Obama’s Right on Jobs and the Deficit

There are those who claim we have to choose between paying down our deficits on the one hand, and investing in job creation and economic growth on the other. This is a false choice.

So says Obama, this week, with the suggestion of throwing around remaining TARP funds on such ill conceived projects as “cash for caulkers” and other give-aways. In a way he’s right, but not the way he thinks. Obama is still committed to the Keynesian idea that the government must make up for slack demand and that we must “spend our way out of the recession.” Missing is any appreciation for the need of deleveraging the massive debt that has accumulated first in housing and now to the federal reserve as a result of the TARP transfer of mortgage-backed-securities to the Fed’s balance sheet.

One of the market’s biggest concerns is the absence of available credit, the weak dollar, and the growing fiscal sickness of the American government. All would be improved if Obama were to use this unspent money immediately to reduce the deficit or to shore up the FDIC or to engage in some other prudent, unsexy, and long-term matter. But he’s constitutionally incapable of doing so because, in spite of his alleged reluctance to have the government overly involved in the economy, he has not yet resisted a temptation to tinker, whether in autos, housing, or healthcare. He clearly loves doing this, views it as a way to reward the right kinds of people and his friends, and the fact that a coterie of economists say it’s the best policy is welcome cover. Of course, the numbers don’t help his case or that of these economists. The huge stimulus of earlier this year came and went, and unemployment is still 10% or more. The Japanese tried various boondoggle projects in the 90s without effect. None of these approaches is working, because government cannot create wealth or jobs; every dollar it spends is siphoned off the private sector through either taxes or deficit spending. But Obama is only interested in the economy as a secondary matter; chiefly, he’s interested in power and rearranging the order of society, and the government’s new role as “employer in chief” will give it unprecedented power to do so.