Searching for fresh scapegoats

For the past 3 years, President Obama has blamed George Bush for our country's economic woes. The Administration has now come to realize that, as time passes, this strategy will become less and less effective. We can imagine, for example, how laughable the spectacle will be if Mr Obama runs for reelection in 2012 by blaming the President whose last day in office was nearly 4 years ago.

So, instead of exercising effective leadership and getting America's fiscal house in order, something this inexperienced and ideologically rigid President seems incapable of doing, over the last 6 months Mr Obama and his supporters have been engaged in a search for new parties they can pin the blame on.

We have heard the following assertions:

• It was the tsunami in Japan that caused the recent slowdown.
• It is the fault of the Europeans, who can't get extinguish their sovereign debt crisis (for example, as reported just this last week by the German magazine Der Spiegel, the German periodical, Bild, wrote: "The President's scolding [on the European debt crisis] is a pathetic attempt to distract attention from his own failures. How embarassing.")
• It is racism (including now, it seems, racism on the part of white liberals).
• It is the fault of all the millionaires and billionaires who aren't paying their fair share of taxes and fly around in their corporate jets.
• It is the intransigent, lunatic, do-nothing Repulicans.
• It is George Bush's fault (whoops, old habits are hard to break).

It's just not going to be possible for Obama to win if his campaign has to address inconvenient facts like:

• We have 9% unemployment.
• We are still running trillion dollar deficits.
• We have lost our AAA credit rating for the first time in our history.
• The only proof that the stimulus saved or created any jobs at all is Mark Zandi's computer model that was originally used to predict that the stimulus would save or create jobs.
• We have thoroughly alienated our most trustworthy ally in the Middle East, Israel, while Iran continues to develop nuclear weapons.
• Obamacare is deeply unpopular and may be overturned by the Supreme Court by next summer.

Instead, the only possible route to reelection is to find a fresh set of scapegoats to blame all of our woes on, to demonize the opposition, to label those who disagree with you with every term for crazy that you can find in the thesaurus (looney, unhinged, imbalanced, nutcase, wingnut, mad, fringe, and so on, ad nauseam).

We are in for an ugly spectacle over the next 14 months. Sadly for Mr. Obama and the rest of the Democrats, the blame game will likely only further alienate the moderates who are already fleeing the President in droves. To win the election, the Republican candidate need only stick to the facts and focus on being statesmanlike and optimistic. The other side will drown in its own vitriol.

The Rational Optimist, Hayek, Ron Paul, and Obama's centralized, Keynesian stimulus

In a recent column in WSJ, Matt Ridley, author of the The Rational Optimist, discusses the influence of Friedrich Hayek on his thinking. The point of the column is that what matters most in human society is not the extraordinary intelligence of individual members of the species, but the fact that those members communicate and interact with each other and exchange ideas, thereby forming a collective intelligence far more powerful than the contribution of any individual member. Ridley sums up his column as follows:

The political implications are obvious: that human collaboration is necessary for society to work; that the individual is not—and has not been for 120,000 years—able to support his lifestyle; that trade enables us to work for each other not just for ourselves; that there is nothing so antisocial (or impoverishing) as the pursuit of self-sufficiency; and that authoritarian, top-down rule is not the source of order or progress. [my emphasis added]

The last point, that “authoritarian, top-down rule is not the source of order or progress” is especially important. One implication is that centrally planned, top-down government programs, like, for example, Obama’s current $450B jobs program or his earlier $800B stimulus program, are doomed to failure. This is because the authors of such programs cannot possibly have enough knowledge to be able to conceptualize and implement these programs effectively. All you need to ask yourself is the following question: Who is going to have a better understanding of how to create jobs, Obama and a few government bureaucrats in Washington DC, or the collective intelligence of all the entrepreneurs in Silicon Valley? It would not matter if Obama were the most intelligent person in the world (which he most certainly is not); it is simply an epistemological impossibility that he could have all the dispersed, real-time, localized knowledge embodied in the minds of all the entrepreneurs in the Valley. Obama confidently claimed that the stimulus was going to be spent on “shovel-ready projects,” only later on to be forced to admit that the projects were “not as shovel-ready as we expected.” What Obama overlooked was that it was impossible for him to know how spending could most profitably and effectively be distributed among the most deserving individual projects. This knowledge is dispersed among countless market participants at the local level and is changing constantly in real-time. This is one of Hayek’s basic theses. People like Matt Ridley, Ron Paul, and I adhere to this view. This thesis is where economics and biology come together. The economy is like an enormous ecosystem. It is completely dispersed and not under any central control. It is impossible to know in advance where new mutations (economic innovations) are going to pop up. And it is impossible to know in advance which particular mutation (innovation) will be naturally selected over others. Who ever could have predicted that Steve Jobs and Steve Wozniak would have been so successful? Mark Zuckerberg was not successful because the Obama administration identified him at an early stage and backed him with capital.

In sum, the Keynesian philosophy of the Obama administration (and thinkers like Paul Krugman and government officials like Ben Bernanke) that the government can centrally know and plan how to stimulate the economy is just complete hogwash. Instead of trying to act and spend and intrude into and distort the markets, the government should rather be trying to withdraw itself from interfering in those markets. By doing so, the government would unleash the enormous creative energy of the private economy, an energy that derives from the dispersed knowledge and initiative of millions of individual actors, a force infinitely more powerful than any puny, misguided, wasteful, ill-timed stimulus coming from the central government.

There is one question I always ask myself: If extraterrestrials were to descend from outer space and observe the human species, what would be the things that they saw as most typically characteristic of the human species? In my opinion, it would be language, exchange, a monetary system, and a dispersed and flexible market economy in which rationality, locally applied, calculates and recalculates in real-time the prices for exchange and thereby assures that the best human ideas and inventions (the best memes) are dispersed in the most flexible way. In other words, it is dispersed, flexible, non-centrally-controlled systems that are most characteristic of the success of the human species.

As Ridley remarks: “Only the cloud knows.” The problem with Obama and Tim Geithner and Ben Bernanke is that they are not and never can be the cloud. For them to pretend otherwise is an exercise either in gross stupidity or hubris.

Obama's jobs speech

Obama does not understand that government is not the source of prosperity. Obama does not understand that prosperity does not result from short term stimulus. Obama does not understand that government is never the proximate cause of prosperity; that, instead, government should operate in the background, creating a stable, long-term environment that serves as a matrix within which the private economy, the true engine of prosperity, can flourish.

No, it is not government, but rather the vast American people and myriad American businesses that, when allowed to operate in a stable, open, and undistorted environment, have always been and always will be the wellspring of prosperity. This is the story of Amrican exceptionalism. If Obama would only unleash the creativity and energy of the American people, the American economy would flourish.

Obama is caught in the various fallacies of central planning. He does not understand that central planners cannot possibly have more aggregate intelligence about economic decisions than the great mass of the American people. This would be true even if the central planners were the most intelligent individuals in our society (and Obama certainly does not fit that description; it is laughable now to think how much was expected and "hoped for" from this man whose chief experience in life was as a community organizer). Neither can central planners have enough information nor can they react quickly enough to be able to manage the enormous American economy effectively. These things were demonstrated by Hayek.

The vanity of Obama is simply astounding. He really thinks it all starts and stops with him and the rest of his Beltway compatriots. He has no comprehension of the vast worlds and energies that exist outside the Beltway. Although he travels to the West Coast frequently and hobnobs with the high-tech glitterati, he really has no clue how Silicon Valley works. Our heroes are Steve Jobs, John Chambers, Bill Gates, Larry Ellison, Jeff Bezos, Meg Whitman, Sergei Brin, and many, many more, people who have actually done something in this world besides spending money expropriated from the taxpayers. They have taken risks. They have created companies from scratch. These companies employ hundreds of thousands of workers and indirectly benefit millions more. These companies were not built by handing over $1T in stimulus money to Maxine Waters and Robert Reich, but through creative genius melded with persistence and ultra-hard work.

Obama does not understand any of this. But, in fact, to say that Obama does not understand this is to go too easy on him. The cold reality is that much of this new stimulus money will go to paying off favored political constituencies. So, at best Obama is inexperienced and inept, and at worst thoroughly corrupt.

WaPo's Harold Meyerson and Solyndra

Harold Meyerson's column in the Washington Post this week was timely. Meyerson encouraged Steve Jobs to bring Apple's manufacturing and assembly (MA) jobs back to the United States:

Steve Jobs ... has abandoned nonprofessional American workers. It wasn’t always thus. In his first stint at Apple, in the mid-’80s, he built, with Jobsian attention to form and function, a heavily automated factory in Fremont, Calif., that employed hundreds of workers to turn out personal computers. But the Macs didn’t sell fast enough, Jobs was fired, and, in 1992, the factory was closed. ... [Apple now] employs no U.S.-based production workers. Which is why Jobs’s elevation to our national pantheon is premature. Bringing some of those production jobs home while holding down the price of his products probably would require devising factories so automated that they wouldn’t employ all that many workers. Then again, Apple is sitting on $76 billion in cash, and Jobs is still Apple’s chairman. Devoting a few billion to reshape and restart American manufacturing, even if it employs fewer people than in Henry Ford’s time and narrows Apple’s profit margins, could work wonders for exports and, just possibly, lead to Jobs’s most amazing invention of all: a newly vibrant American working-class.

Well, in the very same city of Fremont where Jobs once built his Mac factory, we found out once again this week why it is a very bad idea to locate MA jobs in expensive Silicon Valley.

Solyndra manufactures and sells solar panels. Solyndra was given a $535M loan guarantee by the Obama administration as part of its policy to promote green technologies. Solyndra used a large part of that money to build an enormous, state-of-the-art manufacturing facility in Fremont. Real estate is very expensive in Fremont. Construction costs are very high in Fremont. The wages for high-tech workers, even for MA workers, are very high in Fremont. Because of these and other factors, Solyndra's products were simply too expensive to compete in the global marketplace. As a result, Solyndra declared bankruptcy. In sum, Solyndra, with the support of taxpayer money dished out by the Obama administration, did everything Harold Meyerson is recommending that Steve Jobs and Apple do. And the result was economic disaster.

It has been well known for decades by all operators in Silicon Valley that it makes no economic sense whatsoever to locate MA jobs onshore in the United States. The main reason for this is because offshore workers are as well or better qualified than American workers and will work for substantially less. Any business that refuses to acknowledge this reality will be eaten alive by its global competitors. And any columnist who encourages Apple, the crown jewel of America's high tech industry, to engage in such self-destructive behavior simply reveals his complete ignorance of the way high-tech businesses operate in the global marketplace.

The self-avowed socialist, Mr. Meyerson, actually has the audacity to presume (like all too many other so-called progressives) that he knows better how to spend Apple's "$76B of cash" than Apple itself. He advises Apple to "devot[e] a few billion" to relocating Apple's MA operations back to the US. "Waste a few billion" might be a more apt description. He encourages Mr. Jobs, the chairman of Apple, to ignore the fact that doing MA work in the United States could "narrow Apple's profit margins." Apple shareholders would be aghast if Mr. Jobs were to follow Mr. Meyerson's advice. It was precisely by engaging in such non-economic practices that Solyndra went belly up.

The fate of Solyndra reminds us why it is such a bad idea to listen to socialist political activists like Mr. Meyerson or the former community organizer Barack Obama when it comes to running the American economy. Although these activists start from good intentions, they simply cannot get it through their heads that the main purpose of any business is to turn a profit. Instead, these activists view businesses as nothing more than tools that the government may manipulate to advance its own social policy agenda. And, in doing so, they encourage government sponsored entities to engage in the kind of uneconomic behavior that often results in financial disaster, with the costs then being borne by the American taxpayer.

Solyndra is not an isolated phenomenon, but part of a pattern. Over the last decade we have seen many examples of the government encouraging government sponsored entities to engage in uneconomic behavior to advance social policies. The government encouraged Fannie Mae to guarantee junky subprime loans in the name of promoting low cost housing. The government is now encouraging General Motors to manufacture the Chevy Volt, in spite of the fact that the Volt is an utter failure in the automotive marketplace. Until the government stops trying to manipulate American businesses for the purpose of advancing its social policies, we will continue to see government waste, corruption, and failure on a monumental scale, with the American taxpayer picking up the tab.

Solyndra goes belly up

Many Silicon Valley commuters are familiar with Solyndra, the solar panel manufacturer with the enormous, modern, brand spanking new building on the side of Highway 880 as you drive north from San Jose. Construction of the building was completed only recently. The paint on the walls is probably not yet dry.

Well, it turns out that Solyndra is going bankrupt.

Solyndra is one of the crown jewels of President Obama’s “renewable energy” strategy. He gave them a cool half billion dollars and came to Fremont, lowly little Fremont, last year to visit the factory and wax eloquent about its magnificent future. Now the new Solyndra building is just a monument to spectacular failure, yet another reason for commuters stuck in traffic to be depressed in this awful economy.

The government’s investment in Solyndra is typical of how badly the government botches things when it tries to create government sponsored business entities to further its social policies (whether it's creating Solyndra to further its green energy goals or creating Fannie Mae to further its low-income housing policies). Government officials always start with good intentions. But, they have absolutely no understanding of how a business should run. They have no market discipline. They don’t need to care about the money they are throwing away, because it’s not theirs, but has been expropriated from the taxpayer. And they are taken advantage of by savvy operators who are only to happy to suck at the teat of a thoroughly wasteful and corrupt government and devour the enormous amounts of money that the government shovels their way.

Anyone with a little common sense could have guessed as he drove by that Solyndra was a bad investment: land in Fremont is too expensive, the wages you have to pay Fremont workers are too high (Why do you think all hi-tech manufacturing and assembly jobs have fled Silicon Valley and moved overseas?), it makes no sense to build an enormous, brand new facility when the company could have gotten by with much less grandiose digs, and all these extra costs result in the prices of Solyndra’s products being too high for the average buyer. Only a bunch of fanatic bureaucrats blinded by "green religion" would fail to anticipate all this.

The simple fact is that when you have 9% unemployment (actually, much higher in California), when you are attacking the banks every day, when you are strangling American businesses with new regulations, when you are running trillion dollar deficits, it is very difficult for the average American consumer to have enough confidence to invest the thousands of dollars required to install new solar panels on his house. Any new business would find it difficult to operate in such an environment.

The best thing Obama could do to boost a renewable energy industry would be to stop waging war on American businesses, quit coddling the unions, and start cutting government regulation and spending on useless Keynesian stimulus. Actions like these would allow the private sector to start to grow again. And, it is entrepreneurs in the private sector, after all, guys like Steve Jobs of Apple, or Bill Gates of Microsoft, or Larry Ellison of Oracle, or Diaz Nesamoney and Gaurav Dhillon of Informatica, or Vivek Ranadive of Tibco, who produce new jobs, not a bunch of bureaucrats in Washington who are so stupid that they can't make it in the business world and therefore take refuge in academia and the Washington bureaucracy and are called “experts” or “members of the President’s Council of Economic Advisors.”

Obama is an economic disaster. Of course, I have no idea why anyone expected anything different from someone whose main experience before he became POTUS was as a community organizer/agitator. And now, he's managing to give the renewable energy industry a bad name, too.