What Obama Sees and What He Doesn’t Want to See
Published in El Diario Exterior
(Spain) on 12 September 2010
by Juan Ramón Rallo (link to original)
The state interventionism logic is certainly perverse. Bastiat summed it up as the systematic pillaging of “what is not seen” on behalf of “what is seen”; the hand that takes away and destroys the grand to give and construct the insignificant. Let’s take a deplorable bit of recent news: After the resounding failure of Obama’s stimulus plan, the president of the United States is tarnishing his reputation by continuing to get into debt and to spend with hardly any restraint. His last proposal was to invest $50 billion to create jobs, with the excuse of improving the transportation system. Yes, you have read correctly: Obama’s stated objective is to create jobs; whether the infrastructure is necessary, profitable or opportune for the economy is a subject that is brought up carelessly, only as a pretext to spend without risk and to allow the unemployed to work, regardless of professional background or interests.
One could fear that such a decision, aside from interrupting the whole readjustment process of the U.S. economy, would increase the deficit even more. But no, Obama has everything planned out: The transportation plan will be financed by leaving the tax reductions approved by Bush in his first term in office to expire. Such tax cuts were especially beneficial for returns on capital; namely, surplus values, patrimonial profits and dividends.
In other words, Obama intercedes to aggravate private capital for the sake of increasing the endowment of the public capital. Does this decision make sense economically? No, absolutely not; at most, it possesses a Machiavellian political sense of trying to increase the power and intervention of the state at the expense of the market, prosperity, employment and society. But economic sense, none at all. Let’s see why.
Increasing taxes on capital income reduces the real return on investment; in other words, the rent that accrues to savers is reduced by the higher tax levy. The immediate consequence of this far-fetched policy is that marginally less profitable investments are going to cease to cover capital investment (i.e., the opportunity cost that savers suffer for abstaining from consuming and delaying the satisfaction of their necessities for the future), and this assumes that as [investments] depreciate, they are not going to be amortized.
In other words, once Bush’s tax cuts expire, part of the private sector will gradually decapitalize to defray the investments in infrastructure, whose stated purpose is to create employment, not to generate any economic value. But if the private sector decapitalizes, the marginal productivity of workers will be reduced; so unless they accept wage cuts, they will expand the unemployment lists. That is, with Obama’s short term policies, he will create only temporary employment, with little value added by the destruction of stable, employment-generating wealth. What you see — the new populist infrastructures amply destroying what is not seen — is that the industries that are marginally less profitable are actually much more [profitable] than roadways that are justified merely for creating employment.
Radical interventionists are trying to convince us that such a measure is the height of soundness and common sense; that with this [policy], the richest, those who consume little, are taxed to give jobs to the unemployed, those who do not consume anything. The final result of the measure will be to boost aggregate demand and from there the Keynesian nirvana.
But the blunder lies in thinking that we will get out of a crisis caused by excess debt and the accumulation of bad business investments by consuming more than we already do: Just when we need to save to amortize debt and reorient the structure of production, the mass consumption of capital is stimulated.
The rich — in socialist jargon rich means “capitalist,” regardless of the size of one's assets — are the ones who continually finance their huge savings with the entire business unit that employs and pays the salaries of more than 150 million Americans. They will be persecuted, and will indirectly be condemned to poverty by the working classes. As Murray Rothbard brilliantly summed it up, if capitalists stop saving so that they can consume, all of the current methods of production would be abandoned and the economy would regress to a time of savagery; they would only be able to undertake occupations with short time frames and archaic productive processes. The quality of life, and the quantity and variety of produced goods, would drop catastrophically to primitive levels.
This is the caliber of the absurdity of Obama: destroying business models that work in order to construct highways that lead nowhere. It is therefore not surprising that it will be difficult for the economy to take flight: The slightest hint of recovery is unmercifully trampled by these irrelevant planners.
One could fear that such a decision, aside from interrupting the whole readjustment process of the U.S. economy, would increase the deficit even more. But no, Obama has everything planned out: The transportation plan will be financed by leaving the tax reductions approved by Bush in his first term in office to expire. Such tax cuts were especially beneficial for returns on capital; namely, surplus values, patrimonial profits and dividends.
In other words, Obama intercedes to aggravate private capital for the sake of increasing the endowment of the public capital. Does this decision make sense economically? No, absolutely not; at most, it possesses a Machiavellian political sense of trying to increase the power and intervention of the state at the expense of the market, prosperity, employment and society. But economic sense, none at all. Let’s see why.
Increasing taxes on capital income reduces the real return on investment; in other words, the rent that accrues to savers is reduced by the higher tax levy. The immediate consequence of this far-fetched policy is that marginally less profitable investments are going to cease to cover capital investment (i.e., the opportunity cost that savers suffer for abstaining from consuming and delaying the satisfaction of their necessities for the future), and this assumes that as [investments] depreciate, they are not going to be amortized.
In other words, once Bush’s tax cuts expire, part of the private sector will gradually decapitalize to defray the investments in infrastructure, whose stated purpose is to create employment, not to generate any economic value. But if the private sector decapitalizes, the marginal productivity of workers will be reduced; so unless they accept wage cuts, they will expand the unemployment lists. That is, with Obama’s short term policies, he will create only temporary employment, with little value added by the destruction of stable, employment-generating wealth. What you see — the new populist infrastructures amply destroying what is not seen — is that the industries that are marginally less profitable are actually much more [profitable] than roadways that are justified merely for creating employment.
Radical interventionists are trying to convince us that such a measure is the height of soundness and common sense; that with this [policy], the richest, those who consume little, are taxed to give jobs to the unemployed, those who do not consume anything. The final result of the measure will be to boost aggregate demand and from there the Keynesian nirvana.
But the blunder lies in thinking that we will get out of a crisis caused by excess debt and the accumulation of bad business investments by consuming more than we already do: Just when we need to save to amortize debt and reorient the structure of production, the mass consumption of capital is stimulated.
The rich — in socialist jargon rich means “capitalist,” regardless of the size of one's assets — are the ones who continually finance their huge savings with the entire business unit that employs and pays the salaries of more than 150 million Americans. They will be persecuted, and will indirectly be condemned to poverty by the working classes. As Murray Rothbard brilliantly summed it up, if capitalists stop saving so that they can consume, all of the current methods of production would be abandoned and the economy would regress to a time of savagery; they would only be able to undertake occupations with short time frames and archaic productive processes. The quality of life, and the quantity and variety of produced goods, would drop catastrophically to primitive levels.
This is the caliber of the absurdity of Obama: destroying business models that work in order to construct highways that lead nowhere. It is therefore not surprising that it will be difficult for the economy to take flight: The slightest hint of recovery is unmercifully trampled by these irrelevant planners.
Exactly correct. Obama said it himself, “the recovery is working.” What you are seeing is exactly what he has intended all along. He is diminishing America and impoverishing Americans as rapidly as he can for the benefit of Europe and the third world.
Now, do you really think that diminishing America will be good for anyone? Is Europe actually beginning to awaken to his real agenda?
Best regards,
Gail S
backyardfence.wordpress.com