The Immorality of Obamanomics
This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published May 2, 2012 on The American Spectator website.
The President’s economic policies are usually criticized for their practical ineffectiveness. Thinking people know that the result of the President’s 1970s retro economic policies has been the worst recovery from a recession since the Great Depression, with persistent high unemployment, declining real wages and incomes, soaring poverty, doubling gas prices, and budding inflation sure to get much worse.
Unthinking people still call national conservative talk radio shows to say the President’s economic policies can’t be faulted because the economy was doing poorly when he entered office, and so his policies enjoy unlimited time to produce any positive results. They make national fools of themselves in so demonstrating that they know nothing about the historical prosperity of their own country, and why.
But there is a much more fundamental problem. Besides not working, the policies of Obamanomics are just plain immoral.
The 99 Percent vs. the 1 Percent
Since when has it been considered just for the bottom 99 percent to say to the top 1 percent, “We can outvote you to take your money”? That is a politics of piracy and theft, with no roots in American history.
Sure the richest can be validly asked to bear proportionally more of the overall tax burden because they can do so with the least harm. But before President Obama was even elected, official IRS data shows that in 2007 the top 1 percent of income earners paid 40.4 percent of all federal income taxes, almost twice their share of adjusted gross income. The top 5 percent paid 60.6 percent of all federal income taxes, while earning 37.7 percent of adjusted gross income. The top 10 percent paid 71.2 percent of all income taxes, while earning 48 percent of adjusted gross income.
By contrast, the bottom 95 percent of income earners paid 39.4 percent of all federal income taxes. That means the top 1 percent of income earners paid more federal income taxes than the bottom 95 percent combined!
Moreover, in 2007, again before President Obama was even elected, the bottom 40 percent of income earners as a group paid no federal income taxes. Instead, they received net payments from the income tax system equal to 3.8 percent of all federal income taxes. In other words, they paid negative 3.8 percent of federal income taxes. The middle 20 percent of income earners, the actual middle class, paid 4.7 percent of all federal income taxes.
What this adds up to is that even before President Obama was elected America already maintained the most progressive income tax system in the western world, maybe the entire world. Moreover, that was the result of almost 30 years of Reagan Republican supply-side economics that began with Reagan and Jack Kemp in the 1970s and 1980s, continued through Newt Gingrich and his Contract with America, and further played out with the Bush tax cuts of 2001 and 2003. When President Reagan brought his supply-side economics to Washington in 1981, the share of federal income taxes paid by the top 1 percent was 17.6 percent. After a quarter century of rate cuts, that share had more than doubled by 2007 to 40.4 percent, as noted above. That is because with the lower tax rates, incomes boomed along with the economy, and high income taxpayers had the incentives to pull their money out of tax shelters and invest it in the real economy, fueling the boom while increasing their reported income. But so-called Progressives (we should start calling them throwbacks instead) can’t understand these dynamics of modern capitalism.
Yet, we have a President who continually barnstorms the country calling for still more tax increases on the “rich,” articulating precisely the policies of the Marxist Occupy Wall Street movement, which reflects precisely his own roots. He says that is necessary for “the rich” to pay their “fair share,” when the facts as cited above indisputably show that “the rich” already pay far more than their fair share, and did so even before President Obama was elected. America has featured politicians that lie to the public from its founding. But never have we had a President that bases his whole pitch to the American people on a Big Lie that is so unhinged from reality it is just the opposite of the truth.
Given the factual reality as described above, raising taxes even more on the 1 percent would be immoral theft, not fairness. For rabble rousers and street agitators to threaten to lead the 99 percent to so loot the 1 percent is immoral demagoguery that demeans our democracy. It is the politics of Venezuela and Argentina, not America. For President Obama to continually barnstorm the country presenting a picture of America that is the exact opposite of the truth as discussed above is immoral dishonesty.
But immorality can’t get past karma. Given the wildly disproportionate present reality, trying to raise taxes even more on the top 1 percent will counterproductively lead to less revenue rather than more, particularly by increasing tax rates on investment income such as capital gains and dividends. Indeed, such further tax rate increases will likely lead to renewed recession, which will collapse revenues across the board.
But the rich can take care of themselves. America is already suffering a capital strike and capital flight, with trillions sitting on the sidelines and fleeing overseas. Further tax rate increases will turn that into a stampede, particularly in a second Obama term.
Such tax rate increases will rather only hurt working people and the poor the most, who can’t sit out the Obama depression or flee overseas (except for illegal immigrants, who have been heading back to their homelands in droves under Obama). They are fundamentally dependent on the jobs and increased wages produced by investment, and renewed recession will mean fewer jobs and declining wages.
The resulting record numbers in poverty, record long-term unemployment, and downward spiraling real wages can themselves be considered further immoralities of Obamanomics.
Is Your Vote for Sale?
Obama campaigns as if he is certain that your vote is for sale, and all he has to do is come up with some taxpayer-financed freebies for you. First it was free contraceptives for everyone, as if your vote could be bought by a condom. Then it was cut rate student loans, which was always a fraudulent issue. It was the Democrats that provided for the interest rates to double on new student loans issued after July of this year, years ago when they had majority control of Congress. House Republicans already voted through a bill to continue the lower rates, financed by cutting government spending elsewhere. But Obama and Senate Democrats have refused to consider any House passed bill financed by reduced government spending, defining the difference between the two parties today. The Democrats demand record taxes or record borrowing to finance record spending, which is what we have got today.
If you are in need of basic necessities with no immediate alternative, then taking public assistance from a safety net program is not morally objectionable. Or if you have paid into a program over the years in return for the benefits, as with Social Security and Medicare, then you cannot be faulted for taking the benefits. But selling your vote to whoever promises you the most free benefits at taxpayer expense is a perversion of democracy, really just a sophisticated version of organized crime. You should not be living at the expense of the taxpayers or your neighbors if you are not in serious need.
That is not what American democracy has been all about. Our Founding Fathers emphasized repeatedly that a functional democracy required a virtuous people. This is what they were talking about, people having the virtue and good sense not to look to sell their vote to whoever bid the most freebies at taxpayer expense for it. They knew that politicians campaigning on free bread and circuses at someone else’s expense had historically been the downfall of democracies in the past. And we are on track for that today as well, if we fall for Obama’s Third World vision of democracy as voter bribery.
What students need more than a cut rate student loan is a job that will enable them to pay back the loan. But over half of recent college graduates do not have jobs. What young working people need is not a free condom but the freedom to pursue the American Dream and traditional American prosperity. They will not get that, however, from Obama’s Hugo Chavez economy.
Businesses should not be living at the expense of taxpayers any more than anyone else. Businesses must earn their way by competing in the marketplace not only for customers but also for capital investment. America has the most advanced and developed capital markets in the world. If no one in those capital markets wants to risk their own money on a business idea or enterprise, that means it does not have sufficient prospects for success, and should not be funded.
People risking their own money are the best test for whether a business enterprise or venture is really a good idea or not. In free capital markets, those who are the best at making those judgments are rewarded with control over even more money to invest, from profits on successful judgments in the past, and from more investors trusting that proven judgment with their own money. Those who are the worst at making those judgments are punished by losing control over money to invest, through losses on bad judgments in the past, and fewer investors trusting their judgment with their own money. That process constantly maximizes the good judgment of capital markets.
For businesses to evade this judgment of the capital markets, and use political connections to get capital funding at taxpayer risk and expense through force of law rather than free choice is immoral. Politicians and bureaucrats have no market-tested expertise as to who should get funded and who should not. They will make the choice instead based on political considerations, such as who has raised the most money for the politicians in power, or who has the most support from politically relevant voting blocs. But making the choice on that basis rather than exclusively business prospects will mean more losses, with the taxpayers footing the bill. That is just another form of stealing, or another sophisticated form of organized crime.
Yet, this is exactly what we have under Obama’s crony capitalism. His subsidies for green energy, through loans, guarantees, and tax credits, now total over $100 billion a year. As a career community organizer and legal academic, he has no idea of what businesses should be favored with capital investment. But ignorant of his own ignorance, he is supremely confident of his own amateur judgment.
So he has the taxpayers investing in windmills and solar farms that don’t work when the wind doesn’t blow and the sun doesn’t shine, and that produce energy that is too expensive even when they do work, electric cars that nobody wants to buy even with heavy subsidies, and food that is burned for energy rather than eaten, raising food prices which hurts the poor the most at home and abroad. Meanwhile, discoveries of new sources of proven, reliable, oil and natural gas are exploding at home and abroad, and they would be cheap as well if only Obama would stay out of the way.
But there is a pattern or method to this madness. As Grover Norquist and John Lott report in their new book, Debacle, about 75 percent of these “green energy” taxpayer loans, grants and subsidies have been given to companies run by Obama supporters, especially the most successful Obama fundraisers. Exhibit A is the notorious Solyndra, a solar power enterprise that went bankrupt, leaving taxpayers with the bill for a government guaranteed loan of over half a billion.
President Obama told the country that the decision to give Solyndra a loan guarantee “was made on the merits. It was straightforward…. I have confidence that the decisions were made based on what would be good for the American economy and the American people and putting people back to work.” But even the career bureaucrats at the Department of Energy and at Treasury knew that Solyndra was not a good prospect for a taxpayer guaranteed loan. They had rejected it by the end of the Bush Administration.
As Norquist and Lott explain, credit rating agencies had given Solyndra a low, non-investment grade rating in 2008, not only because of financial risks, but also because the company’s technology was dubious. Then, in March, 2010, Solyndra’s own auditor, PriceWaterhouseCooper, reported that Solyndra “has suffered recurring losses from operations, [and] negative cash flows since inception,” concluding that there was “substantial doubt about its ability to continue as a going concern.”
But Solyndra had other assets, as Norquist and Lott further report. Billionaire George Kaiser, the largest investor in Solyndra, had raised $100,000 for the 2008 Obama campaign. After Obama’s election, records show that Kaiser had met with White House officials 16 times, but the public was assured the meetings involved only “general policy priorities of the George Kaiser Family Foundation, including early childhood education and poverty, health care policy and energy policy.”
But emails obtained by the House Energy and Commerce Committee told a different story. One email by Kaiser himself reported on a meeting in February 2009, “Ken and I were visiting with a group of Administration folks in DC who are in charge of the Stimulus process (White House, not DOE) and Solyndra came up. Everyone of them responded simultaneously about their thorough knowledge of the Solyndra story, suggesting it was one of their prime poster children.”
Indeed, on the White House staff itself was David Prend, another successful Obama campaign fundraiser, who co-founded a venture capital firm that owned a 7.5 percent share of Solyndra. Emails obtained by Congressional investigators showed that “Prend was perhaps the first person within the Obama Administration to push for the company to get the half-billion-dollar, low-interest loan,” Norquist and Lott report.
Another Obama Administration insider was Steve Spinner, described by ABC News as an “elite Obama fundraiser” who helped run energy and environmental policy for the Administration. Spinner promoted the Solyndra loan within the Administration even though his wife was employed as a lawyer for the company. Norquist and Lott report, “After the deal went through, his wife’s law firm received as much as $2.4 million in federal funds for her work in arranging the half-billion-dollar money transfer.”
Does this sound like the decision to make the loan was made “on the merits… based on what would be good for the American economy and the American people and putting people back to work,” as Obama told the nation? Just over a year after getting the half billion, when Solyndra crashed, the hundreds of workers employed at the company all lost their jobs. How could any responsible enterprise go through half a billion that fast?
Moreover, after the deal, as Solyndra was going down, the Obama Administration even rewrote the loan guarantee so that the well-connected private investors would get their money back in bankruptcy before the taxpayers! Norquist and Lott report, “the money lost to Solyndra involved more stimulus dollars than 35 states got for highways, roads and bridges.” All the self-interested double dealing by Obama Administration officials themselves in regard to Solyndra cries out for the appointment of an independent prosecutor, as federal laws were quite possibly violated based just on what is already public information.
But Solyndra was not the only example of insider payoffs in Obama’s crony capitalism. Another $529 million loan guarantee went to Fisker Automotive, an electric car company that has yet to produce a salable product, partly owned by Al Gore, whose net worth is over $100 million. Another $465 million guarantee went to Tesla Motors, another electric car company yet to produce a salable product, owned by prominent Democrat billionaire Elon Musk, and Google co-founders Larry Page and Sergey Brin. Another $350 million in outright grants and loans went to Green energy “producer” NRG Energy, owned by Democrat billionaires Warren Buffett, Steven Cohen, and Carl Icahn. Billionaire Obama fundraiser Pat Stryker scored a $370 million outright loan for Abound Solar Manufacturer, in which he is a major investor.
Michael Froman was on the White House staff as a deputy assistant to President Obama, after raising half a million for the 2008 Obama campaign. But that didn’t stop him from winning a $737 million loan for Solar Reserve, in which he is a major investor.
Such immoral corruption is inevitable when the government engages in crony capitalism. That just further reflects the fundamental immorality of Obamanomics.