Wednesday, December 10, 2008

Obama's New Deal, Worse Than the Original

Apparently determined to offer more bad ideas per week than any prior President-elect, Obama's been touting a massive new public works program. Pretty ambitious for a guy who isn't even in office, yet. But what else has he to do for the next six weeks to keep his name in the papers than continue to campaign?

He describes his proposal thus:
First, we will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won't just save you, the American taxpayer, billions of dollars each year. It will put people back to work.

Second, we will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s. We'll invest your precious tax dollars in new and smarter ways, and we'll set a simple rule - use it or lose it. If a state doesn't act quickly to invest in roads and bridges in their communities, they'll lose the money.

Third, my economic recovery plan will launch the most sweeping effort to modernize and upgrade school buildings that this country has ever seen. We will repair broken schools, make them energy-efficient, and put new computers in our classrooms. Because to help our children compete in a 21st century economy, we need to send them to 21st century schools.

As we renew our schools and highways, we'll also renew our information superhighway. It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here, in the country that invented the Internet, every child should have the chance to get online, and they'll get that chance when I'm President - because that's how we'll strengthen America's competitiveness in the world.
I've already written ad nauseum that any public works program is inherently impractical and immoral. Impractical because it commits the Broken Window fallacy. Not technically a fallacy, it's nevertheless a serious error.

Here's how the great French author Bastiat first described it:
Have you ever been witness to the fury of that solid citizen, James Goodfellow,*1 when his incorrigible son has happened to break a pane of glass? If you have been present at this spectacle, certainly you must also have observed that the onlookers, even if there are as many as thirty of them, seem with one accord to offer the unfortunate owner the selfsame consolation: "It's an ill wind that blows nobody some good. Such accidents keep industry going. Everybody has to make a living. What would become of the glaziers if no one ever broke a window?"

Now, this formula of condolence contains a whole theory that it is a good idea for us to expose, flagrante delicto, in this very simple case, since it is exactly the same as that which, unfortunately, underlies most of our economic institutions.

Suppose that it will cost six francs to repair the damage. If you mean that the accident gives six francs' worth of encouragement to the aforesaid industry, I agree. I do not contest it in any way; your reasoning is correct. The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen.

But if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.

It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them.
All public works programs, since they take money from one group to spend on another (though they sometimes overlap) suffer from this problem.

That, too, is the reason they're inherently immoral. If any private citizen forcibly took money from one man to give to another, we would not hail his actions as "bold, persistent experimentation," as were FDR's.

Obama, acting like FDR, Jr. and trying to outdo dad, is making the same mistakes. Even one of his own chosen senior economic advisors, budget chief Peter Orszag, said so.
Practically speaking, however, public works involve long start-up lags. Large-scale construction projects of any type require years of planning and preparation. Even those that are "on the shelf" generally cannot be undertaken quickly enough to provide timely stimulus to the economy. For major infrastructure projects supported by the federal government, such as highway construction and activities of the Army Corps of Engineers, initial outlays usually total less than 25 percent of the funding provided in a given year. For large projects, the initial rate of spending can be significantly lower than 25 percent.

Some of the candidates for public works, such as grant-funded initiatives to develop alternative energy sources, are totally impractical for countercyclical policy, regardless of whatever other merits they may have. In general, many if not most of these projects could end up making the economic situation worse because they would stimulate the economy at the time that expansion was already well under way.
In this case, Obama's proposal is even more ridiculous in some ways than Roosevelt's disaster.

First, the idea that, even apart from the Broken Window problem, there is much cost savings to be had by changing light bulbs and replacing aging heating systems in public buildings is beyond absurd. This is 'make work' at its finest, or lowest, if you prefer.

Second, there's no question that America could use some new roads and good bridges. But creating jobs for new highways is, sadly, predominantly a State matter, not a Federal matter. (Sad because roads should be privatized.) And, as we know too well by now, the track record for States using Federal money wisely is not so great. Even Federal highways won't benefit much from new 'investment' when (a) no one can afford to drive long distances on them these days, and (b) there remain the endemic problems of cronyism, four men watching while one works, and the rest.

Modernizing schools with public funds is equally misguided. To believe that education today suffers chiefly because it lacks high-speed Internet lines and the newest computers is simply false. The average school child was infinitely better educated a hundred years ago, decades before even radio was available. If you doubt this, the proof is simple. Read a mathematics test such a child was required to take in order to get a diploma. Its test problems would give most college graduates, nay most college professors today a very stiff challenge.

But then, when did identifying a proposal as flawed ever stop a politician from mouthing it? After all, so what if it entails robbing some to give to all — and is impractical to boot? That's a small thing when it comes to the need to be seen offering "a plan," and a 'bold' one at that. We can only hope that, like so many of his ideas, this one is abandoned in a week. In this case, I fear that will turn out to be a vain hope, faced as we are with a man determined to be FDR II.


Brad said...

Pseudo-economic plans like Obama's rely on the Peter/Paul Syndrome.

That is when the government is going to rob Peter to pay Paul they can count on Paul's unqualified support!

Unfortunately, we have way too many Paul's in our contrary today.

Jeff Perren said...

You make an excellent point. I honestly don't know how many people actually favor a handout, to themselves or others. But, as I've argued here before, we ultimately get the kind of government that a large percentage of Americans ask for.

Now, if they can only be taught to ask for something better...