Modern Obamanomic Theory

April 19, 2009: I was watching C-span this morning when a guest by the name of Ray La Hood, Secretary of the High Speed Rail initiative, came on to be interviewed about the Obama Administration’s $8 Billion program for the building of high speed rail systems (HSR) between cities and states that will travel at speeds of over 300 miles per hour.  What struck me is how this guy, a typical bureacrat viewed the project as a real boon to economic growth and job creation.  He kept using the phrases we (the government) need to solve the energy problem by investing tax dollars in projects like this to build economic growth while providing a means of alternative travel to individual’s use of the automobile and help the nation to become energy independent.  He stated that these high speed rail systems will connect towns like San Diego, Anaheim and Los Angeles or longer routes like San Diego to Los Angeles and then on to San Francisco at very high speeds (The President’s aid mentioned over 300 miles per hour).  He went on to explain how the government is investing in wind farms, geo-thermal energy plants and solar energy programs to replace our need to import oil from unstable countries, especially in the mid-east.  While such high cost sources of energy may reduce the need for fuel to heat a home or a commercial building, they will do nothing for the fuel requirements for automobiles, trucks, airplanes, trains and any other mobile vehicle.  He quoted the President as saying “this program will give the traveler an option that will compare with air travel” and we all know how succesful air travel has been in transporting people between the cities, countries and continents.  What are these guys smoking?  The growth in air travel came about by the traveler abandoning the train as their long distance travel mode thereby creating a growing demand that the airlines and aircraft manufacturers responded to.   Maybe I have missed it but I haven’t heard anyone say” Oh I wish I could get on a train and travel 300 miles per hour between Los Angeles and San Francisco”.   Here in Reno the Department of Transportation is building an extension of the freeway between Mount Rose Highway and the Washoe Valley 18 miles south.  To complete the highway the planners have had to build nine bridges one of which, the Galena Creek Bridge will be the longest arch suspended bridge in the country.  The Galena Creek Bridge will consist of two (2) arches, each supporting the southbound and northbound bridge decks respectively. The Galena Creek bridge will measure 1700 feet in length with an arch span of 690 feet. The bridge deck will stand 295 feet above the base of the creek. Now can you see a High Speed Rail train going over such a bridge at the speed of 300 miles per hour?

As I listened to this fellow, I wondered if all the Administration’s  personnel were this ignorant of how economic growth has been created in this country over the past 200 years.  My father, one of the great salesmen of all time, used to say to me: “creating a successful business is all about finding a need and filling it.”  I wonder how much research this man or Mr O for that matter has done relative to the serious demand to travel from San Diego, California to Los Angeles (95 miles) at 300 miles per hour.  We now already have Amtrak commuter trains providing transportation in that corridor and the “jury is still out” whether or not that is a viable alternative to people wanting to use their automobiles. 

It is obvious that the young geniuses in this Administration live in a world that is well apart from reality.  A government that is going to create more deficit spending than that experienced in all the past eight years when we were engaged in a war against terrorism is myopic if they truly believe that throwing money out there at uneconomic programs is going to turn this economy into the robust machine like the Baby Boomer consumer debt building sector of America did in the last 20 years.  Some recovery or should I say some slowing of the rationalization of excesses in debt built up to finance consumption and investments will certainly take place in the coming years.  However, the idea that a government can make it possible for institutions and individuals to abrogate legal contracts to perform on their financial obligations will almost surely cause future lenders to be reluctant to make new loans at the margin.   The purpose of such legislation or so called presidential leadership is political and motivated by the desire to create the impression that they know what they are doing so as to retain the support of their voting constituencies’ in the next election. 

The idea that government committees have the vision necessary to identify individual and institutional needs in a society and then organize a response is preposterous and has never been successful in any country in the World.  Free markets, however, responding to the demand of the ultimate consumer for goods and services are the most efficient means of allocating capital to the production of those goods and services.  Sure markets get out of whack sometimes like they have in recent months where the discipline of both buyers and sellers of financial services in support the acquisition of real property, securities and other consumer goods and services has gone tilt.  This process built upon a platform of excess expectations had to collapse and collapse it did.   Therefore the correction (called a recession) of excessive pricing in all categories is now underway and it will not be completed no matter how much money the government puts into bailing out banks or the auto industry hoping to keep Wall Street and Detroit from having to recognize reality. The effort to create work programs will do little or nothing except delay the inevitable until the price-supply-demand relationship is consistent with that balance that will clear the marketplace. Market stimulus can be introduced into a failing economy by making it easier for or incentivising the individual to invest or take on reasonable debt.  But just spending huge amounts of tax dollars with the expectation that the Government can identify the best investment ideas for creating permanent jobs and satisfying public need is crazy. 

We will have to see how long it will take for President Obama and his economic advisors to learn this lesson.  When they do and even before that, debt burdened individuals and corporations will have to face the reality of a slow painful economic recovery.

One Man’s Opinion – Bud Brewer