Saturday, July 24, 2010

Steve Forbes: Obama's Soft-Core Socialism

We've written extensively on the idiocy which characterizes Obama's approach to the economy in general and businesses in particular. These misguided economic policies are the result of a complete lack of practical business experience combined with a visceral hatred of liberty and free market capitalism by Obama and those who have shaped is view of America. Governor Palin has correctly noted that the Obama Administration's outright hostility to business and the enormous tax increases they have in store for us on January 1st will ensure either a double dip recession or, at best, anemic economic growth for the foreseeable future. In a piece late yesterday Steve Forbes Obamanomics in perspective:

A comedian or satirist could not have come up with the recent scenario of Treasury Chief Timothy Geithner and other Administration officials suddenly trying to reassure corporate chieftains that the Obama Administration is pro business and loves free enterprise. A close and powerful Obama aide, Valerie Jarrett, sent Verizon CEO (and Business Roundtable chairman) Ivan Seidenberg a letter declaring: "While we may disagree on some issues, we have an open door and are always willing to consider input and ideas from everyone, including the business community." That's like Dracula saying he prefers bottled water to blood.

Consider the letter's condescending tone regarding the Administration's open door extending even to the "business community." The business community employs 110 million workers. Companies and the people who work for them pay most of Uncle Sam's taxes. They are the font of the innovations that enable us to enjoy an ever improving standard of living. Now the Administration deigns to entertain input from the business community! How wonderfully nice and tolerant of the Obamaites to do so.

No sooner had the charm offensive been launched than the government showed its true colors by defiantly reimposing a ban, which had been overturned by a federal court, on deepwater drilling in the Gulf of Mexico and by straight-facedly proclaiming that all the stimulus spending has saved or created upwards of 3.6 million jobs and is a huge success.

The truth is that not even the Franklin Roosevelt Administration was as hostile to and ignorant about free enterprise as this Administration is. Almost every action Obama officials take underscores their belief in the stereotype that businesspeople are mostly amoral, corner-cutting, consumer-shafting, pollution-loving menaces. The economy itself needs to be tightly controlled and rigidly guided by Washington mandarins because free markets are inherently and destructively unstable.

One hesitates to bring up the economics of Benito Mussolini and his ilk because fascism means ugly nationalism and racism, as well as mass murder and aggressive war. So let's label the economic part of that ideology as neosocialist, corporatist, statist or--to be sophisticated and use a French word--dirigiste.

Under the corporatist state, private companies exist but take their direction from government. Competition is seen as wasteful and destructive and therefore must be "managed." There is a basic hostility toward small businesses precisely because there are so many of them, making them harder to regulate and more apt to do things without government permission.

Mr. Forbes, who would make a great Secretary of the Treasury, has written an excellent piece. Read the whole thing here. Obama and his liberal allies clearly distrust free markets as something they can't control. And that's what it's all about for them: control. They will say they're all for capitalism but it's not true, free market capitalism. It's something else entirely. Call it statism, soft-core socialism (as Forbes does), corporate capitalism, or crony capitalism, or whatever euphemism du jour you want but it involves ultimate decision making authority being vested in the government, not free markets. Liberals fear the unpredictability of change which inevitably results from free markets; what the great Austrian economist Joseph Schumpeter (no, he didn't speak "Austrian") referred to as "creative destruction":

Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase in population and capital or to the vagaries of monetary systems, of which exactly the same thing holds true. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.


The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation–if I may use that biological term–that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in. . . .

Every piece of business strategy acquires its true significance only against the background of that process and within the situation created by it. It must be seen in its role in the perennial gale of creative destruction; it cannot be understood irrespective of it or, in fact, on the hypothesis that there is a perennial lull. . . .

What Schumpeter is saying is that capitalism can be messy and uneven: that the creation of new, innovative products by entrepreneurial capitalists necessarily results in the destruction of those industries these new products replace. These new innovations produce tremendous benefits to society overall, but those employed in the newly obsolete industries are hurt. Liberals naively believe they can shield society from this creative destruction by having the government control or manage the economy, but what they don't understand is that without it, innovation and rising living standards are impossible. I'm sure when the automobile was created many jobs in the horse and buggy industry were destroyed, but does anyone (other than perhaps Al Gore) think we'd be better off without cars?

An excellent example of the waste associated with government attempts to manage creative destruction is with toll roads. Both the Ohio Turnpike and the New York Thruway employ thousands of overpaid unionized government workers, unnecessarily wasting tens of millions of dollars in order to "protect" non-economic jobs. Raytheon has developed a new technology making these employees and toll gates obsolete. If you've ever been to Toronto, you may have driven on the ETR. The ETR is what's known as an "open access all electronic toll highway". I've been on it many times. I drive on and off like any freeway. No stopping, no fiddling in my wallet for money, no long lines at toll booths. If they could do this in Ontario (not exactly a hot bed of free-market capitalism) thirteen years ago, why not here?

A colossal waste of resources such as this would never happen if these toll roads were privatized. If they were outside government control, this new technology would have revolutionized toll roads throughout America, creating many new, hi-tech jobs in the process. Instead, we're stuck with the inconvenience and loss of productivity of waiting in long lines at toll booths while we subsidize thousands of unnecessary public employee union members. The government never misses an opportunity to protect the politically connected few at the expense of the many. This is what inevitably occurs when the state owns or manages industries that they have no business being involved in. Backasswards statist economic thinking like this is the essence of Obamanomics or, as Forbes calls it, soft-core socialism, and the reason the economy will continue to suffer until Obama's policies are refudiated at the ballot box. You can't "control" free markets, nor should you want to.

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