Despite White House Spin, Obama Believes Government Should Run Our Economy

The White House is in full spin mode trying to convince Americans that President Obama doesn't hate business. The president claims: "it's very hard to find evidence of anything that we've done that is designed to squash business as opposed to promote business." His administration's economists were out in force at the end of last week trying to argue that Obama was actually pro-business. The impression here matters because Americans see how incredibly slow this "recovery" and they intrinsically understand how eliminating incentives will stop growth.

President Obama may hope Americans will forget that he called Wall Street executives "fat cats," bondholders "speculators," and accused doctors who zealously test patients of being "driven from a business mentality."  But he has made these attacks too often. Voters can too easily recall him regularly blaming private companies rather than the government for the financial crisis. Indeed, the only blame he gives to the federal government is that there wasn't enough regulation.

Businesses remember the outrageous and factually inaccurate attacks on companies. For instance, Obama pretended that firms and industries are more monopolistic than they are to justify government intervention. And who can forget him lashing out against doctors numerous times accusing them of preferring to amputate a foot rather than "treated [diabetes] as effectively as it could" because they can earn more money (here and here).

The problem comes down to how Obama thinks the market operates. Take his claim during the health care debate, that private insurance costs more than government insurance simply because private companies have to add on profits to the expenses of providing the service. He fails to understand that costs, including administrative costs, are driven down by the incentive for higher profits. This is the reason why very few products are sold by nonprofit companies despite huge tax subsidies -- profits motivate companies to find ways produce better quality products at a lower cost.

But Obama's animosity against the private sector goes well beyond disapproving of profits. He holds little respect for property rights. Last year, Mr. Obama used the TARP funds and the threat of costly public audits to force banks into giving the Federal government an ownership stake in their companies. Many banks had not even wanted the TARP money to begin with, but were forced to take the money under the threat that the government would use regulatory powers to drive them out of business. Once the government had taken control of the financial institutions holding bonds in General Motors and Chrysler, the government used that control to make them forfeit their rights as creditors.

Some creditors who were not owned by the government fought the decision, but bondholders had to vote on whether they accepted the government offer and the government ownership of the financial institutions gave them enough votes. But the government took other actions to stop legal actions through the courts. News reports indicate that Steven Rattner, the head of Obama's auto task force, allegedly threatened to use "the full force of the White House press corps [to] destroy [the bondholder's who resisted] reputation if it continued to fight."

Austan Goolsbee, Mr. Obama's new head of the President's Council of Economic Advisers, gave interviews at the end of last week dismissing these claims that Obama is anti-business. He told The Wall Street Journal that Obama isn't anti-business since he "pushed through 16 tax cuts to assist small businesses and proposed additional incentives."

Even this statement regarding "small business" reveals that Obama considers it to be the government rather than the private investors who should decide what size businesses should get more investments. But even for small business, the tax cuts and government loans in the bill are targeted for firms that do what the government wants them to do and balanced off by higher marginal tax rates.

Goolsbee tried to explain away the angry sentiment of businessmen towards the administration by blaming the bad economy: “When the unemployment rate is 9.6 percent, and when you’re coming out of the deepest hole in anybody’s lifetime, you knew that there were going to be a lot of people generally upset and not feeling good about where they are..." He labelled the recent recession: "the deepest recession since 1929." That is simply factually wrong, as the unemployment rate during the early 1980s was higher, reaching 10.8 percent. Nevertheless, despite even harder times no one viewed President Ronald Reagan as anti-business.

Ironically, the very same day last week that the government took a 92 percent ownership stake in AIG, Mr. Goolsbee declared it "totally bogus" to say that the president "is a socialist." Despite Obama wanting government ownership of GM and many financial institutions or pushing for government run health insurance, he might not be a pure socialist. Still, President Obama thinks that government, not consumers and private businesses, should ultimately run the economy.

John R. Lott, Jr. is a contributor. He is an economist and author of the recently revised third edition of "More Guns, Less Crime" (University of Chicago Press, 2010).

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