Obama Digs A Hole For The Economy

President-Elect Obama has chosen to embrace some of the worst economic thinking in his recently announced economic recovery plan. The buzzword he’s following is “infrastructure”—and it’s a strategy that is doomed to fail.

Reason‘s Nick Gillespie sarcastically looks at the plan:

When the history of this awful moment of bailout hysteria is written, there’ll be a chapter or 20 on the complete bogosity of what might call “the infrastructure flim-flam”—the idea that government can boostrap the economy out its funk by hiring two guys to dig a hole and a couple more to fill it in.

Don’t you see? It’s the perfect plan!, as Batman’s Riddler might exclaim. In fact, one only wonders why they don’t hire three guys to fill the holes, thereby cutting unemployment to negative-something.

There are so many flaws with Obama’s plan that one hardly knows where to begin. For one, there’s no way to “create” 2.5 million jobs through infrastructure improvements alone. Unless Obama wants to pave over Iowa, there isn’t going to be enough work to make a significant dent.

Then there’s the issue of the utility of taking a bunch of unemployed stockbrokers and autoworkers and having them pour concrete or lay cable—they’re not trained for either, and it doesn’t help them build the skills they need for the future. It’s busy-work, and it’s economically counter-productive. Something like job retraining would be valuable, not more government-run “public works” projects.

There’s also the fact that if you believe that government is more efficient at allocating goods and services than the private sector, you probably missed the whole “collapse of the Soviet Union” thing. Who will decide what “infrastructure” gets built where? A bunch of Washington nomenklatura? That creates a system where superhighways get built in places where politically powerful Congresscritters live while real needs go unmet. Government is simply not designed to do what Obama wants it to do, and as much hyperbole is there is about Obama being a “socialist” in this case his policies are the sort of thing we’d see from the leader of some banana republic. Economic troubles? Just round up some plebs and have them start digging ditches.

The Obama plan is not a viable solution. We do need better infrastructure, but not through wasteful, inefficient, and crude make-work programs. There is no future in the American economy if we start making our workers dig ditches or pour concrete rather than innovate in nanotechnology, alternative energy, or space. We need an economy for the 21st Century, and Obama keeps playing from the dusty playbook of the 1930s.

What should Obama do? What we need in this country is a high-tech economy. We need more civil engineers to design all those bridges. We need more innovation, more risk-taking, and more entrepreneurialism. What can government do? It can incentivize innovation and risk-taking. If you’re a college student and you want to be a civil engineer? Graduate in engineering and go into government service for 5 years, and you get your college loans forgiven. Obama should direct NASA to give a $1 billion prize to the first company that can demonstrate a workable prototype for a replacement for the Space Shuttle. (Limited versions of such a prize system are already in place, and helping generate high-tech jobs.) Instead of another government make-work project to lay fiber-optic cable, Obama should incentivize companies to develop wireless technologies that can help remove the need for physical connections. These are just a few examples of what would be a, dare I say it, progressive approach to this economic crisis.

But Obama, listening to the radicals of his party, is not really a “progressive” in this sense. He has picked up the failed FDR playbook and seems hell-bent on making the economy worse by embracing the same failed plans as before. We cannot bootstrap a modern economy through government spending. If that were true, the Third World wouldn’t be the Third World. Government spending always comes with prohibitively high administrative costs that creates a severe dead-weight loss on the economy. It is always less efficient than a market-based approach.

Government has a role, but it is a limited one. It can incentivize innovation, but it shouldn’t be in the business of picking winners and losers. It can support the development of a healthy economy, but it cannot create one by fiat. It can help regulate the marketplace, but it can also stifle the entrepreneurial spirit. It is a tool, like a hammer, but you shouldn’t use a hammer to fix a watch.

Obama’s economic plan is based on a fundamentally flawed view of government and the economy. No matter how well thought-out it may be, it will never achieve its objectives because of that basic flaw. Now, more than ever, we need to embrace what actually has worked, not reach back to the failures of the past. The process of economic transformation can be painful, in what the great economist Joseph Schumpeter called the process of “creative destruction”—but without that creative destruction we cannot move forward. Obama wants to move us back to the socialized economy that devastated Britain in the 1970s. If he wants to give us the “change we need” then he must realize that change cannot come from a government program, but from allowing ordinary men and women the opportunity to take risks, innovate, and succeed.