Osawatomie

Last week President Obama delivered a speech in Osawatomie, Kansas that has been widely remarked upon for both its insight into his ideology and the themes he intends to campaign on. It's worth taking a closer look at some of the key excerpts from his remarks, and how much they mesh with reality. Early on in his speech the president makes the following assertion:

Now, in the midst of this debate, there are some who seem to be suffering from a kind of collective amnesia. After all that’s happened, after the worst economic crisis, the worst financial crisis since the Great Depression, they want to return to the same practices that got us into this mess. In fact, they want to go back to the same policies that stacked the deck against middle-class Americans for way too many years. And their philosophy is simple: We are better off when everybody is left to fend for themselves and play by their own rules.

This is, of course, a strawman -- a rhetorical device the president has used on numerous occasions. In fact, one is hard pressed to name a single person on the political right who believes that everyone should play by their own rules. If anyone is guilty of this it is the president himself, who believes in doling out special favors for particular industries, such as tax credits and government loan guarantees, while leaving others to play by a different set of rules. In fact, many of us on the political right believe in a flat tax for the precise purpose of eliminating such distortions -- a policy the president has expressed little interest in.

Similarly, very few people, if anyone, believes that people should be left to fend for themselves. After all, even those who favor abolishing the welfare state in its entirety believe that society has a responsibility to care for the less fortunate. They simple believe this should be done through civil society and private action rather than government. The difference is in the means, not the ends. But the president is plainly not interested in an honest debate, and would rather resort to caricatures.

Lastly, does anyone really desire a return to the status quo ante 2008 and the exact same policies that were in place? The president refuses to say exactly who is advocating this -- resorting to the weasel word of "some" -- so it is a difficult charge to refute, likely by design.

A couple of paragraphs later we find this:

You see, this isn’t the first time America has faced this choice. At the turn of the last century, when a nation of farmers was transitioning to become the world’s industrial giant, we had to decide: Would we settle for a country where most of the new railroads and factories were being controlled by a few giant monopolies that kept prices high and wages low?

High prices? Andrew Carnegie's adoption of the Bessemer process led to a direct drop in the price of steel, while John Rockefeller's pursuit of efficiencies led to an 80 percent decline in the price of kerosene (even while improving quality). With regard to the railroads, meanwhile, it should be noted that government regulation led to greater cartel-like activity and price coordination among the railroad owners:

After Congress passed the Interstate Commerce Act in 1887, [JP] Morgan set up conferences in 1889 and 1890 that brought together railroad presidents in order to help the industry follow the new laws and write agreements for the maintenance of "public, reasonable, uniform and stable rates." The conferences were the first of their kind, and by creating a community of interest among competing lines paved the way for the great consolidations of the early 20th century.

This is a clear failure to heed Adam Smith's warning:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

President Obama continues:

Would we allow our citizens and even our children to work ungodly hours in conditions that were unsafe and unsanitary? Would we restrict education to the privileged few? Because there were people who thought massive inequality and exploitation of people was just the price you pay for progress.

Child labor laws were only put in place after the US had reached a standard of living whereby we could afford them (early 1900s). Children worked not because their parents were cruel, because otherwise the children were literally unaffordable and the family could not afford basic necessities. Relative to human history, child labor laws are a luxury good that the rising standards fostered by capitalism have allowed us to adopt.  Also, contrary to the president's assertion, evidence points towards both rising wages and standards of living during the industrial revolution.

It's a similar story with education, which was not feasible for many children as long as the income from one parent was insufficient to pay the bills. Meanwhile, the fact that even some of the poorest children in the world can pay for education belies the president's implication that education is a good that can only be provided to the masses through government.

President Obama then invokes Theodore Roosevelt while making a strawman assertion:

Roosevelt also knew that the free market has never been a free license to take whatever you can from whomever you can.

Well no kidding -- this is a claim that no one has ever made. Rather than a system for taking, the free market is a system of voluntary exchange. Only government, which the president desires more of, has the power to take whatever it can from whoever it can.

Obama proceeds to get into the heart of this argument:

Now, just as there was in Teddy Roosevelt’s time, there is a certain crowd in Washington who, for the last few decades, have said, let’s respond to this economic challenge with the same old tune. “The market will take care of everything,” they tell us. If we just cut more regulations and cut more taxes -- especially for the wealthy -- our economy will grow stronger. Sure, they say, there will be winners and losers. But if the winners do really well, then jobs and prosperity will eventually trickle down to everybody else. And, they argue, even if prosperity doesn’t trickle down, well, that’s the price of liberty.

Now, it’s a simple theory. And we have to admit, it’s one that speaks to our rugged individualism and our healthy skepticism of too much government. That’s in America’s DNA. And that theory fits well on a bumper sticker. (Laughter.) But here’s the problem: It doesn’t work. It has never worked. (Applause.) It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible postwar booms of the ‘50s and ‘60s. And it didn’t work when we tried it during the last decade. (Applause.) I mean, understand, it’s not as if we haven’t tried this theory.

Remember in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history. And what did it get us? The slowest job growth in half a century. Massive deficits that have made it much harder to pay for the investments that built this country and provided the basic security that helped millions of Americans reach and stay in the middle class -- things like education and infrastructure, science and technology, Medicare and Social Security.

Remember that in those same years, thanks to some of the same folks who are now running Congress, we had weak regulation, we had little oversight, and what did it get us? Insurance companies that jacked up people’s premiums with impunity and denied care to patients who were sick, mortgage lenders that tricked families into buying homes they couldn’t afford, a financial sector where irresponsibility and lack of basic oversight nearly destroyed our entire economy.

This is, to put it plainly, a rewriting of history. Contrary to Obama's claim the 1920s were a time of massive prosperity -- it wasn't called the Roaring Twenties for nothing -- that occurred under the low taxes and regulation of President Calvin Coolidge. This Investor's Business Daily editorial also makes some excellent points. Among them:

Obama also claimed the economic booms in the '50s and '60s somehow support his argument. This is utter nonsense. Taxes at the time averaged just 17% of the economy. And there was no Medicare, no Medicaid, no Departments of Transportation, Energy or Education, and no EPA. Had Obama been around then, he would have decried it all as un-American.

...[The president's claim of weak regulation and oversight] is patently false. Regulatory staffing climbed 42% under Bush, and regulatory spending shot up 50%, according to a Washington University in St. Louis/George Washington University study. And the number of Federal Register pages - a proxy for regulatory activity - was far higher under Bush than any previous president.

Matt Welch, meanwhile, notes that President George W. Bush "hired 90,000 net new regulators, passed the largest Wall Street reform since the Depression, and increased fiscally significant regulations by more than any president since Richard Nixon."

The president, quite simply, is at odds with reality. Either he is aware that his claims regarding regulation are false and is deliberately lying, or he is ignorant and literally does not know what he is talking about.

Obama then pivots towards the issue of income inequality:

Look at the statistics. In the last few decades, the average income of the top 1 percent has gone up by more than 250 percent to $1.2 million per year. I’m not talking about millionaires, people who have a million dollars. I’m saying people who make a million dollars every single year. For the top one hundredth of 1 percent, the average income is now $27 million per year. The typical CEO who used to earn about 30 times more than his or her worker now earns 110 times more. And yet, over the last decade the incomes of most Americans have actually fallen by about 6 percent.

Now, this kind of inequality -- a level that we haven’t seen since the Great Depression -- hurts us all. When middle-class families can no longer afford to buy the goods and services that businesses are selling, when people are slipping out of the middle class, it drags down the entire economy from top to bottom. America was built on the idea of broad-based prosperity, of strong consumers all across the country. That’s why a CEO like Henry Ford made it his mission to pay his workers enough so that they could buy the cars he made. It’s also why a recent study showed that countries with less inequality tend to have stronger and steadier economic growth over the long run.

It is not apparent where the president got his statistics from -- and Matt Welch cites a study that “median income and consumption both rose by more than 50 percent in real terms between 1980 and 2009” -- but let us assume they are true. The problem highlighted by the president is not income inequality, but falling income. If the rich saw their income decline by 10 percent, meaning that income inequality was reduced, would that mean that the rest of the country is better off?

If one worker's income is cut by $5,000 but his boss sees a pay cut of $10,000 has our collective situation been improved? Would that be reason to celebrate, or an indication of progress? The question answers itself, and exposes why income inequality is a non-issue and utter distraction wielded by the left in a bid to discredit capitalism.

The president's anecdote about Henry Ford, meanwhile, is just not true. As this blog has pointed out before, Ford did not increase wages so that workers could afford his products, but out of self-interest to reduce turnover.

Moving along:

Inequality also distorts our democracy. It gives an outsized voice to the few who can afford high-priced lobbyists and unlimited campaign contributions, and it runs the risk of selling out our democracy to the highest bidder.

That's pretty rich coming from a guy who has collected more campaign contributions from Wall Street than all of his Republican opponents combined. But regardless, if this is true, and the rich set the agenda, why does this country have a higher corporate tax rate than almost every other developed country? Why isn't the capital gains tax rate being cut, or regulations reduced? And if money is so key, why did wealthy, self-financed candidates fail so spectacularly in the 2010 elections?

While the president is more on point regarding lobbyists and their ability to carve out special favors, the simple solution to this problem is less government. As long as government wields as much power as it does, various forces will forever descend on Washington in a bid to shape and determine how it is used.

President Obama then cites some rather revealing statistics:

But there’s an even more fundamental issue at stake. This kind of gaping inequality gives lie to the promise that’s at the very heart of America: that this is a place where you can make it if you try. We tell people -- we tell our kids -- that in this country, even if you’re born with nothing, work hard and you can get into the middle class. We tell them that your children will have a chance to do even better than you do. That’s why immigrants from around the world historically have flocked to our shores.

And yet, over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk. You know, a few years after World War II, a child who was born into poverty had a slightly better than 50-50 chance of becoming middle class as an adult. By 1980, that chance had fallen to around 40 percent. And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a one-in-three chance of making it to the middle class -- 33 percent.

Regarding the first paragraph, does it not make sense that a big part of the attraction of coming to this country is that it is preferable to be somewhere making $50,000/year while the CEO makes 75 times that versus making $20,000/year in one's home country while the CEO makes 10 times that?

The second paragraph, meanwhile, should prompt some real introspection on the part of the president. Isn't it notable that a child had a better chance of escaping poverty before Lyndon Johnson's Great Society and the rise of the modern day welfare state than today? Isn't it rather revealing that a child's chance of escaping poverty has actually diminished as the state has become more interventionist?

Now, this could just be an example of correlation and not causation, but regardless, the ability of a child to escape poverty has absolutely nothing to do with the fact that Bill Gates, Warren Buffet or any other member of the top 1 percent has done well for themselves.

This only covers about half the speech, but it's revealing enough. As Ronald Reagan said, "The trouble with our liberal friends is not that they are ignorant, but that they know so much that isn't so."

Related: Further excellent commentary on Obama's speech from Peter Ferrara, Richard Epstein and Michael Barone.