Latest Obama speech, which I did not have patience to listen in its entirety, but read enough exerts from to form an opinion, once again confirmed lack of intellectual honesty in his approach to problems facing this country. Or may be it is just the lack of understanding of these problems, and it is not clear, which is worse.
So, what are the main points of his speech? First is concerned with disproportion between growth of the incomes between very rich and the rest of us. Is it a valid point? It could have been, if instead of focusing on "income inequality", the President talked about "income stagnation" of the middle class. While the latter is a real economic and political problem, the former is a populist slogan smelling of the class warfare, no matter how many times he denies it. Indeed, the focus of Obama and cheering him progressives on the "inequality" betrays their thinking about economy as a zero sum game, which is the essence of Marxist thinking. Within this framework, the labor and capital are enemies in constant struggle for a fixed amount of resources, therefore, when one side wins, the other side looses. Luckily, the economy does not work this way as any serious economist would confirm. Capital and labor are dependent on each other and their rewards are supposed to grow in sync as they create wealth together. A physicist in me cannot resist to pointing out that there is no law of conservation of wealth; it can be created from productive energy and skills of people or destroyed by their incompetence and stupidity, both of which are much worse offenses than greed - the main enemy of populist charlatans and their cheerleaders.
There is a certain consistency in progressive's use of "comparative analysis" when discussing county's problems. They do not talk about poor quality of American education, they prefer to discuss "achievement gaps" between white and black, rich and poor, boys and girls, etc. The notion of the "income inequality" fits right here in this "comparative" narrative. The main problem with this approach is that it does not deal with real problems while wasting time, money, and public energy on unnecessary discussions of phantoms. The problems formulated in terms of "inequalities" or "gaps" have quite simple "solutions". One just needs to make wealthy poorer, strong students weaker, and the problem of inequalities goes away. In the area of education it is already happening, and Obama's latest speech signifies an attempt to apply the same template to economics. It reminds me of an old joke from Soviet times stating that the goal of Russian Revolution was to create a society, in which there are no rich people.
Joke or not, but the second point of Obama's speech, where he proposes a solution to the problem of inequality is quite consistent with the above mentioned goal of Russian Bolsheviks. Indeed, the main point of his proposal is to reform the tax code, such that rich will pay more. While it is not obvious how this proposal will increase income of the middle class, it clearly will make, if successful, rich people poorer. Thus, I think that I am entitled to believe that this is the main goal of the policy.
But let give the man a benefit of a doubt, and let assume that he does want to help the middle class out by increasing their income rather than by making them feel better because their rich neighbors suffer. The speech was, not surprisingly, devoid of any specifics about how taxing the rich will make middle class better off. While it is easy to imagine, how the redistribution of wealth can benefit poor (extension of welfare and medicaid programs), it is much less clear cut with respect to working middle class who live off the wages. To improve their situation these wages must be made to go up. The question how government can achieve this with extra money, collected from the rich. Government does not yet have a direct control of wages for those of 99% who works in private sector, and the idea that taxing the employers more will somehow induce them to pay better wages to their employees seems somewhat counter-intuitive. This leaves the government with only one option - create more and better paid public sector jobs. This proposition, however, raises lots of objections of philosophical ( Do we want to become a nation, where the State is the main employer?), political (Population of a country, in which most lucrative jobs come from the government cannot be free) and economical nature. I will not dwell on the first two objections, they are quite clear, so let me focus on the last one. Economically speaking, this simply would not work for several reasons. First, being deep in debt, government would not have the money even if it raised taxes on the rich by 100%. Second, let's assume for the sake of argument, that the money is not an issue for now. What can be the result of the government creating more and better paying jobs in public sector? If our economy were isolated from the rest of the word, it could, in principle, put pressure on private sector and force them to increase wages of their workers to remain competitive in the labor market. But we do not live in a closed system. The direct result of the employees run from private enterprises to governmental jobs will be shifting even more private jobs outside of the country. This process will be further exacerbated by the fact that increased taxation of investment income (the main portion of Obama's tax plan) will make domestic investment less attractive resulting in the flow of capital to other ,more attractive markets. This will create a vicious circle, with government having to keep stepping in to compensate for job losses in the private sector. It will end, though, pretty soon, with government going completely broke, and the entire system disintegrating. All rich people will flee the country with their money at the first sign of the troubles, and USA will finally become a country of only poor people, the dream of the progressives, I guess. No income inequality anymore, but is this what we all actually want?
One final note. Invoking T. Roosevelt ghost as a champion of progressive agenda is a bold political move, given a number of controversies surrounding his presidency. One that cut my attention in particular, is Roosevelt's fondness of eugenics (source - Wikipedia article on eugenics, where one will find Roosevelt in a fitting company of Keynes). Now we might find this attraction unbecoming, but at that time, where ideas of planned economy were on everybody's mind it was quine a natural sympathy. After all, if one can plan economy, why not to plan humans as well? Another popular idea of that era has also found its way to Obama's speech. It is not good, says he, than everybody plays by its own rules. Everybody will be better off if we all act together. This is, obviously, a poorly disguised attempt at promoting collectivism, from which it is just a small step to any kind of collective type of economy, be it socialism or fascism (not to confuse with Nazism). This part of his speech is wrong on so many levels, that it is even difficult to decide where to start. Interpreting individualistic philosophy as a game where "everyone is playing by its own rule" shows a gross misunderstanding of the nature of American individualism. It does not imply that there are no commonly accepted rules, it means people use their own individual judgements based upon their individual preferences to choose which moves to make in the game. And mantra of "we will be better off if we do it together" has never been anything more as a disguised attempt to force most productive part of society to work for the benefits of the less productive one. I hope that people will see right through this demagoguery.
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