The Arrogance and Futility of Obamanomics

According to this article in the Washington Post:

President Obama on Wednesday made his latest pitch to lift the nation’s beleaguered housing market, unveiling a series of proposals to help struggling borrowers reduce their monthly payments and to stem the continuing slide in real estate prices.

Mr. Obama's proposal includes coercing mortgage lenders to lower monthly mortgage payments to a rate affordable by those currently holding mortgages which are "under water." The proposal also coerces taxpayers to further subsidize mortgage rates on a "matching" basis. Reportedly, Obama's plan to intervene in the housing market "would cost taxpayers between $5 billion and $10 billion." Mr. Obama proposes to "pay" for this intervention by intervening in financial markets by "imposing a new tax on the profits of financial firms."

This is not the first intervention in the housing market by the the Obama administration:

The proposals are the latest in a long list of programs Obama has unveiled to address the problems facing homeowners. Almost all of the programs have fallen far short of their goals. Obama has acknowledged that his response to the housing crisis has not worked as well as he had hoped it would, and most economists say that the depressed housing market is one of the biggest drags on the economic recovery.

Despite all the President's interventions over the past three years, housing prices continue to slide. Why? Ludwig von Mises answered this question over sixty years ago in this essay on the futility of interventionism (from Planned Chaos, 1947):

The system of the hampered market economy, or interventionism, differs from socialism by the very fact that it is still a market economy. The authority seeks to influence the market by the intervention of its coercive power, but it does not want to eliminate the market altogether. It desires that production and consumption should develop along lines different from those prescribed by the unhindered market, and it wants to achieve its aim by injecting into the working of the market orders, commands and prohibitions for whose enforcement the police power and its apparatus of coercion and compulsion stand ready. But these are isolated interventions; their authors assert that they do not plan to combine these measures into a completely integrated system which regulates all prices, wages and interest rates, and which thus places full control of production and consumption in the hands of the authorities.

However, all the methods of interventionism are doomed to failure. This means: the interventionist measures must needs result in conditions which from the point of view of their own advocates are more unsatisfactory than the previous state of affairs they were designed to alter. These policies are therefore contrary to purpose.

Minimum wage rates, whether enforced by government decree or by labour union pressure and compulsion, are useless if they fix wage rates at the market level. But if they try to raise wage rates above the level which the unhampered labour market would have determined, they result in permanent unemployment of a great part of the potential labour force.

Government spending cannot create additional jobs. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other. If government spending is financed by borrowing from the commercial banks, it means credit expansion and inflation. If in the course of such an inflation the rise in commodity prices exceeds the rise in nominal wage rates, unemployment will drop. But what makes unemployment shrink is precisely the fact that real wage rates are falling.

The inherent tendency of capitalist evolution is to raise real wage rates steadily. This is the effect of the progressive accumulation of capital by means of which technological methods of production are improved. There is no means by which the height of wage rates can be raised for all those eager to earn wages other than through the increase of the per capita quota of capital invested. Whenever the accumulation of additional capital stops, the tendency towards a further increase in real wage rates comes to a standstill. If capital consumption is substituted for an increase in capital available, real wage rates must drop temporarily until the checks on a further increase in capital are removed. Government measures which retard capital accumulation or lead to capital consumption—such as confiscatory taxation—are therefore detrimental to the vital interests of the workers.

Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump.

It can hardly be asserted that the economic history of the last decades has run counter to the pessimistic predictions of the economists. Our age has to face great economic troubles. But this is not a crisis of capitalism. It is the crisis of interventionism, of policies designed to improve capitalism and to substitute a better system for it.

No economist ever dared to assert that interventionism could result in anything else than in disaster and chaos. The advocates of interventionism--foremost among them the Prussian Historical School and the American Institutionalists—were not economists. On the contrary. In order to promote their plans they flatly denied that there is any such thing as economic law. In their opinion governments are free to achieve all they aim at without being restrained by an inexorable regularity in the sequence of economic phenomena Like the German socialist Ferdinand Lassalle, they maintain that the State is God.

The interventionists do not approach the study of economic matters with scientific disinterestedness. Most of them are driven by an envious resentment against those whose incomes are larger than their own. This bias makes it impossible for them to see things as they really are. For them the main thing is not to improve the conditions of the masses, but to harm the entrepreneurs and capitalists even if this policy victimizes the immense majority of the people.

In the eyes of the interventionists the mere existence of profits is objectionable. They speak of profit without dealing with its corollary, loss. They do not comprehend that profit and loss are the instruments by means of which the consumers keep a tight rein on all entrepreneurial activities. It is profit and loss that make the consumers supreme in the direction of business.It is absurd to contrast production for profit and production for use. On the unhampered market a man can earn profits only by supplying the consumers in the best and cheapest way with the goods they want to use. Profit and loss withdraw the material factors of production from the hands of the inefficient and place them in the hands of the more efficient. It is their social function to make a man the more influential in the conduct of business the better he succeeds in producing commodities for which people scramble. The consumers suffer when the laws of the country prevent the most efficient entrepreneurs from expanding the sphere of their activities. What made some enterprises develop into "big business" was precisely their success in filling best the demand of the masses.

Anti-capitalistic policies sabotage the operation of the capitalist system of the market economy. The failure of interventionism does not demonstrate the necessity of adopting socialism. It merely exposes the futility of interventionism. All those evils which the self-styled "progressives" interpret as evidence of the failure of capitalism are the outcome of their allegedly beneficial interference with the market. Only the ignorant, wrongly identifying interventionism and capitalism, believe that the remedy for these evils is socialism. [emphasis added]

There you have it. All of Mr. Obama's efforts to make life "easier for homeowners" at the expense of taxpayers and financial industry profits are doomed to failure before they begin. Still, Mr. Obama and the economic whiz kids who surround him continue to make proposal after failed proposal.

Cynics might refer to such dogged efforts to control housing prices by intervening in the marketplace as insanity or pure, political pandering. In all probability it is simple stupidity. Despite the plethora of economic doctorates bestowed on Mr. Obama's advisers, these meddlers remain clueless about economics. Instead of stepping back and allowing the judgement of consumers to hold sway over housing prices by means of the inexorable law of supply and demand, these hapless interventionists continue to throw good taxpayer money after bad, prolonging the inevitable and accelerating the consumption of capital.

However, these futile interventionist measures could not thrive were they not abetted by the economic stupidity of the media and the general electorate. In our day there is an all too general belief that the "State is God," that it can accomplish by decree whatever it wishes. All that is needed for the State to succeed in its various interventions is a Godly plan proposed by the right variety of Godly authorities. Mindful of their human imperfection, these authorities acknowledge that their first few, interventionist attempts may fall short of their purpose. But Godly success is inevitable with wise, diligent and well-meant persistence.

Sadly, their unspeakable arrogance and stupidity are dragging the rest of us to inevitable economic doom.