Sunday, September 18, 2011

Good economists warned Obama against stimulus

Published in The Tennessean, Sunday, September 18, 2011

by Richard J. Grant

When you wake up on the road to Hell, it matters which way you choose to walk. The Obama administration never ceases to remind us that it was their predecessor that dropped us off on that road. But at some point, the not-so-new president needs to take notice of which way he is leading us.

Whatever starting point we might have wished for, as my old professor James Buchanan would say, “We start from here,” and not from someplace else. Call it our “inheritance.” But that's where we started, so get over it.

If everything had been wonderful in the year 2008, then candidate Obama probably would not have stood a chance of becoming president. As it turned out, many years of copious and perverse regulation, unnecessary and excessive government spending, and an unnatural interest-rate policy all began to unwind in a perfect financial storm.

Now, after two and a half years in power, the Obama administration is feeling the political heat. If we are all now sweating, it is not because of CO2 levels but because of the administration's policy direction. They have doubled down on the worst of the Bush administration's policies.

Good economists warned them that “stimulus” programs, whether through high government spending or low interest rates, would fail. Everyone else had to see it before they could believe it. Even now there are apologists who insist that there wasn't enough government spending and that not enough money was created.

Good economists warned them that the subsidization of “green jobs” would be no more productive than any other attempt by government to pick winners. Not only did this over-investment in green dreams drain resources from other more-promising uses, it rendered many “green” projects unsustainable. Easy government money always attracts politically connected hucksters, so we should not be surprised when subsidized industries become corrupted and when taxpayers must pick up the tab for bankruptcies.

Good economists warned them that the subsidization of home ownership and the intimidation of banks into granting mortgages to those with a weak ability to handle debt would result in more foreclosures and losses. But rather than learn from the poor example of the previous two administrations, the Obama administration is once again forcing banks into subprime mortgage lending.

Good economists warned them that declaring medical care to be a “right” and increasing government control over healthcare provision would neither improve service nor reduce costs. Heavy-handed regulation of medical insurance would destroy the risk-reducing character of that industry and ultimately shift more of the risk burden onto taxpayers. But shifting risks and costs onto taxpayers can barely hide the fact that it raises the burden of both.

The Obama administration is either short on good economists or short on its ability to listen to them. What it seems not to be short on is psychologists. But psychology is just not a substitute for good economics.

Calling something a “stimulus” does not make it a healthy economic policy. Calling something “green” does not make it good for the environment or a wise use of resources. Calling something a “right” does not create the resources necessary to satisfy it, nor does it justify confiscating those resources from their legitimate owners.

Perhaps the psychologists could explain to the administration that good intentions are not a substitute for good results – or for road pavement.

Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail:

Copyright © Richard J Grant 2011