One of the major problems with the Obama Administration is that they seem to make a habit of using the government to pick winners and losers. For example, the unions were the winners in the Chrysler bailout, the stockholders were the losers. They ignored existing bankruptcy laws when they did that. They have picked the American energy producers as losers–the development and use of America’s energy resources has been either serverly cut back or stopped by this administration. One of the winners they have picked is General Electric. Now General Electric CEO Jeffrey Immelt is to lead the President’s new jobs council.
Yesterday’s Wall Street Journal posted an article about what the federal government and General Electric have in common.
President Obama has stated that he wants to economy to grow. The article at the Wall Street Journal points out:
“Step back for a minute from the day to day policy fights and consider how an economy can grow faster. One way is to get people to work harder or longer. The government can contribute here with policies that reward work and investment, such as lower taxes.
“A second route to faster growth is innovation, which means inventions or new processes that increase productivity. Government can help with money for basic research, but private investment, human ingenuity and luck are the main drivers.
“The third way is through the more efficient use of capital, both human and monetary. These resources are scarce in any economy, and growth will be fastest if they are allowed to find their highest return. If resources are allocated to less productive uses or create asset bubbles due to bad policy, then overall growth will be slower than it should be.”
The article focuses on the use of capital, both human and monetary. The Federal Reserve pumped money into the financial industry and real estate, and that bubble burst. When that happened, the government responded by expanding the federal government.
The article describes what has happened in the current economy:
“One reason the current recovery has been so lackluster is that it takes time for an economy to retool from these mistakes. Money that went to build now-empty condos on the Vegas Strip–or to government transfer payments–can’t be reclaimed to rebuild American manufacturing and technology.”
The article compares what has happened to the federal budget to what has happened to General Electric in recent years. During the build up to the economic bubble, GE Capital was the most successful part of General Electric. The article states,”Yet without federal loan guarantees for debt issuance, among other government aid during the crisis, GE Capital might well have taken the entire company down.”
The article points out:
“Along with Mr. Obama, Mr. Immelt is now preaching the virtues of U.S. manufacturing and innovation. A glance at the GE homepage invites readers to “watch the rebirth of rails,” of all things. GE also wants to produce more in the U.S., even though its domestic employment fell by about 34,000 from 2000 to 2009. These are laudable intentions.”
The article concludes:
“But even if you believe that such spending (tarp, stimulus, etc.) prevented a depression, it makes no economic sense to keep those resources under political sway now that the recovery is underway. Would you rather have Congress allocating that 4% of GDP, or millions of individuals deciding among Apple, Gilead Sciences, or the next great idea?
“The path back to faster growth, more jobs and a more competitive U.S. economy does not travel through more political mediation. Nor does it lie in endlessly easy Fed policy in a misguided attempt to refloat the housing bubble or revive the financial boom. A better economy requires policies that reward work and innovation, while letting capital flow to the companies and individuals with the best ideas. They might even be GE’s.”
If the economy is to grow, we need to get the government out of our pockets and out of business. Let business run business. The winners and losers will emerge in the free market without government intervention.