01 Dec 2010 The Stickshift Economy, by David Schifrin
The Stickshift Economy
by David Schifrin
I recently taught a friend how to drive a car with a manual transmission.
As I was when I learned, my friend was eager, ambitious and just a little too cocky — like President Obama when he’s handling the economy.
Stick-shift lessons often start the same way. This time was no exception. My overly confident friend floored the gas and completely let up on the clutch. The car redlined and shot forward. Panicking, he slammed on the breaks. The car stalled.
To practice hills, we moved from the parking lot where we started to my safe and private driveway. My parents would be proud of my choice. The first thing they taught me when I got my learner’s permit was the importance of safety. That’s why my first lesson was not on a highway, nor did I learn stick on San Francisco hills.
So I’m perplexed by what’s going on in Washington. Two years ago, Americans hopped in the car with a young, ambitious and inexperienced first-term senator who is handling the economy like my friend when he was first learning to drive stick. George W. Bush certainly did Barack Obama no favors by parking our nation on a steep incline, but the American people knew the stakes and handed Obama the keys anyway.
It’s one thing to hand a teenager the keys to a used jalopy. It’s another thing altogether to hand a legislative novice the keys to the Oval Office. Quite simply, it defies conventional wisdom and responsible stewardship. And now we’re seeing why.
When Obama steps on the nation’s economic accelerator, as he does when he seeks to “stimulate” the economy with his spending packages, the influx of federal money “crowds out” private investment. Overall, it’s bad news for the nation.
A report compiled by the non-partisan Congressional Budget Office detailed the potential effects of Obama’s stimulus package before he signed it into law. Its report projected that the stimulus would actually reduce the gross domestic product — the nation’s indicator of output — more in the long run than if no action was taken at all.
The stimulus failed to produce the results the Obama Administration touted because private investment is being “crowded out” by the very same thing Obama thinks will stimulate it.
The CBO report predicted the Obama stimulus would help increase GDP until 2014 — a prediction largely based on the short-term nature of fiscal spending and not indicative of its successful implementation. After that, it would hold back growth by as much as 0.2 percent due to decreased wages and lower productivity.
A smaller capital stock puts downward pressure on the price of labor which, in turn, hampers economic growth.
Obama’s stimulus agenda is a sledge hammer when the country needed a scalpel. And he unfortunately seemed to choose the biggest sledgehammer he could find.
To put the President in my friend’s position behind the wheel, Obama still has his foot firmly on the gas pedal. The car is still making noise, but amenities such as the air conditioning and the radio no longer work. Yet he insists that, if his foot remains on the gas long enough, something might happen.
But driving manual is not about how much gas you give it — it’s about touch and about when to hit to the gas and when to release the clutch. The trick is figuring out the right combination so that the car fires on all cylinders. It’s the same with the economy.
The car has to be in gear. So must our economy, and private involvement is integral. No matter what anyone tells him, however, that’s something President Obama is refusing to accept.
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