As the President suns himself at his $50,000 a week estate in Martha's Vineyard, the nation's economy continues to struggle, with new housing starts falling and delinquent mortgage payments on the rise.
As he was leaving for his vacation, Obama promised to unveil a new "jobs program" when he gets back. Undoubtedly, it will be another Keynesian pump priming disaster, just like Obama's "stimulus", which will do nothing to help the economy.
Keynesian economics should have been completely discredited in the 1970s. According to Keynesians and their Phillips Curve, you cannot have high inflation and high unemployment at the same time. Yet, this is exactly what he had under Carter and this is exactly where we are heading again. Yet the left clings to Keynesianism like a religion.
Keynesian economics is predicated on the notion that wages are sticky downwards, i.e., people will not willingly take a pay cut in a recession to clear the market and start economic growth again.
The Keynesian solution was to have government fool people into taking pay cuts during recessions by creating inflation.
That may have worked for a very short while, but people got wise to this and started demanding things like automatic cost of living adjustments in their contracts.
So, a fundamental policy prescription of Keynesian economics just doesn't work any more.
Another Keynesian policy prescription that doesn't work anymore is demand stimulation to start economic growth. Sure, pumping money into the system may help stimulate demand, but demand for what? Cheap goods made in China and Mexico, which does nothing to support economic growth at home.
In a global economy, borrowing money to stimulate demand is a foolish proposition.
What we really need to do to get the economy moving again is stimulate investments in innovation and productive capacity. There are things that government could do to help.
First, we need to dramatically simplify our convoluted 80,000 page tax code which punishes most American businesses with the highest corporate tax rates in the world, while letting politically favored companies get away with paying little to no taxes at all.
Second, our byzantine regulatory system needs to be completely rethought. We need to start by being more outcome focused than process focused. Regulations should have to go through a cost benefit analysis before they are enacted and on a periodic basis after enactment to ensure that they are effective at achieving the desired outcomes with as few side-effects as possible.
Third, we need to fix our broken government monopoly schools to produce students with sufficient skills in math and science to succeed in a high tech economy.
Forth, yes we need to invest in repairing and expanding our crumbling infrastructure. The focus has to be on results, not political expediency. If an infrastructure investment cost effectively helps the flow of commerce through the country it should be undertaken. Otherwise, there is no point in spending the money.
Fifth, we also have to get rid of incentives for not working. Allowing people to lay around growing their bellies on unemployment insurance for two years is counterproductive to economic growth.
Obama had his chance to simplify the tax code and make some needed infrastructure investments by embracing the proposal from his own debt commission. Unfortunately, he ran away from it as if it were the plague. Obama is not about to go to battle with his biggest supporters -- government bureaucrat unions -- to fix the schools. Obama's EPA is increasing the regulatory burden on American businesses. On economic policy, he is doing everything wrong.
The sad fact is that the economy is going to continue to struggle until Mr. Obama is ejected from the White House, because he just doesn't get it.