Top 10 economic fallacies of the Obama administration

10. Adding demand for a service can also reduce costs. This is the crux of
President Barack Obama’s healthcare promise. He proposes to add millions of users of healthcare,
keep supply constant and reduce costs. It cannot happen. It will not happen. If
healthcare costs will not decrease, what is the rationale for healthcare reform
besides raw politics?

9. The “cost curve” of healthcare can be “bent” by transferring
liabilities from individuals to the government. President Obama’s healthcare
bill stresses this, but increased third-party payments by the
government encourage increased use of the healthcare system, thus raising
costs, not lowering them. Again, President Obama’s bill doesn’t deliver on its
central promise of lower costs.

8. The budget can be balanced through higher taxes. All of the
administration’s main initiatives raise taxes: healthcare, climate change and
expiration of the Bush tax cuts. History tells us that these increases
will fall short of estimates and that Congress will spend whatever additional
revenue the government realizes, thus adding to the deficit in the end.

7. Transfer payments help to create jobs and grow the economy. The results
of the $787 billion stimulus bill and the “cash for clunkers” program
demonstrate the opposite. Payments to individuals create some purchasing power
for the lucky few who receive them, but do not create any lasting private-sector jobs or economic growth.

6. Stronger unions strengthen working families. Unions already benefit from
numerous laws requiring compulsory membership in many states and using members’
dues to engage in politics. Economic sectors that have high rates of union
concentration pay higher wages to the lucky few, but are generally
uncompetitive with companies where wage rates are determined by the market. Not
surprisingly, the fastest-growing sector for union organizing is among
government workers.

5. Government-directed “investments” can grow the economy. This is the president’s rationale for climate legislation as a mechanism to create “green
jobs.” However, more often than not, government picks winners and losers based
on political, not economic, considerations. President Jimmy Carter’s disastrous
Synthetic Fuels Corp. of the 1970s was an early example of the failure of
this approach.

4. Targeted, short-term tax cuts can create jobs. The president’s proposal
for a one-year elimination of capital gains tax for investments in small
businesses is also reminiscent of President Carter’s proposals; it’s also far too
small and too limited. Across-the-board rate cuts are superior for job
creation.

3. Some companies are just too big to fail. This is the rationale for TARP
and for the president’s financial reform proposals. Suffice to say, government
guarantees of this magnitude only encourage more, not less, risky behavior by
managers. The market, not the government, should determine which companies
should survive. Otherwise, numerous steel companies, Eastern Airlines, American
Motors Corp. and the United States Football League would still be in
business and presumably receiving government support.

2. Expansion of free trade is not essential to economic recovery. The
administration has done nothing to negotiate additional free trade agreements,
nor has it made a serious push for authority from Congress to even allow the
president to negotiate such agreements. Our products and services are the best
in the world and there is a major role for government to open foreign markets
for U.S. companies.

1. We’re from the federal government and we’re here to help you.

Frank Donatelli is the chairman of GOPAC.