Gambling Man

By Andrew B. Wilson

What's wrong? Why the wrinkled brow, Mr. President? Do you no longer think that you can command the oceans to recede and the planet to heal?

Suddenly, it seems, we are witnessing a crisis of confidence -- the first outward sign of an inward glimmer of doubt in the mind of the most self-absorbed and self-congratulatory president in the history of the United States.

According to multiple news accounts, President Obama confessed that the alleged economic recovery is not progressing as fast as he expected. Speaking as always in the first person singular, he told reporters on Tuesday: "I am concerned that the recovery we're on is not producing jobs as quick as I want it to happen."

How could stubborn reality fail to conform to Obama's wishes? Only four days earlier, the president seemed to be perfectly fine. Indeed, in visiting a Chrysler plant in Toledo, Ohio, late last week, he seemed to be as full of himself as ever when he talked about the miracle that he had pulled off in putting the U.S. auto industry "back on its feet" and saving a million or so jobs. In lauding the results of 2009's $80 billion auto industry bail-out, Mr. Obama told a cheering UAW crowd:

So I placed my bet on you. I put my faith in the American worker. And I'll tell you what -- I'm going to do that every day of the week, because what you've done vindicates my faith.

Clearly, this is a president who loves to gamble. In speaking at colleges and universities around the country, he likes to say that he is prepared to "double down" on education and a clean energy future.

That means: easy money in the form of more low-interest college loans for young people and early forgiveness of those loans for students who forswear the private sector and go into the public sector. It means: billions of dollars in new taxpayer-funded bets on wind and solar power -- bets that fly in the face of reason, given that these new sources of energy are both extraordinarily expensive and wholly inadequate to the task of meeting more than a tiny fraction of our future energy needs.

No matter. Reason has nothing to do with it. It is simply an article of faith for the president and his fervent admirers that higher gasoline prices and reduced domestic production of fossil fuels are good for the planet. And if that is taken on faith, it is no less fanciful to imagine that pouring huge sums of money into heavily subsidized alternative energy schemes will help to "transform the economy" in producing hundreds of thousands of new jobs that "can't be outsourced," and in creating whole new technologies that will supposedly help to move Team USA ahead of China and India in science, math, and long-term economic growth.

Consider this passage from the president's "weekend speech" to the country in early October 2010:

I want to share with you one new development made possible by the clean energy initiatives that we have launched. This month, in the Mojave Desert, a new company called BrightSource plans to break ground on a revolutionary new type of solar power plant. It's going to put about a thousand people to work building a state-of-the-art facility. And when it's complete, it will turn sunlight into energy that will power up to 140,000 homes -- the largest such plant in the world. Not in China. Not in India. But in California.

In the tagline used in introduce this speech at whitehouse.gov, the president's minions inadvertently disclosed the prevailing attitude within White House when it comes to giving taxpayers' money to favored businesses: "The plant is possible because of the President's investment [emphasis added] in the clean energy economy, which Congressional Republicans want to eliminate."

So it is not your money or my money as taxpayers that will go to a small, money-losing company called BrightSource that few people have ever heard of. It is president's money -- acting in his self-appointed capacity as the nation's Chief Investment Officer.

What, after all, is the nature of an "investment"? In a Forbes column several years ago, George Gilder gave an excellent illustration of how business investment works. He began by pointing out that every business is based upon a set of working hypotheses. Like scientific theories, these hypotheses (regarding shifting customer preferences, future cash flows, and the like) are put to the stringent test of "falsification." In the case of businesses, this happens when the planning and investment are done and the end result of those efforts is plunged into the acid bath of a competitive marketplace. Simply put, if a company gets it wrong too often… or even once, in some cases… it goes broke. There are no guarantees, but that is how wealth is created in a free enterprise system. As Gilder wrote:

Intel is currently preparing to test the hypothesis that computer companies will choose a microprocessor that runs at 3 gigahertz, or 3 billion cycles a second, and will buy it in sufficient volumes that Intel can profitably manufacture it in a plant that costs $2 billion to build and equip. Samsung is testing whether people will buy a cell phone that takes digital photographs. Ebay is testing whether it can move beyond Web auctions of used wine openers to Web auctions of $20,000 antique cars and to TV programs.

Now all that is light years removed from the kind of "investment" that the president talks about. His kind of "investment" is all about dishing out subsidies to eager supplicants who may be counted upon to espouse politically correct views -- and who would rather "partner" with government than face the challenge of having to earn their way in a competitive marketplace.

AS IT HAPPENS, BrightSource Energy, the same company cited nine months ago on whitehouse.gov as a shining example of president's acumen as an investor, was back in the news last week. That happened when Obama nominated green activist John Bryson to head the U.S. Department of Commerce. Formerly, Bryson was the CEO of the California energy company Edison International. More recently, he was the chairman of BrightSource.

The president hailed Bryson as "a business leader who understands what it takes to innovate, create jobs and persevere through tough times." Really? In an editorial, the Wall Street Journal harrumphed: "That's one way of describing someone with a talent for scoring government subsidies."

The Journal dubbed Bryson the "Secretary of Subsidy" and pointed out that BrightSource has garnered a wide array of federal, state and local subsidies for its solar project in the Mojave Desert, including a $1.6 billion loan guarantee from the U.S. Department of Energy, one of the largest solar guarantees on record, along with a panoply of investment tax credits and other goodies including accelerated depreciations of capital costs.

If you bother to do the arithmetic, that means that the government is prepared to spend up to $1.6 million for every job that it expects to create at BrightSource (using its own estimate of enabling some 1,000 permanent jobs).

There is no "free money." If the government spends a million dollars to create a single jobs, that is a million dollars taken from the private sector through taxation or borrowing. It is a million dollars that could have gone (and did not go) to more efficient and productive use in the private sector -- creating more wealth and faster growth, leading to greater job creation. The government employs single-entry bookkeeping when it counts the number of jobs gained by federal spending but ignores jobs lost.

But that is only the beginning of the economic damage caused by the runaway federal spending of the past two and years. In this short period of time, federal spending has jumped its normal banks -- going from 20% of GDP to 25% -- while the annual federal deficit nearly quadrupled -- hitting $1.6 trillion.

One of the important but lesser known effects of the 2009 $787 billion stimulus bill has been to enable state governments to delay taking the necessary steps to put their houses in order. At the municipal and state levels, the sudden bounty of federal stimulus dollars has encouraged, rather than discouraged, the maintenance of bloated payrolls and budgets, with the huge unsolved problem of rapidly escalating pension and health care costs for teachers, firefighters, police and other public sector workers.

Under the stimulus bill, the federal government has channeled some $200 billion to the states for spending on highways, health care, education and other programs. But that money has come with a number of strings attached. To cite a few examples, to qualify for federal dollars, state lawmakers have been forced to maintain historically high levels of spending in education, Medicaid and other areas. They have also been required to dole out more in unemployment benefits and to keep extending them with federal support. With the revenue stream from federal stimulus dollars coming to an end, many states are staring at a "budget cliff" in 2011 and beyond.

With zero experience in the business world, our president seems to think that he is capable of running of the U.S. economy as if it were a business -- and micro-managing where necessary in crisis situations. Sometimes the expression of his belief in himself becomes almost comical -- as it did when he told the American people during the Gulf oil spill: "Make no mistake: BP is operating under our direction. Every key decision they take must be approved by us in advance.… It is my job to make sure that everything is done to shut this thing down."

But the real problem is that we have already had far too much meddling and direction from this administration -- and the progressives who inhabit it from Barack Obama on down. Progressives love to talk about "fairness." But progressive government -- as demonstrated by the Obama administration -- flunks any real test of fairness.

It clearly favors unionized workers over non-unionized workers, just as it routinely favors the biggest and most politically connected corporations over smaller and more entrepreneurial enterprises. Crony capitalism and the practice of kowtowing to the biggest and most politically assertive unions are joined at the hip in this administration.

But if there is one lesson to be taken from the past two and years it is this: Looked at as a business model, progressive government under the (at least initially) charismatic leadership of Barack Obama has been a colossal flop. It has only succeeded in lowering expectations. For the first time in history, Americans expect to become poorer from one generation to the next.

There was one bit of good news in the past week in the release of a new poll. By 2 to 1, Americans now say that the country is seriously on the wrong track.

That is a good harbinger for 2012. It must have been what caused the president to admit to a rare doubt.