Fashioned-Central-Planning

[4] raises taxes by more than $500 billion: http://www.heritage.org/research/reports/2011/01/obamacare-and-new-taxes-destroying-jobs-and-the-economy

[5] has already forced the Department of Health and Human Services to grant more than 700 waivers to President Obama’s political allies: http://blog.heritage.org../2011/02/03/morning-bell-the-obamacare-assault-on-the-rule-of-law/

[6] Ten (Mostly) Hayekian Insights for Trying Economic Times: http://www.heritage.org/Research/Reports/2011/02/Ten-Mostly-Hayekian-Insights-for-Trying-Economic-Times

[7] President Jimmy Carter’s first bailout of Chrysler in 1979: http://www.heritage.org/research/reports/1983/07/the-chrysler-bail-out-bust

[8] Even as the company spent almost $9 million on the longest Super Bowl ad in history, Chrysler CEO Sergio Marchionne announced he was seeking a “better deal” on taxpayer-financed government loans: http://washingtonexaminer.com/blogs/beltway-confidential/2011/02/chrysler-releases-6m-ad-while-requesting-more-taxpayer-dollars

[9] just as 1933’s Chamber of Commerce had supported FDR’s 1933 National Industrial Recovery Act: http://tmh.floonet.net/articles/bigbiznewdeal.html

[10] FDR massively expanded the power and reach of the federal government, causing entrepreneurs to leave their money on the sidelines: http://economics21.org/commentary/response-paul-krugman%E2%80%99s-depiction-1937

[11] increase payroll taxes: http://online.wsj.com/article/SB10001424052748703507804576130890724243616.html?mod=WSJ_hp_MIDDLENexttoWhatsNewsThird

[12] only $775 million: http://thehill.com/blogs/on-the-money/budget/142335-lew-previews-cuts-in-obama-2012-budget

[13] 15 percent pay raise for public employees: http://www.washingtonpost.com/wp-dyn/content/article/2011/02/07/AR2011020706142.html

[14] several cases of fraud: http://www.usatoday.com/news/washington/2011-02-08-fraud08_ST_N.htm

[15] roll back the individual mandate: http://www.politico.com/news/stories/0211/49031.html

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