The Current Civil War

Larry Kudlow on the CNBC website:

Let me be very clear on the economics of President Obama’s State of the Union speech and his budget.

He is declaring war on investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds.

That is the meaning of his anti-growth tax-hike proposals, which make absolutely no sense at all — either for this recession or from the standpoint of expanding our economy’s long-run potential to grow.

Raising the marginal tax rate on successful earners, capital, dividends, and all the private funds is a function of Obama’s left-wing social vision, and a repudiation of his economic-recovery statements. Ditto for his sweeping government-planning-and-spending program, which will wind up raising federal outlays as a share of GDP to at least 30 percent, if not more, over the next 10 years.

This is nearly double the government-spending low-point reached during the late 1990s by the Gingrich Congress and the Clinton administration. While not quite as high as spending levels in Western Europe, we regrettably will be gaining on this statist-planning approach.

Study after study over the past several decades has shown how countries that spend more produce less, while nations that tax less produce more. Obama is doing it wrong on both counts.

And as far as middle-class tax cuts are concerned, Obama’s cap-and-trade program will be a huge across-the-board tax increase on blue-collar workers, including unionized workers. Industrial production is plunging, but new carbon taxes will prevent production from ever recovering. While the country wants more fuel and power, cap-and-trade will deliver less.

The tax hikes will generate lower growth and fewer revenues. Yes, the economy will recover. But Obama’s rosy scenario of 4 percent recovery growth in the out years of his budget is not likely to occur. The combination of easy money from the Fed and below-potential economic growth is a prescription for stagflation. That’s one of the messages of the falling stock market.

Essentially, the Obama economic policies represent a major Democratic party relapse into Great Society social spending and taxing. It is a return to the LBJ/Nixon era, and a move away from the Reagan/Clinton period. House Republicans, fortunately, are 90 days sober, as they are putting up a valiant fight to stop the big-government onslaught and move the GOP back to first principles.

Noteworthy up here on Wall Street, a great many Obama supporters — especially hedge-fund types who voted for “change” — are becoming disillusioned with the performances of Obama and Treasury man Geithner.

There is a growing sense of buyer’s remorse.

Well then, do conservatives dare say: We told you so?

There it is, out in the open. The American system of free market Capitalism is hateful to Obama and the other Marxists who run the Democrat party (and make no mistake they are Marxists). They hate Capitalism because it places too much freedom in the hands of individual citizens and not enough power in the central state. They hate Capitalism because what drives and directs it is the individual rather than the collective.

The "Market" is nothing more than the aggregate of the individual self-interested economic decisions of millions of free individual actors. Their decisions as to how to spend their money on their individual wants and needs interacts with the factors of scarcity and abundance to create the pressures of supply and demand which in turn establish the price of goods and services. And price is the piece of information which is most critical in informing producers how they need to invest their productive resources.

Because the market provides this real time picture it is vastly more efficient than any form of central planning could ever hope to be. Therefore planned economies will always be far less capable of meeting the needs of their citizens and those citizens will consequently have to endure a diminished standard of living compared to persons in free market nations.

The reason that Marxists like Obama find this situation of maximum abundance anathema is that the citizen is not (and knows that he is not) beholden to the government for such plenty. The government contributes to this prosperity by simply getting out of the way. By not erecting barriers of excessive taxation or regulation to hamper economic activity and by not creating perverse incentives to non-productive economic activity (like arm-twisting lenders to provide mortgages to people whose credit history suggests that they will be unable to repay the loans).

Barack Obama and his fellow left-wing Democrats want the American people to receive whatever they have from the hand of the federal government. That doing things this way means that the average American will have a great deal less than he would have in a free market system is of absolutely no concern to them. As long as they can engineer things in such a way that it is the government which provides the people with jobs, housing, health care, transportation and even food and water people like Obama will be able to enjoy the naked exercise of raw power while still casting themselves in the role of enlightened benefactors.

To wield the power of Joseph Stalin while wearing the mask of Mahatma Gandhi is the holy grail of the left-wing elites. To those who hold this dream the destruction of the greatest engine for the production of wealth and freedom the world has ever seen is a small enough price to pay.