Right Now! Should Raise An Eyebrow

Here is this article on Politico talking about Obama's, for lack of a better term, flip-flop on recently passed patent reform. No real controversy here, just the typical politics that has defined this President and the others before Obama.

The last line is interesting: "[Obama] admitted that “there's nobody out there who actually thinks that [patent reform] is going to immediately fill the needs of people who are out of work or strengthen the economy right now."

Right now. How to create jobs right now so the unemployment picture begins to show signs of improvement in 13 months, just in time for reelection.

But giving the economy a "jolt right now" is not as straight forward as people wish because the economy is a complex network of billions upon billions of incentives (inputs), microeconomic transactions, and consequences (outputs). Jolting that network via a top-down approach like government stimulus yields unpredictable results (e.g. ARRA in 2009). Furthermore, what if the economy doesn't need a jolt right now via government stimulus. What if stimulus makes matters worse?

The inputs and consequences of any economic transaction can be very very subtle because the moving pieces (input, transaction and consequence) all occur on the micro level. There are hundreds, if not thousands, of inputs that go into each transaction. The outcome of every transaction will lead to intended and unintended consequences, no matter how trivial the transaction.

Every transaction has costs and benefits; when analyzing our complex economy how can the President and his economic advisers be certain the benefits of the American Jobs Act will be worth the costs? The answer is they can't. Nobody can.

This dynamic makes the economy that much harder to accurately control via a top-down, centrally planned economic action like stimulus. This is not what politicians like to hear, nor what voters like to hear from politicians. However, it's up to us citizens to be educated on the limitations of government involvement in our lives and economies.

When considering economic transactions, politicians' inputs are very different than businesses' inputs. The definition of "long-term" to a politician is every two years because 535 members of Congress plus 1/3 of the Senate are up for renewal. Businesses make investment decisions often looking farther than two years out. Politicians like to focus on creating private sector jobs. Good businesses will focus on creating value--which may create jobs simultaneously with the value, or sometimes the value created will initially destroy an industry (and its associated jobs) but will give rise to another industry (and its associated jobs).

Stimulus in the short-run may provide a jolt to GDP, but how can Obama's team accurately predict the long-term results of stimulus? How sure is Obama's team that our economy would be better off in the long-run if we didn't pursue short-term stimulus right now?

I know there are many unemployed folks right now, and I agree the economy could use a jolt right now. However, I don't believe fiscal stimulus right now will be the jolt that creates long-term economic prosperity. No one entity, in this case government, has the knowledge, capability and motivation to engage in a stimulus plan that will create long-term economic prosperity because markets and economies consist of too many moving parts.

Our economy would be better off if government focused on creating a consistent, stable and predictable launching pad. My prescription would include the very policies that Obama dismissed because they "wouldn't provide the economy with a jolt right now" such as patent reform and signing the three pending free trade agreements.

Additional remedies would include reforming the tax code, drastically reforming entitlements, reforming our education system, transferring federal government programs (e.g. education, welfare, minimum wages) to the states, negotiating more free trade agreements and removing onerous regulations that impede growth.

We need this type of reform right now, not more patches to the tax code (e.g. payroll tax cuts) nor federal bailouts to teachers (who need a bailout because our education system is so terrible) nor bailouts to states.

We need to drastically shift our federal government's spending priorities, entitlement programs and economic policies right now so we can jolt our economy into long-term economic growth. Short-term pain brings long-term gains.