Wed, 29 Apr 2009 15:03:45 +0000 – By Liz PeekFinancial Columnist
President Obama hopes to celebrate his first one hundred days in office by signing a $4 trillion budget. Doesn't that say it all? For many Americans, the prospect of soaring government spending and unprecedented deficits is cause for mourning, not celebration.
Mr. Obama was elected in the midst of a terrible recession, which has allowed the new administration to play doctor with the economic equivalent of a saw and a bottle of leeches. Elected as a centrist (and a conciliator, but who's counting?), Mr. Obama quickly dispelled any notion of moderation by proposing to upend innumerable sectors of the economy in his quest to reform the nation.
Mr. Obama has an enthusiasm for big government that's as dated as beehive hairdos and sock hops. Only someone who was too young to drive during the meltdown of the Great Society could possibly harbor affection for governmental social engineering. Mr. Obama's appears unfettered by any concern of unintended consequences. He has apparently, for instance, never studied the ethanol industry.
Universal health insurance is one of the most ambitious and expensive proposals of our new president, anticipated to cost as much as $1.2 trillion. It is also the program that is viewed as so divisive that the Democrats in Congress have resorted to repugnant parlimentary tactics-the so-called "reconciliation" approach -- to ensure its passage. Why are people so alarmed about this measure?
First, health care is a huge sector of the economy -- now accounting for 17% of GDP. It is also one of the largest employers of union workers. Hence, policies shaping the future course of spending on health care will not, shall we say, be indifferent to the impact on labor.
More fundamentally, our medical industry involves every American; most of us are pretty pleased with the care we receive. Partly we like the fact that most of us have choices. The Obama plan calls for mandatory health insurance, and it is never popular to tell Americans what to do.
Team Obama wants to set up government-managed health insurance programs which will, in theory, compete with private insurers. The likelihood is that the public programs will ultimately drive the private players out of the business, as has been the case in student lending, leading to rising costs and ultimately to rationing of health care spending. Many people fear that it is but a short hop from nationalized health insurance to nationalized health care -- a truly horrifying prospect for anyone who has studied the disaster of English socialized medicine. Do you want bureaucrats deciding whether you should get that MRI? Would you like to wait six months for a breast exam? If you think HMOs are a pain, think airport security screeners, or motor vehicle clerks. That should make you take your vitamins!
Already there are reports of unintended consequences. A story in the New York Times today says Team Obama is worried that if everyone suddenly has health insurance, we won't have enough doctors to go around. Their solution? Start fooling with government-set pricing to funnel doctors and med students into general practice, as opposed to competing specialties. (See -- they really do understand the market mechanism -- they just want to control it!) How much do you want to bet that 10 years from now we'll have a shortage of heart surgeons or gastroenterologists, so effectively will the government have mismanaged the unnatural selection process?
The costs of all these incursions into private enterprise are enormous. The Congressional Budget Office projected that government debt held by the public will increase from 41% of GDP in 2008 to 82% in 2019. Is there any doubt that private financing will be elbowed out of the market?
That certainly won't help the credit freeze for businesses. When Mr. Obama became president, he repeatedly argued that stabilizing the banks and increasing lending was his first responsibility. In this most would agree he has so far failed. The programs initiated last year -- TARP and the TLGP -- have kept bank doors open, but the tap dance by an administration wooing irate taxpayers while simultaneously attempting to help bankers through the credit crisis has undermined the launch of needed additional programs.
Treasury Secretary Geithner's PPIP, designed to rid banks of toxic assets, was launched last Friday. The outcome has not been announced, but most industry analysts expect would-be investors to have been scared off by the Congressional interference in matters such as executive pay. The same is true for the TALF program, announced last year but only recently rolled out, though that has also been doomed by a mismatch between the terms of loans issued and guaranteed. The widely-discussed bank "stress test" is nearing its conclusion with the outcome uncertain, adding to bank anxieties. It appears that the administration set up the stress tests before thinking through how they would handle the results. Oops.
Overall, Obama's first 100 days have left businesses and investors reeling. The stock market is virtually unchanged from the week before the new president took office. An initial collapse in share prices followed from the new administration's dire economic forecasts. Those scare tactics helped push through a stimulus package that was the first salvo in reshaping the economy. As of early March, the market began to recover, responding to indications that perhaps the outlook is not so glum after all. If the economy begins to rebound later this year, taxpayers may feel they have been duped by an administration that used the economic meltdown for its own ideological purposes. Not only did we give the mouse a cookie, we gave him the whole darn factory.