The party's over, people. President Obama's economic plans are becoming more and more worrisome. These plans include throwing around astronomical sums of money and taking away a lot of incentive for businesses and entrepreneurs to do exactly what we so desperately need them to do right now.
Even ardent Obama fans may soon have to grudgingly admit the dangers inherent in his economic plans. Personally, I'd complain about policies like these no matter who was in office. I was appalled by the Bush administration's spending practices, too.
Change can be good, but what if the real change makes things far worse than we could have ever imagined?
The trillion-dollar question (no wait, that's trillions)
First, Obama's $3.6 trillion budget is sobering in its own right. That's a staggering figure, and even more sobering, it comes complete with a mind-numbing $1.75 trillion federal deficit. It also comes with a lot of spending that critics call pork.
The new president's budget includes more aid for financial companies. However, so far, the patients on government life support simply aren't getting any better. There's no sign of recovery for AIG (NYSE:AIG) (after bailout No. 4) or Citigroup (NYSE:C), despite repeated aid. The only inevitability seems to be that they will be kept alive with no signs of real recovery. (Same goes for General Motors (NYSE:GM).)
Secondly, some critics are pointing out that Obama's budget emphasizes social programs rather than public works programs. The business once foreseen for infrastructure-related companies like Fluor (NYSE:FLR) and KBR (NYSE:KBR) might not materialize after all. The portions pertaining to universal health care have frightened investors away from those stocks, too, since government's involvement could hamper or cripple that industry.
Meanwhile, the president's $837 billion stimulus package also included a fair amount of pork spending that seemed difficult to justify with a supposed possible "catastrophe" on the horizon without the package. Its "Buy American" provisions -- not proposed by Obama, but still in the bill he signed into law -- also gave doubters plenty of reason to worry that protectionism might harm us as badly as it did during the Great Depression. That's why Caterpillar (NYSE:CAT) and General Electric (NYSE:GE) both spoke out against such provisions. Even though they might help their businesses in the short run, both companies knew "Buy American" would be dangerous in the long haul.
Unfortunately, our government was overextended even before Obama moved into the White House. The nation's fiscal situation was absolutely outrageous under the Bush administration. However, we can't just say, "Hey, we love Obama, so if he's jacking up spending and our national debt even more, that's cool." The expected huge increases in our national debt -- which is already $10.97 trillion -- within the coming years is no joking matter.
Slow strangulation
Meanwhile, the cap-and-trade system that Obama has proposed to tax carbon emissions has twofold dangers during our current economic mess. First, it may make operations too onerous for many businesses; second, it becomes an instant tax increase on everyone, because who doesn't use energy? Businesses will pass as many costs as they can right back onto already beleaguered consumers. And of course, that may cause an even more serious ripple effect, as more companies wither then go under.
Furthermore, as much as many people like to hear that the wealthy will get taxed more heavily, and that income will be redistributed downward, there is still the philosophical argument -- a legitimate one -- that we are rapidly taking away any incentive for anybody to invest, create, invent, or strive for something better. Why should anybody try to put forward any more effort than anybody else under the system that's evolving?
Show me the money
Many of the plans I'm mentioning would simply be political and philosophical issues that we could all merrily argue about in a flourishing economy; in the poor economic climate we have now, though, they strike me as misguided and dangerous.
Harvard's Robert Barro recently estimated that there's a 30% chance we could enter a depression, so yes, these are frightening times. Conversely, though, Obama's budget projects a mild recession this year with recovery next year, similar to Ben Bernanke's possible scenario several weeks ago. Let's just say that seems a little too rosy. We may need a reality check, pronto.
We are spending trillions, and we're in the hole for trillions more, while many of the policies destroy the incentive for the very engines of prosperity, such as industry and entrepreneurship. Government doesn't make money -- it takes money and redirects it, and the Obama administration is enthusiastically following the Bush administration's lead in greatly increasing the size of government and massive government spending. All this is happening even as more businesses fail and jobs disappear.
I don't blame Obama for our problems. And granted, it's not exactly easy to navigate an economic situation that is unprecedented in our lifetime. However, lots of people will blame Obama if his economic policies only manage to make our situation worse, and if businesses flee the U.S. because there's no longer incentive to operate here. What will we have then? Hopefully someone will stop Obamanomics before it's too late.
Here's some related Foolishness:
- Is $8.6 trillion just a drop in the bucket?
- Maybe it's time to bring back our free markets.
- One Fool found some stocks for the next great Depression.
