Obama's Newer Deal: A Free Special Report from Casey Research

This guest article about Obama's Newer Deal, courtesy of Casey Research's David Galland, includes a free special report on the Obama administration, and what it means for your investments. Enjoy!

Obama, Keynes, and Pragmatism
By David Galland
Managing Editor, The Casey Report

On several occasions of late, I have read or heard the phrase, "We are all Keynesians now," an erudite way of expressing the idea that the free market is dead. And that the fate of the global economy now relies almost entirely on pragmatic measures yet to be taken by governments, most notably that of the United States.

Given that the word "pragmatic" is often used to describe President Obama, it appears that the man of the hour has arrived just in the nick of time.

Not to be a spoilsport, but there is much wrong with this latest entry in the thick and well-worn journal labeled “Popular Delusions.”

First and foremost, the idea that the world's largest debtor nation should be stood up as role model is laughable. That is like hiring the town's serial bankrupt to run the bank. Putting aside the irony, the inherent conflict of interest destroys any U.S. credibility as an honest broker in the current scenario.

Secondly, while the incoming team has done a superior job of spinning pragmatism into the Obama brand, it is another thing altogether to actually demonstrate the quality when the shoe leather hits the fast-moving pavement.

And, if you think about it, even the word defies definition. I have heard Obama supporters comment lately that “if the private sector won’t spend money, then the government has to.” Like beauty, pragmatism, it seems, is in the eye of the beholder. In the current context, what Team Obama might consider pragmatic – soaking the successful, slapping on an energy tax, revving up the money engines ever higher – might be considered by others to be very un-pragmatic.

Even so, adopting the optimistic spirit of America’s new era, we’ll credit the incoming president and all those who surround him as pragmatics, in the sense that they are the best sort of men and women who can be counted on to make intelligent and, well, pragmatic choices in the face of a rapidly eroding global economy.

Unfortunately, no sooner do we hand Team Obama a laurel than we have to point out a rather large and ugly fly in the otherwise nicely scented ointment. It is this: if the word pragmatic isn’t used as an adjective in direct association with the word “dictator,” then it becomes all but meaningless.

That’s because even if Mr. Obama is a pragmatic, the same can hardly be said of the American public, which, according to the law of the land, are the purported owners and – through the ballot – operators of the economy.

To use one easily understood example, a pragmatic president might look at the insurmountable obligations hanging over the Social Security program and decide that, at the least, some form of means testing might be applied to recipients. But the voting bloc of American elderly, readily ginned up into an elevated emotional state by the AARP and other special-interest groups, assures that anyone proposing even modest modifications to the program will be loudly shouted down and find themselves in heavy waters come the next election.

And I’m not referring just to the next presidential election cycle, which won’t kick off for another two years… but to the next congressional election of November 2010, less than two years hence. In that election, 1/3 of the Senate and 100% of the House of Representatives will be up for grabs.

With only history as my guide, I’m going to hypothesize that few of Mr. Obama's supporters in Congress, avid though they may be, will be willing to make their reelection campaigns more difficult by supporting unpopular legislation… no matter how pragmatic.

Sure, maybe they’ll inch a little way out on the limb during a brief honeymoon period, but once the 24-hour-news-as-entertainment channels start in with a vengeance, cracks in the coalition of collectivists will begin to appear and Team Obama will turn from making “hard choices” to the “easy giveaways” the American public requires in exchange for continuing to support his party come November 2010.

After that, we move seamlessly into the next presidential election cycle, and things will go downhill from there.

Of course, this situation is not unique to the Democrats – rather, it is an intractable and, in time, terminal disease of our late-stage democracy itself.

The Keynesian Fallacy

Even ignoring the near impossibility of organizing consistent and sensible government policies in a rapidly degrading democracy, the whole idea that a government can effectively manage an economy – Keynes’ central theme – just doesn’t hold water. Despite hundreds and maybe thousands of experiments along those lines, none has shown any real durability.

There have been some examples, however, of long-term free market successes, the most powerful being the early, laissez-faire days of the United States. There are lesser examples such as Dubai in recent decades, or Hong Kong under the British – economies where the operating manual was thin and almost entirely supportive of wealth creation and free markets. Were they perfect? No, because there is no such thing as a perfect world. But in terms of creating the wealth needed for a society to advance to a more refined stage, they performed exceptionally well.

In sharp contrast, today’s freshly minted Keynesians call for increased penalties on success and a steep ramping up of regulation, the very opposite of the prescription needed.

There is another problem with the utopian aura now surrounding Team Obama, and it’s simply that government doesn't produce anything tangible. So when it comes time to "manage" the economy, government is left with only a couple of tools. One is to force you and me to use our time and capital for purposes they view as important. Bush, for example, felt invading Iraq was a priority. Naturally, Team Obama has a slate of fresh ideas on the best use of your money, and say they want even more of it. I take umbrage at the notion that I should open my wallet even further for "the public good," especially when the perceived public good so often runs contrary to my own beliefs. For instance, on principle, I am against war – it is always the innocents that suffer the most. And I am against the creation of new and expensive regulatory structures, a government specialty.

The other tool available to Team Obama is, of course, the creation of money. And we are now hearing a steady drumbeat that we the people should pay no attention to the deficits for the next few years.

To which I can only wonder, “Isn’t that exactly what’s been going on for the last eight years?”

It sure seems that way, considering the unprecedented levels of debt already overhanging the economy.

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There has rarely, if ever, been a period of time where the economy of the U.S. has been more politicized. Today it is not enough for an investor to paw through the fundamentals and correctly identify the best – or worst – sectors or even individual companies to be invested in or to avoid. Success depends equally, and maybe even more so, on correctly anticipating what actions the government is likely to take (or not) in regards to any particular enterprise. Take GM, for example, whose rise or demise depends to a large part on the question whether the government will prop it up.

The FREE special report Obama’s Newer Deal by Casey Research analyzes the economic and political climate of the incoming Obama administration, providing a “weather forecast” that can help you prepare your assets for a rainy day. Get it now – no cost, no obligation – by simply clicking here.