SOTU Speech and Your Investments

Last night, Obama delivered his state of the union speech.  You can read a full transcript here:

Bottom line, I don't seen anything new here.  It was a typical speech given by a typical Keynesian president.  The conclusion you can reach from the whole thing is that he will try to maintain the status quo of big government, big spending, and continued war.

Obama said that he is proposing a freeze on annual domestic spending (whatever that means) for the next five years.  I'm not sure if that includes Social Security or Medicare, but I doubt it.  There is little chance that his proposal will come to fruition.  He is speaking meaningless words.  But even if it did happen, he says that it will reduce the deficit by more than $400 billion over the next decade.

Let's make sure we understand the difference between deficit and debt.  The national debt is about $14 trillion.  The annual deficit right now is about $1.5 trillion.  That means we are adding $1.5 trillion every year to the national debt.  So if we reduce the deficit by $400 billion, then that means we will get an annual deficit of $1.1 trillion in a decade.  In other words, we will continue to add more than a trillion dollars a year to the national debt every year for the next decade.  Do the terms "massive inflation" and "default" mean anything now?

Obama also talked about innovation.  He did cite some past innovations that were done with little or no government.  But then he talks about innovations as if the government has to somehow help.  He talked about electric vehicles and high speed rail.  Of course, his plan is to subsidize these things with taxpayer money (or perhaps printed money).

Obama is a Keynesian.  He is a believer in big government, just as Bush before him.  Obama believes that the government has to help innovate.  He does not understand that if something is worth doing, then it shouldn't have to be subsidized.  As Austrian economists, we talk about malinvestment as it relates to the Fed printing money.  But there is almost always malinvestment when the government spends any money at all.  If consumers want high speed rail, it should be profitable for a business to provide the service without government subsidies.

Obama also mentioned regulations and said that he ordered a review of government regulations.  He said that when we find rules that put an unnecessary burden on businesses, we will fix them.  Um, can you say "Obamacare"?

In conclusion, this speech was nothing new.  The federal government is heading over a cliff.  Maybe it will speed up or slow down a little before reaching the edge, but there is no stopping it.  Prepare accordingly.