Democracy Reform

Sir Winston Churchill once said that democracy is the worst form of government except for all the rest. He is right. Its the best form of government but it also has its flaws. I think that its flaws endanger democracy and needs to be fixed. This blog is for like minded people who want to see democracy improved. I invite people to sumbit essays. I will publish even those I do not agree with so long as I find them interesting.

Saturday, January 17, 2009

The trillion $ bailout of Obama's Presidency

In a few days' time, Obama will be sworn in as President and his Presidency is already in need of a bail-out. He knows that the economy is in the dog-house. If he does not turn it around in four years' time, he will not be re-elected.

So this $1 trillion stimulus plan is also the Obama Presidency bail-out plan. What does he intend to do with the money. Other than the $300 billion tax cuts, its spend, spend and spend.

The Keynesian theory goes that spending money will stimulate the economy. Spend money on infrastructure will create jobs in the construction industry. Obama wants to create 3 million jobs.

If job creation is the reason for the $1 trillion spending extravaganza, there are far cheaper and better ways of doing it.

The best ways to lay solid foundations for America's future prosperity and hence job createion are things he (or any other President) does not dare to do.

Firstly, he can send the illegal immigrants home by penalizing employers and landlords who hire and house them. This is a no go because he would offend Hispanic voters. He would also offend employers who want to hire them because of their cheap labor. Yet if he is willing to be unpopular, he can create maybe 12 million jobs at a tiny fraction of the cost. Instead he is going to borrow and spend $1 trillion to lift the economy a little bit and saddle you and your kids with debt.

Secondly, he can repeal the Community Reinvestment Act which forced banks to lend to people who got no money to buy housing. This was what got the housing bubble started. No go either. He was for it when he was a senator. A repeal is too unpopular with his voters.

Thirdly, he can reform public education. Education is the key to prosperity. This one is really long term in nature. But that means tackling the teachers' union who are his voters. No go either.

Fourthly, don't bail out any more companies - especially the auto companies. There will be enormous pain for the next 4 years but in the long run, new firms will come forth and the economy will be in a stronger footing in the future. No go here either. The unions are his workers and now its pay back time.

The chief flaw in democracy is its short term nature. You can't get leaders who plan 10 years ahead because he is up for elections four years from now. I am sure you have heard the saying, "No pain, no gain."

Sometimes you have to deliver pain in the short term (like 3 or four years) to give gain in the long term (like the next 10 years after the pain). Unfortunately, no President can do that because he would be booted out after 4 years and his successor will take the credit. So you end up with short term gain and long term pain.

So Obama comes up with a trillion dollar plan to boost the economy. It will stimulate some spending but at what price? The huge debt will be a drag on the economy for the next thirty years, assuming he is going to at least partially fund it with long term 30 year bonds. This generation and the next generation of voters will pay for it. But of course, if it stimulates the economy enough to make Americans feel good by the end of the 4th year, he gets re-elected.

Therefore, it won't help the economy in the long run but will definitely help Obama's re-election prospects if all that spending can lift the economy enough for him to be re-elected. That is why I said at the begining that the $1 trillion dollar stimulus plan is really the Obama Presidency bail-out plan.

So, all the right things are things that no politician can do. The problem is systemic. You can't do the right thing and get elected. As what Luxumberg's PM said, "We all know what we need to do, but we donĀ“t know how to win elections after we have done it."

That is why I think democracy may not surive another 100 years unless you can reform the system. We need to devise a system that rewards votrepreneurs (politicians) for doing the right things, not the wrong things.

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