Obama's Centrally Organized Economy
We knew the massive increase in federal spending set up by the departing Bush administration and grown exponentially by the new Obama administration would be devastating to the cause of economic liberty. Now the new long reach of the federal government is becoming too apparent.
We've seen the President replace Rick Wagoner as the CEO of GM and Congress attempt to rewrite contracts between AIG and its employees by creating a special tax that would only apply to AIG workers. In both these cases, the outrage that would be directed at the audacious government disregard for democratic enterprise and the severe curtailment of liberties was dampened because, well, we all sympathized with the government's reaction to incredibly poor decisions made by that democratic enterprise. The public also recognized that these enterprises had accepted financing from taxpayers our children's IOUs, and should therefore be responsible to taxpayers and our elected government.
Therein lies the problem: the rate of spending by the Obama administration really has centralized decision making in our country. Financial institutions, large corporations and states are now all answerable to the federal government in a way that better resembles China than anything we're familiar with.
Just recently we saw two pristine examples:
First, we saw President Obama threaten California because his political friends did not approve of the budget decisions the elected legislature of California had made. As George Will points out:
In February, California's Democratic-controlled Legislature, faced with a $42 billion budget deficit, trimmed $74 million (1.4 percent) from one of the state's fastest-growing programs, which provides care for low-income and incapacitated elderly people and which cost the state $5.42 billion last year. The Los Angeles Times reports that "loose oversight and bureaucratic inertia have allowed fraud to fester."
But the Service Employees International Union collects nearly $5 million a month from 223,000 caregivers who are members. And the Obama administration has told California that unless the $74 million in cuts are rescinded, it will deny the state $6.8 billion in stimulus money.
Such a federal ukase (the word derives from czarist Russia; how appropriate) to a state legislature is a sign of the administration's dependency agenda -- maximizing the number of people and institutions dependent on the federal government. For the first time, neither sales nor property nor income taxes are the largest source of money for state and local governments. The federal government is.
Next we have the example of Obama using the authority of bailout spending to intervene in the bankruptcy of GM in order to make sure his political buddies get paid first instead of the classes of investors protected by current law. The Washington Post editorializes:
The government's intervention in GM's financial affairs tilts the scales so dramatically in the company's (read: government's) favor that it risks shutting out the legitimate interests of some creditors in favor of politically connected players who are owed much less and have less of a claim to the company's money. GM bondholders, for example, are being pushed to accept a 10 percent equity stake in repayment of their $27 billion in loans to the company. The United Auto Workers, on the other hand, is being offered a 35 percent equity stake in exchange for its claim of roughly $10 billion -- a claim that would typically be wiped out in bankruptcy.
--snip--
Extraordinary times call for extraordinary measures, and it was with this thought in mind that we endorsed the federal government's decision to pump billions of dollars into the automakers. But the spectacle of creditors being stripped of their legal rights in favor of a labor union with which the president is politically aligned does little to attract private capital at a time when the government and many companies need these investors the most.
While the audacity of government control is appalling, there is a common thread in how President is wielding it. These two examples entirely protect union interests, first above the interests of the citizens of California, second ahead of the interests of investors and potential investors of an ill American company.
There's another step in this centralization, this one being pushed in Congress by the doublespeak title of "The Employee Free Choice Act". Most of the debate is over the provision that says corporations will no longer have the right to ask for secret ballot union elections, but Obama's central planning will rely on the provision requiring "binding interest arbitration."
Interest arbitration will set up a scenario where all first labor contracts will be dictated by the federal government. The template for these contracts will be other contracts in existence, not the business models that have made a company successful. Kentucky Club for Growth Chairman Warren Rogers explains the dangers of this provision here.
