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Obama's New Deal Formally Announced

In President-elect Obama's weekly address to the nation--done by video, instead of radio as has been previous President's means of communicating to the nation; delivered via Hulu and YouTube instead of NPR--the incoming leader of America formally laid out the first part of his New New Deal. That isn't what he is calling it, but that is effectively what it is.

Essentially, Obama has taken the bulk of his policy proposals--green energy, reforming health care, fixing education, etc--and tied them all back to jobs. He wants to reduce the amount of money spent on energy bills. Replace antiquated AC/Heating units. Update schoolhouse technology. Give broadband internet access to every home in America. Build out the national infrastructure with new roads and bridges. Ensure electronic medical records for all Americans.

I'll go over some the details of his proposal in a minute, but first consider this: Obama's plan is exciting. On the surface anyway. There are a lot of problems in America and he is offering a plan to try and fix them. Giving every child computer access in a classroom? A national internet access grid? More efficient energy solutions? These are all really exciting ideas.

If Obama could do all he proposes America would be a much better place. It feels like we have become stagnant as a nation and this will make us alive again. Whether or not you're a libertarian, most people want the ends that Obama has suggested.

The problem is the means. The problem is that it won't work in the long-term. The problem is that to achieve these goods, we'll have to unjustly redistribute income in America. The problem is that we'll have an internet grid, but will little incentive to use it to create wealth--because it will all be taken away. The problem is we'll have better education (potentially), but no jobs available other than what the government provides because entrepreneurship will be disincentivized by the necessary taxes to do what Obama wants with government power.

That's the flip side. That's the long-term view. But in this time of economic struggle, Obama's message will likely land to joyous applause because we've become a nation with a short-term, static perspective on life, that lives only in the moment, that spends now, that doesn't save, that wants what we want when we want it without putting in the necessary work to earn what we have. An economic recession is not a depression, but we are acting like it is.

On a positive note, Obama made this promise: the government won't just throw money at the problem, they will measure their results and adjust as needed. That is how a business invests money. That is better than just spending for the sake of spending. But the government has rarely proven effective at measuring results in the past and we should be wary of their ability to do so now.

Here are excerpts from his weekly address:

Energy: "[W]e will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won't just save you, the American taxpayer, billions of dollars each year. It will put people back to work."
If the plan laid out for upgrading the federal government's buildings saves money long-term, then it is efficient use of funds and is responsible government. Using cost/benefit analysis, it can be determined if the money spent to put in a more efficient heating unit will reduce the heating bill by a greater amount then that is good management. But it is unlikely to create very many long-term jobs--nor are most unemployed Americans looking for jobs as light bulb changer. Hidden underneath this proposal is a green initiative. Obama is not just looking to save money, he is fighting climate change. As long as the number one goal is cost effectiveness, then the energy efficiency matching green standards is a positive by-product.

Infrastructure: "[W]e will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s. We'll invest your precious tax dollars in new and smarter ways, and we'll set a simple rule – use it or lose it. If a state doesn't act quickly to invest in roads and bridges in their communities, they'll lose the money."

This proposal has several problems. First, the government should not be investing in infrastructure. The Eisenhower interstate program took five decades to complete. It was inefficient, and didn't grow with the appropriate demand signals. Of all major innovations in the 20th century, the government led road projects lagged far behind other private ventures. Infrastructure should be built out by private firms. And there is money available for that. Last week Chicago leased it's parking meter system for $1.1 billion in a project led by Morgan Stanley. There is billions waiting to be invested privately in infrastructure if the government just makes it easier for them to do so instead of trying to spend taxpayer money instead. The use it or loose it idea also encourages fast, not smart, spending.

Schools: "[M]y economic recovery plan will launch the most sweeping effort to modernize and upgrade school buildings that this country has ever seen. We will repair broken schools, make them energy-efficient, and put new computers in our classrooms. Because to help our children compete in a 21st century economy, we need to send them to 21st century schools."

The federal government should not be paying out for fixing schools. Children do need skills to compete, but throwing money at the problem hasn't worked in the past. Building nice schools doesn't make nice students. New computers in every classroom won't necessarily increase test scores. Only when teachers and schools have the incentive to make their children learn (private schools, charter schools) will education grow again. This is the planning/community organizer side of Obama coming out.

Broadband: "As we renew our schools and highways, we'll also renew our information superhighway. It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here, in the country that invented the Internet, every child should have the chance to get online, and they'll get that chance when I'm president – because that's how we'll strengthen America's competitiveness in the world."

Sure its cool that Japan and South Korea have nationwide internet grids. But spending money to create one here competes with private firms that are offering services enough where there is demand enough to pay for it. It will hurt private business when that is what the government should be supporting. And the question becomes, is the government's role to provide jobs or internet?

E-Medical Records: "In addition to connecting our libraries and schools to the Internet, we must also ensure that our hospitals are connected to each other through the Internet. That is why the economic recovery plan I'm proposing will help modernize our health care system – and that won't just save jobs, it will save lives. We will make sure that every doctor's office and hospital in this country is using cutting edge technology and electronic medical records so that we can cut red tape, prevent medical mistakes, and help save billions of dollars each year."

This is a first step towards creating a universal health care system and the attempt to "Big Brotherize" the health system should be looked on with concern. There appear to be many benefits of e-records. But American's shouldn't be forced to have them if they want to maintain their privacy.

All and all, some of the ideas in Obama's plan are good. They are mostly exciting to think about coming true. But by and large the thinking is misguided under the circumstances.

Anthony Randazzo is Director of Economic Research


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