April 7, 2011

(Educators)Unfortunately, President Obama does not understand the basic laws of physics. Isaac Newton's third law of motion states that for every action there's an equal and opposite reaction. Nor does Mr. Obama understand the basic principles of economics, including the law of unintended consequences and creating a moral hazard. A moral hazard is created when a person behaves differently from how he would have if he had to bear the risks of his behavior.

Every time Mr. Obama attempts to repair a problem by government intervention, he creates a more serious problem. An example of the law of unintended consequences is the president's attempt to solve the financial crises by increasing the regulation of the American financial system.

These attempts over time to fix and regulate the financial markets have resulted in the loss of U.S. dominance in the financial sector. The most recent egregious example of this loss is the potential German acquisition of the iconic New York Stock Exchange.

Another example of the law of unintended consequences includes the stimulus spending programs that fail to create jobs but result in the ballooning of our national debt. The stimulus spending took money from the efficiently run private sector in the form of higher taxes and reduced availability of debt and spent it in the inefficient public sector. Jobs created by public-sector spending merely displaced jobs lost by forgone private-sector spending. There are too many moving parts to the American economy for one individual, even a very smart one, to consistently predict the outcome of government intervention in the economy.

The president has created a number of moral hazards by trying to bail out Americans whose risky behavior got them into trouble. An example of the moral hazard being created in Washington is the attempt to relieve monthly payments of families in economic distress whose mortgages are under water. As a result of this program, taxpayers who lived modestly, saved and did not overextend themselves with mortgage debt are being asked to subsidize their profligate neighbors who bought bigger houses than they could afford.

No discussion about unintended consequences can fail to mention the health care bill. The president and congressional Democrats insisted that the bill, which they acknowledged not actually reading, decreases health insurance rates, providing affordable (or even free ) care for everyone. When the Congressional Budget Office (CBO) said the initiative would make health care more expensive, the Democrats told the American people that the CBO was wrong and then insisted it check again. As if by magic, the CBO took another look and declared it was wrong and that the federal government would make money if it suddenly took over a third of the economy.