The Economics of Obama

Barack Obama has been voted in to change the lives of Americans for the better. In one way he already has for it can now be said that in America a person will be not be ultimately barred from the top because of their color and will be judged on their merit. However, a large part of changing the lives of Americans for the better comes down to the economy and the challenge of making that better. It is clear that people want the economy to grow but as the recent backlash against Wall St and groundswell toward the environmental movement shows the majority of people want this to happen in a more equal and sustainable way. There is no point in the economy growing by 5% if most of the increases go to Wall St bankers, who it turns out haven't even been creating wealth with their financial alchemy, and if people feel there won't be a much of a world left for their grandchildren.

All the same there is not much new to all of this for people have always been swept into power with the promise of something better and the choice of tools to use is still the same. What mix of market forces and government regulation should be used to improve people's lives? The pre-election collapse of the free market model was a key factor in bring Obama into power and as someone who is viewed as a left leaning democrat does that mean Obama is going to lean heavily toward the government and avoid the market to create the wealth to improve people's lives?

However, we must examine if Obama really believes that the current US economic system is a free competitive one or more like one which Noam Chomsky calls 'State Capitalism'. Looking at what Obama has actually says gives us a clue as to what he really believes.

It is clear he has noticed the large scale involvement of the state in the market which has actually led to an unfair and uncompetitive market. For example, in farming he points out that big government subsidies have helped large businesses in the market place at the expense of the smaller farmers:

"And that is that our Congress subsidizes these big megafarms and hurts family farmers oftentimes in the process. And we've got to, I think, cap those subsidies so that we don't have continued concentration of agriculture in the hands of a few large agribusiness interests."

He does not appear to want to turn his back on competition and trade to solve the problems of employment:

"But, on the trade issue generally, we're not going to suddenly cordon off America from the world. Globalization is here, and I don't think Americans are afraid to compete. And we have the goods and the services and the skills and the innovation to compete anywhere in the world."

Notwithstanding any left-wing slogans that can be stuck on to a Chicago Democrat, it appears that in reality Obama has market based leanings and is looking to the market for incentives to solve problems. For example, using market incentives to solve teacher remuneration and quality of teaching issues:

"I actually think that we can implement a performance-based system that teachers buy in to. Teachers, across the board, have to be paid more. My sister's a teacher, and I know how hard they work and what they go through. But we've got to give them a pathway so that they can make more money, as they are developing more experience, as they are putting more into the classroom."

He does not want a Statist solution of imposing health care on everyone but wants to reduce the cost to incentivise people to make the rational choice, as the benefits are greater than the costs, to buy in to health care.

I disagree with that because as I go around town hall meetings, I don't meet people who are trying to avoid getting healthcare; the problem is they can't afford it. The costs are too high. And so, as a consequence, we focus on reducing costs.


The state should only intervene where people don't have a choice:

"SEN. CLINTON: Well, but I want to go back to health care and make another point. You have a mandate in your health care plan.

SEN. OBAMA: For children.
SEN. CLINTON: You mandate -- you mandate parents to have health care for children.
SEN. OBAMA: That's exactly right.
SEN. CLINTON: And obviously you did that because you want all children covered.
SEN. OBAMA: Because they don't have a choice."

So when we look at his words it is clear that Obama is all about individual choice, and making the market more competitive to bring down costs so people can rationally choose to opt in for services. Making the economic system more equitable and competitive also encourages the buy in and this involves tackling the monopoly of big business which works to rig the market in its favour:

So what I've said -- and I know some others on this stage have said -- is that among the options that are available, the best one is to lift the cap on the payroll tax, potentially exempting folks in the middle -- middle-class folks -- but making sure that the wealthy are paying more of their fair share, a little bit more.

Now, in the meantime, we've got a 10,000-page tax code that is rife with corporate loopholes. There's a building in the Cayman Islands that supposedly houses 12,000 U.S. corporations, which means it's either the largest building in the world or the biggest tax rip- off in the world, and I think we know which one it is. So there has to be a restoration of balance in our tax code to help that single mom, to help a two-parent working family that are struggling to make ends meet.


If government can become a referee that creates the conditions where the creation of goods and services can take place in a fair and competitive market place he has a chance of delivering on his promises. Obama is clearly smart enough to see that a solution where the State attempts to create the wealth (for example, Cuba, Soviet Russia), or the market is prevented from working by large private monopolies and lobby groups, will only lead to the destruction of wealth and a poorer society.