Both parties are currently operating as occupiers of the commanding heights. While it looks normal for Republicans to tell everybody else what to do, don’t forget that the Dems have their own fantasies about making the rest of us do what they think is right.
From Joseph P Calhoun of the Alhambra Investment Partners, in response to Obama’s state of the union speech:
This nostalgia for the post war period is misplaced for another reason. Much of what the President – and other Americans as well – pines for is a myth. The top down, command economy of the 50s was made possible only by years of world war and the conformism of a population accustomed to taking orders. It was a world of big business, big government, big media, big unions and the organization man. It wasn’t a time for taking risks or bucking the status quo. It was a world where order was prized over all else. It was a world where the commanding heights were a comfortable perch for those in charge. And the result, at least economically, was the 1970s, embodied almost perfectly by an insulated automobile industry that produced such memorable products as the Chevy Chevette, the AMC Gremlin and the Corinthian leather clad Chrysler Cordoba.
The economy cannot be managed in the same manner as the military and considering that it took nearly 10 years for our superbly trained military to claim victory in Iraq, it is doubtful we should try. Admittedly, it must be tempting for a President to believe something as important to his job prospects can be controlled but economic growth is not territory to be gained from other countries. The plans laid out by the President attempt to control the economy through a sticks and carrots approach that rewards companies who operate according to his blueprint and punishes those who don’t. His vision extends internationally to punish countries that “don’t play by the rules”. The President never acknowledges the potential damage to the economy of wielding too big a stick or offering carrots to the wrong horse.
That isn’t to say that other countries aren’t cheating in some respects, at least as the President defines it. China does manipulate its currency in an attempt to maintain a trade advantage and it does subsidize some of its industries. Unfortunately, punishing China for these acts while the Federal Reserve devalues the dollar and the President calls for more clean energy subsidies is like the pot calling the kettle black. The President is on somewhat stronger turf when talking about software piracy but even there the damage to our economy is likely negligible. What the President doesn’t seem to understand is that China’s policies have consequences of their own regardless of what the US does. The result of their currency policy is a large stack of US Treasuries and an inflation problem that makes our housing bubble look quaint by comparison. There is no such thing as a free lunch in economics and bad policies produce bad results no matter what country uses them.
The President and many other politicians ignore the 400 pound gorilla in the US economic living room – the Federal Reserve. In the same week the President laid out his vision for controlling the US economy, Ben Bernanke laid out a vision of his own. Mr. Bernanke believes every bit as much as President Obama that he can control the US economy. Many of the problems the President is trying to solve – and I think he is well meaning if misguided – are a result of the policies formulated by the Federal Reserve. Four decades of discretionary monetary policy have produced an economy dominated by a financial industry that benefits from Fed policies at the expense of other sectors. Too big to fail and all that implies is a direct consequence of Fed policies pursued since the end of Bretton Woods. It has also produced or at least exacerbated the inequality the President so rightly abhors.
