President Obama's State of the Union Address on Tuesday night was high on rhetoric but short on math.
As with most Obama speeches, it was beautifully delivered. However, even where I agreed with the ideas, I couldn't quell a nagging suspicion that the numbers simply didn't add up, and indeed likely missed by a lot.
And let's face it, some of the ideas in the speech were just plain bad.
The Bad Ideas
At the top of the list was the proposed increase in the minimum wage to $9 an hour. It's sounds nice, but reality is a different story.
Economists pretty much universally agree that high minimum wages have the opposite effect: They increase the ranks of the unemployed.
Now admittedly, $9 an hour isn't likely to increase unemployment in costly areas like New York City or coastal California. New York City Comptroller John Liu has already sent me an e-mail complaining that $9/hour is equivalent to only $4.97 in his overpriced city.
But it will certainly push up joblessness in St. Louis, Houston or Cleveland, where living costs are lower than the national average.
Of course, Houston can look after itself with high oil prices and a decent local economy, but you can't tell me that a $9 an hour minimum wage won't increase unemployment in Cleveland or even St. Louis, let alone in rural areas.
It's a bad idea, which fortunately won't get far in a Republican Congress. But it wasn't the only one.
His insistence that Congress must immediately address global warming, and his threat to do so by executive action if it didn't, are deeply controversial.
The reality is that global warming "investments" have already cost U.S. taxpayers billions upon billions, with very little to show for it. In fact, the extra $12 billion of wind power subsidies tucked into the "fiscal cliff" deal-- one fifth of the first year's tax increases-- is just the latest example.
What's more, when you look at the Antarctic as well as the Arctic, and at the global climate as a whole, there's evidence that global warming has at least paused since 1998, and that even by 2100 it will be limited to the 1-2 degrees Celsius change that we can easily handle without subjecting ourselves to infinitely costly command-and-control policies.
The Good Ideas
But the President's speech wasn't all bad.
President Obama made a considerable amount of sense on education. In fact, Education Secretary Arne Duncan is one of his most impressive Cabinet members.
He does want to increase access to early childhood education, the problem with which is that studies seem to show the current program does little good.
Coming from a different education system, my main beef with U.S. K-12 education is how slowly it goes in the early years.
Without any special coaching in Great Britain, I started calculus at 11. Here in the states, my son didn't get to it until he was undergoing the tribulations of college applications as a high school senior - far too late for him to have the reliable grasp of it necessary in a modern economy.
However, Obama's better education idea is to combine high school education with community colleges, so that those graduating high school have a vocational qualification that makes them useful to local employers.
If nothing else, that makes them employable if their dream job flames out. I now regret that my son, educated within 200 yards of the giant Tyson's Corner mall, didn't get a qualification in Mall Management - something a modern economy can always use!
The Fuzzy Math
The main problem I have with the speech, however, is the cost of his proposals.
Obama said specifically "Nothing I'm proposing tonight should increase our deficit by a single dime."
Then during the speech he proposed:
- 15 manufacturing innovation institutes;
- An Energy Security Trust for new energy research;
- A "fix it first" program for more infrastructure spending;
- A big expansion of early childhood education;
- Incentives to companies to hire the long-term unemployed;
- Tax credits to businesses that invest in low-income couples;
- New spending on combating cyber-attacks.
That's without counting initiatives like the minimum wage and more regulation that provide a drag on the economy but don't cost the government any money directly.
Put politely, his numbers don't add up.
Eager to find something to like, The Financial Times declared that a potential U.S.-EU free trade agreement was "the centerpiece" of the speech. But that's nonsense - it was in one sentence out of over 6,000 words. But it's still a good idea.
In the end, it was a well-delivered speech, and there were some good ideas in it I hadn't heard before.
But let's face it, the government's overall current priority must be to reduce the budget deficit, and Obama's package as a whole was a hindrance, not a help to that objective.
Featured Video: What the State of the Union Address Means for Your Money
Unfortunately, Barack Obama is someone who believes in the benevolence of government and the malevolence of business. I regularly debate people like this, and it is beyond their comprehension that the free market is anything but a free-for-all that punishes the good while rewarding the bad.
As long as this remains a strong belief among many educated elites, we will continue to hinder a truly free market. We will keep bad apples afloat through misguided bailouts. And we’ll unwittingly subvert market equilibrium by creating additional moral hazards and perverse incentives through questionable government programs and intervention.
Government and central banking have continued distorting the markets epically for one hundred years. Yet people like Barack Obama continue looking at the markets they no longer trust believing that government and central banking are the solution. The logic behind this paradigm is so convoluted it defies comprehension. The world has indeed gone mad.
Having grown up in Great Falls and McLean myself (I remember Tysons Corner when almost nothing was there), and then attending Langley High School, I feel the frustration you have with your son’s education. Nonetheless, going to “Harvard High School” was a benefit that cannot be underestimated. Of course, most Americans will never have the advantages showered upon those who live in the Washington, DC suburbs, as those of us here inhabit a bubble financed by the blood, sweat, and tears of the rest of America.
excellent, spot-on analysis of today's situ…..eloquently,truthfully told by someone actually familiar with "inner" socioeconomic viewpoint…..thanks.
Phil Steinschneider – You mention 'Government and central banking have continued distorting the markets epically for one hundred years'.
This is about the same length of time the Federal Reserve has been in existance.
Suggested reading "The Creature from Jekyll Island" by G. Edward Griffin. You will not find this a disappointing read, I promise.
I finished reading it a few months ago. It's a superb book.
At this link is a video montage of 63 broken promises from the State of the Union addresses (SOTU) during Barack Obama's first four years in office. If this President is all about rhetoric and broken promises, why would anyone believe anything from SOTU 2013?
Watch at The Political Commentator here: Obama SOTU Montage with 63 broken SOTU promises! (Video) (Go to politicsandfinance.blogspot.com)
That website was automatically blocked by the protection suite on my computer (PC Tools) with a warning of it being a dangerous site. Do you have a safe alternative for consideration?
the reason this occurs is because the average american memory for almost anything varies from minutes to perhaps 30-35 days……..and the aggregate majority prefers to hear these good things now -and somewhat satisfied/complacent- abandon the real future effects as they arise for there's no certain memory otherwise….perfect for tending sheeple and containment…..
marketing studies for years have borne out memory perishability for decades….
The only sentence which I disagree with in this piece is the statement that the State of the Union address was beautifully delivered. His arrogant tone precludes any sentence structures, words chosen, etc. and destroys my ability to stomach listening to him.
Frederic Bastiat, a French Economist from the middle 1800's said, "Government is the great fiction, though which everyone endeavors to live at the expense of everyone else."
Its only a minor point but why do all you Americans refer to it as MATH,its not its MATHS the abbreviated version of MATHEMATICS with an S on the end,how can you possible come to terms with the enormous world problems if you can't spell a simple word correctly,I give up,some super power, can't even spel little words,l
English is extremely flexible in its structure and continually adapting…the official line in professional circles is that if the New York Times adopts a word or spelling, then it officially becomes part of the language. SCARY isn't it?
Maths isn't the only thing American's can't spell! LOL.
I hope that is "tongue in cheek".
What I find incredible is the minimum wage issue. If America is the wealthiest, most powerful country in the world – how can it condone treating the working poor so shoddily. America has total disregard for its working class is known worldwide. But what I don't understand is why regular Americans feel it is ok to exploit a certain segment of American people who are making contributions to this country. $9 an hour is a joke in a country as wealthy as America – that is below the minimum wage in every province in Canada – a country with less wealth and power but with lower levels of unemployment, a bigger middle class, albeit with fewer billionaires than the US. But it was a throw away by Obama anyway – he has been unable to resolve (definitively) any issue let alone this one. I am just surprised how uncaring average Americans are to their own people.
Unfortunately, raising the minimum wage will NOT solve the problem. The businesses in which people get paid minimum wage tend to have razor thin margins to begin with, and the end result is typically a reduction in the workforce…especially now that we have inexpensive machines that can do most of those jobs.
Spoken like someone who has never had a (small) business and doesn't have a clue as to how expensive it is to run one. Between federal, state and local taxes it is next to impossible to make a profit. The majority of minimum wage jobs are for entry-level workers who don't have the skills or eduction to find better jobs.
"Won't cost a dime" said it all. The whole SOTU was a song and dance for the clueless. It was never intended to be more than that.
Two points I want to make:
What Obama might mean by 'education reform' and what is actually needed are two very different things. Very likely, what Obama means by his words is more quacksalving indoctrination, ore political correctness, more dumbing down across the board from pre-school to post-graduate. He does not mean what is badly needed. Just consider who his allies in education really are: the teachers unions and the flake academics.
Now, about the minimum wage. Once upon a time, it was possible for a single person to live decently on the minimum wage. No longer. As long as the regime spends grossly more than it takes in, and so long as the money-printing and creation continues unabated, the purchasing power of the dollar diminishes daily. Increases in the minimum wage are symptomatic of this inflation. So long as Congress and the Fed' continue on their chosen path, the more frequently these rises must be considered—-and fall further behind the rapidly vanishing purchasing power of whatever money circulates.
His ideas on climate change are ridiculous. Glaciers have been shortening since about 1820-1830 at the end of the Little Ice Age, long before the start of major usage of Oil Gas and Coal. Furthermore, average surface temperature of the Sargasso Sea as of 2006 was still below the average of the last 3000 years. And while we have made it prohibitive to put in even one coal fired power plant in the US(New coal fired plant was just cancelled in Tx with the loss of 2900 well paying jobs for 5 years and 500 more during operations so don't tell me jobs are important to him), China alone is slated to add another 160 new coal fired plants over the next few years, not to mention India, the rest of Asia and the rest of the world. Tell me what adding one plant in the US will do that several hundred plants in the rest of the world will not do. All we are doing is making our industries less competitive with the rest of the world. While I agree, alternative energy needs to be part of the mix, it is because many of those sources are finite and not because of climate issues. Wait till Natural Gas prices go up (companies are making decisions to go after liquids rather than gas so production will start to decline while increase use for power production will increase demand leading to higher prices) and electric bills will double. Add cap an trade and bills would go even higher.
The idea of pushing for infrastructure improvement is something I felt should have been addressed in the first term but rather than the piecemeal, bandaid approach he is using probably conditional on whether they bow to him, it needs to be a comprehensive approach that really leads us into the 21st and 22nd century. A 10 year $2 T per year comprehensive plan to overhaul highways, water systems bridges, dams, levees and electrical grids(through tax credits) etc would have gotten us out of this mess years ago. Best part that rather than putting the money into the black holes that we have so far with nothing to show, investing money this way would leave us with a real infrastructure that would improve our competitiveness. In addition, the government would have gotten all of the money back in taxes to the federal, state and local governments. A salary of $50K generates about $23-25K in taxes ( $8k SS, $8k federal income tax, $2,500 state income tax, $1,500 state sales tax, $2,500 property tax whether through ownership or rental and a host of taxes on gasoline, utilities, phones and more) and with a typical multiplication of 3, taxes paid would be 1.5 times what was spent on the labor portion. If half was spent on labor, it would generate about $1.25 B in new taxes per year. And that is only counting 50% of the $2 T. The other half would generate taxes as well. It would have cut unemployment, increased contributions to SS and provided a lot of jobs with benefits.
Instead this president sent $6 T of borrowed money down a black hole. Everything he does is based on gaining more and more control. Think it will be any different this term?
Actually what Obama SAID was true: "Nothing I'm proposing tonight should increase our DEFICIT by a single dime."…this is true…government spending has no impact on the DEFICIT. However, it has a HUGE impact on the DEBT!
Obama is hoping that people will confuse DEBT with DEFICIT…they are two different things….this is a clever form of lying. He is playing word games…"Song and Dance" indeed.
I see him as an american citzen who cares about america and is crizesed by people of colar and reps get off his back people let him lead.
Yeah, right down the primrose lane
I don't mind government SPENDING money, especially on infrastructure, this puts money into the economy and allows it to grow. I have a problem with the government BORROWING money, and TAXING its citizens to pay it back. The government does not need to do EITHER to fund its operations…it has a PRINTING PRESS!
I believe the reason we fund our government in this manner is because of the misguided idea of redistribution…from the US to poorer countries…and that we are making them dependent on us for repayment. You know the old saying: "If you owe the bank a hundred dollars, the bank owns YOU…if you owe the bank a BILLION dollars, you own the BANK." The government is trying to be TOO BIG TO FAIL.
Walter,
You need to either refresh yourself with economics 101 or if you haven't taken the class, there is a paper back book called Economics 101 For Dummies, which I would recommend to you
Everything with Obama is fuzzy, except the details about who will pay for it all. He conveniently leaves out those details.
I remember when Boo took me to Tysons Corner Mall during the fall of 82. Woodward and Lothrop still displayed lawn furniture outside by the stores entrance. But you are right Tysons would be unrecognizable nowadays.
The Congress seems to have broken most of the promises and appears determined to continue. The ideas alluded to in this column will cost. But then again, so did bailing out large corporate institutions with zero improvement either to the economy or those who have suffered because of the abuses of those same institutions and seemed to include huge bonuses to the leadership of those institutions responsible for the mess.
Maybe if we elimiinate spending on lobbyists or (at least have some information about what influences they apply and why — with no representation of we the people), we might have a little left over to help the disappearing middle class on whom the ideals of the American dream were built.
Perhaps we should focus on finding ways for the members of Congress to cooperate and focus on actually finding solutions to issues that injure or retard the efforts of huge numbers of hard working Americans
instead of retreating to the far far borders of opposite poles in bi-polar rhetoric and tirades aginst each other. Who are they serving when this continues? Who gets to vote for Lobbyists who seem to work harder and achieve more than those we do vote for?
Of the people, by the people, for the people?
Am I really supposed to be impressed with how this clown delivers a speech?? When does the butt kissing stop and the butt kicking begin?! This political hack needs to be run out of town sooner than later and all these congress hand wringers need to tell this jerk "NO"!!! What in blue blazes is going on here?
Everything this idiot Abomination spewed thru 6,000 words was crap. He has promised everything and done nothing. We are a Country of Unemployed overrun buy 40 Million Illegal Aliens and whats on his mind taking guns from civilians and spending more money with More Taxs. Schools have had double and triple increases in money and we are still failing in our schoolos, its not money but competent teachers and teaching what they taught when I went to school… This Idiot in the Semi White House has endebted this Country $6 Trillion dollars and we are worse off than when he entered office. But I guess its George Bush's fault !! Viet Nam Vet 67-68
Sorry, Martin. I think that most of what you say is wrong. First, regarding the budget deficit. Who was it who said, "deficit's don't matter?" Dick Cheney as I recall. He had it right. Maybe if we had any kind of classic economic system. But we don't. We have a fiat money system that is controlled by the federal who prints money as they see fit.
Why is it that it is somehow okay for the economy that the Fed. can print trillions of dollars and give it to the bankers, who have basically pissed the money away through fat cat bonuses and financial slight of hand that has not helped the economy in the slightest?
Yet we cannot consider that the same Fed, if it wanted to, could print a trillion dollars and put it into things highways, hospitals, education, infrastructure improvements, research, green technologies, etc., things that have an immediate return to the country in terms of improved productivity, jobs, and quality of life.
Likewise, the minimum wage. Your argument that raising the minimum wage would lower employment is completely bogus. I entered the workforce 51 years ago when the minimum wage was $.85/hour. The minimum wage has been raised several times since then. If the argument that you make had any validity, there would be no minimum wage jobs. But the fact is, since the bankers and multinationals have raped the country's manufacturing base, about all we have is minimum wage jobs.
The other thing to look at is what is the effect of minimum wages on other countries in the world? Since we have nearly the lowest minimum wage in first world countries, something about your argument is completely fishy.
You can try austerity if you want. But first check out Greece and Italy and Spain where it has been implemented. It is not working, and the countries are in revolt. The difference is that the U.S. has guns. It will not be a pretty picture here. Try 55% youth unemployment in L.A. and Chicago and see what happens.
If we can print money for the bankers, we can print money for the poor. Fiat currency is a joke, smoke and mirrors. As Dick Cheney said, deficits don't mean a thing.
Mr. Obama is referred to in our household as "President Pinnochio" So many many words and so little information . This man is totally ignorant of basic financial concepts.
Every future president in the USA should be required to show some basic knowledge of what makes an economy function and to also promise not to look to Greece as a model. If small business is to pay $9.00 for an entry level position then the current $9.00 hr employes would expect to be bumped up to $11.00 etc etc etc. Someone has to pay. He does not understand that. Take away his printing press and he would become mute.
What a mess he has put this country in with his excessive spending .
Right on Walter with all your comments. You do NOT need any lessons in economics.
wherever obama studied mathematics should be closed..nothing that obama does seems to add up..his math never works