From an AP wire story, we hear that Senator Obama believes the US economy is in recession.
If you’re in business or you follow business, your response is likely to be “No [excrement], Sherlock.”
What frustrates me no end, however, are statements like these, which are being spun as His Highness’ “most definitive” statements yet on the economy:
"I have little doubt that we've moved into recession at this point, and the sooner we can get money into people's pockets, the sooner that we can stabilize the housing market, and the sooner that we can send a message to the markets that we're serious about creating an energy policy that will create greater energy efficiency over the next decade or so, I think the sooner we're going to get our fundamentals right," he said.
When I hear the word “fundamentals,” I think of the textbook definition of the term: supply and demand. So is Obama telling that the true goal of his policies will be to get supply and demand right? Earth to Superman: markets do that just fine, all by themselves. In fact, the less you mess with them, the more they get the fundamentals right.
Or by “fundamentals,” does he actually mean something else entirely? We know, because he’s told us and because his entire professional experience (as a community organizer) backs it up, that he believes the most important thing to get right in the economy is to get a lot closer to income equality. Is that what he’s going for here, with these “most definitive” statements?
So now we know that Obama thinks the real problem is to get the fundamentals right, whatever that means. Let’s look at the three prescriptions he gives us by way of getting those fundamentals right:
First, he wants to “get more money into people’s pockets.” The easiest way to do that is to cut taxes. But we already know he intends to raise taxes. Therefore, he just told us that a lot more deficit spending is on the way. If you believe Obama will become President, now might be a very good time to dump your US Treasury securities, or at least stop buying any more. Because they’ll be falling in value if the Senator means what he says.
He also wants to send a message to the markets that there will be an energy policy ten years from now that will create “energy efficiency.” Message taken, Senator. And you and I know just how much a message about ten years from now matters today.
But let’s play along with His Highness for a moment. Exactly what does he mean by “energy efficiency”? That’s an awfully interesting thing to put into your list of top three economic policy objectives. Does he mean that we should use less energy than we do now? Or does he mean that we should pay less in real terms for the energy we do use?
These are objectives we’re talking about, not implementation strategies. Until he spells out in very clear detail exactly what he wants to see happen, we can’t even begin the discussion of how best to get there. The Senator is avoiding the issue, which is the exact opposite of leadership.
And finally, let’s talk about the third major policy objective in this “most definitive” statement yet on the economy: Obama wants to stabilize the housing market.
Who doesn’t? It’s the biggest wild card in the economy. Tell us exactly what you think the problem is, Senator, and tell us whose ox you’ll gore in order to solve it. Because someone’s going to be in pain, and the only thing you can do as a matter of policy is to shift the pain from where it would naturally go, to a less politically-favored target.
The housing market is a problem because it’s overvalued. I don’t want to talk to Senator Obama (a man with no deep understanding of markets or finance) about how we got to this point. I already have a lot of knowledge about that, and more knowledge is still getting written as we speak.
What I want to know from the Senator is where he wants to go from here.
Because there’s one, and only one, way to recover from asset overvaluation: the assets have to deflate. And since we’re talking about an asset base that’s a double-digit percentage of the total wealth held by Americans, deflating it will cause pain for everyone.
One approach is to free up the housing market to find its own level. This has the potential to be extraordinarily painful. It also has the potential to be quick.
Back in the Thirties, when housing values last crashed, the US was literally one-half of the global economy. When people’s wealth declined, there was nowhere to go to build it back up.
Now, however, we’re between a fourth and a fifth of the world economy, and except for Europe, the rest of the world is growing like crazy.
So if we have a major asset deflation in the US, the pain will be extreme but the recovery will be fast, because there is economic opportunity all over the world.
The other way to approach this is to “put more money in people’s pockets,” to use Obama’s terms. Depending on exactly what he means by that (and there’s no telling because he’s not saying), this could have the effect of locking an enormous amount of moral hazard and permanent government control into the economy. On a net basis, it could prevent the flow of productive resources to the parts of the world that are growing and which could provide the basis for a solid and fast US economic recovery.
So I have to say again that Senator Obama is frustrating the heck out of me. His idea of “most definitive statements” on economic policy are either empty platitudes, obfuscating lies, or a coverup for the fact that he has no clue what to do.
Senator Obama, if you really want to be taken seriously, step up and tell us what you really intend to do.