BLOGS FROM SIDNEY

In the Mirror

Riley

Government Investment: A Train Wreck By Any Other Name

Blog From
January 26th, 2011

In the President’s State of the Union Speech last night, he lobbied for federal government “investment” in infrastructure, education and research. His primary justifications are job creation in a struggling economy and heightened U.S. competitiveness in the increasingly rough and tumble international market place. It was a real “rah, rah, pull together” address.

To be sure, Obama gets high marks for style. But, even a speaker with modest skills can be successful using that oratory technique, right up until listeners consider what the spiel actually means. The President’s pitch means more deficit spending in a time of crushing debt. A new round of stimulus largesse when the first one was largely a bust. The Spending Express on a full-throttle collision course with reality.

It’s a lot like how some of our Federated Fifty dug themselves into a very deep unfunded public liability hole. Over the years, in negotiations with public employee unions, they kept increasing the benefits. And their actuaries drew up contribution schedules to keep funding in line with the payouts. Very neat and tidy. But, when the time came each year to make the contributions required by the plans, the state officials simply did not do it. In good times and bad, they skipped their obligations. Today, the worst off are raising taxes and cutting future employee benefits to try to claw their way out of the chasm.

The Obama Administration, having learned nothing from the desperate straits of the troubled states, is still in the spend ‘til we crash mode. So, the Speech pushes some of the spending agenda items that the 2009 Stimulus was supposed to address but didn’t, at least not successfully. Like the clean energy initiative. And the high-speed train thing. And launching a national wireless plan to put broadband Internet access in rural America. These were the center pieces of the pitch for increasing our competitiveness in the world market.

It all sounds like a lot of pie in the sky when folks on earth aren’t eating that well. More importantly, how about protecting our place in the world economy by paying down the debt we owe our neighbors? China and some of Europe will determine our future if we don’t erase the zeros from the end of the loan amounts we owe them. Job creation, which increases tax revenue, would help but the Speech was painfully shy on the details of how more spending will shorten unemployment lines.

Another emphasis of the Speech was “infrastructure” spending. That failure in the 2009 Stimulus package is back again, like a zombie resurrected from the dead. Is the lesson of less than two years ago already lost? Or was it simply the wrong lesson learned? Just three months ago, Obama admitted that he realized too late that there are no shovel-ready projects. Apparently, by renewing his infrastructure push, what he learned is to spend more and wait longer for results. What he should have grasped was to skip the spending altogether.

Of course, the Speech included the old reliable spending-on-education sales job because, very often, people buy it. After all, who wants to be anti-kid? But, the trouble is, the US spending on education has increased over the years while our students’ ranking in the world has decreased. So, money is not the immediate problem. Figuring out why our performance is stuck in reverse is. But, there was no mention of that.

So, if more spending is not the answer, what is? How about if we get behind the idea of living within our means? Spend tax revenue on paying down the debt. Like what real people have to do each month when they get their credit card bills. The idea is gaining momentum across the Country. Unfortunately, it hasn’t caught on in D.C. yet, probably because there’s no “rah, rah” in it.

But, hoopla and backslapping can’t masquerade as accomplishment, at least not for very long. Emotion won’t get spending under control, but it can propel us into a fatal collision with the hard rocks of reality. Sort of like the Casey Jones train wreck and for much the same reason. The engineer in charge of the spending throttle will have ignored all the flags along the way warning of the catastrophe on the tracks ahead.

See you in the mirror.


 

One Response to “Government Investment: A Train Wreck By Any Other Name”

  1. Dotsconnectors says:

    China’s Innovative Way of Skinning the United States!

    Mark Twain is credited with an early use of the cliché “more than one way to skin a cat” in A Connecticut Yankee in King Arthur’s Court, as follows: “she was wise, subtle, and knew more than one way to skin a cat, that is, more than one way to get what she wanted”. Thefreedictionary.com defines beggar-thy-neighbor as: an international trade policy of competitive devaluations and increased protective barriers that one country institutes to gain at the expense of its trading partners. Under the guise of fostering ‘indigenous innovation’, the Chinese government has creatively used a non-conventional, subtle version of beggar-thy-neighbor. Its version doesn’t entail the competitive devaluation of its own currency, which would enhance China’s exports and inhibits its trading partners’ exports. China’s version perpetrates an over-valuation of the currencies of one or more of its trading partners. This negatively affects all the trade of the pegged trading partner(s), not just trade with China. During the recent period China pegged its currency to the U.S. Dollar, its version of beggar-thy-neighbor was 8 times as damaging to the U.S. economy as what the media refers to as “China keeping it currency undervalued”.
    In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Until action is taken on Buffett’s or a similar balanced trade model, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.





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