Obama vs. Capitalism

In September of 2004, I attended a conference on economic development in the Donetsk region of Ukraine. A Ukrainian academician proudly presented the major achievement of his institute – a twenty year plan for developing the market economy in the region. After his presentation, I asked:  “Why does the market economy need a twenty year plan?”  The angry academician replied: “How can it develop without a plan? It would be a chaos.”

“I don’t think so,” I said, “the market will regulate itself. No one planned for Microsoft or Apple.”

“I am sure that you are wrong,” said the academician,  “some people in the White House definitely thought that through.”

I recalled that exchange recently when I heard President Obama say:

“If you’ve got a business, you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.”

I realized once again that the idea of the invisible hand may be not so agreeable, even for people with high intellect and good education.  Indeed, the idea of market self-regulation is very complicated theoretically and is yet to be proven with the rigidity of the laws of physics.

Many of those who appreciate the idea do so as a result of personal experience. The Obama administration has a dearth of such people. The fact that there are far fewer persons with entrepreneurial experience in the current administration than in any previous one may explain the administration’s obvious distrust of the market economy and strong belief in government regulation.

In a recent TV interview, the White House adviser David Plouffe said: “We wouldn’t have an automotive industry if he [Mitt Romney] had been president. President Obama secured that.”  Plouffe was talking not about any particular plant, not even about General Motors, but about the industry created by Henry Ford, Alfred Sloan, and other entrepreneurial geniuses and the thousands of talented engineers and highly trained workers that work in it. To think that the existence of that industry is secured not by all those people, but by a few bureaucrats, who have never created anything in their life, is delusional.

Unfortunately, this delusional economic philosophy underlies the basic premise of the Obama’s administration that without guidance by the government, the private sector is unable and unwilling to do things, which are good for the American people.  That is why Obama decided to spend $90 billion to develop “new” sources of energy. The money was not spent on fusion or on long term fundamental research, but on technologies that can be developed by private companies, without governmental assistance, if the companies decide that there is a demand for them.

And here comes the second part of Obama’s economic philosophy: we cannot count on demand since the people don’t know what is good for them and can be easily deceived by evil corporations.  The only benevolent force to protect people not only from those corporations but also from themselves is a federal government.

Those two parts add up to the old economic philosophy of central planning, when the government determines what people need and then manages the whole national economy for producing those products. The result is well known from the Soviet experiment. Most products produced by that economy were not desired by anyone, their quality was substandard, and even they couldn’t be manufactured in sufficient quantity.  The country, which put the first man into the space, could not feed its people or give them adequate housing and health care. The environment of one sixth of the world territory was devastated.

On the contrary, in the United States, where government traditionally played a minimal role in the economy, people enjoy an exceedingly high standard of living, good health and high longevity.  They have enough food and clothing, breathe fresh air and drink clean water.  The American private economy not only provides for its own people, but feeds million in other countries where the governments decided to run the economies.

Obama and Plouffe may still wonder how America managed to do all this for almost three centuries without their help.  Together with the Ukrainian academician, they may ask how without such guidance our country hasn’t plunged into complete chaos, and instead became the richest country in the world.

Maybe the idea of market self-regulation is complicated, but some simple considerations may help.  People proved to be smarter than government experts in deciding what is best for them.  They cannot be so easily lured into buying what is wrong for them and will eventually drive out of business those who do not serve them well. This is not the case with the government.  A governmental agency that issues harmful regulations cannot be closed by irate consumers and the bureaucrats responsible for them will seldomly be fired.

Self-regulation does not guarantee against business cycles, but assures long term growth and the capacity for self recovery.  Even at the bottom of each recession we are usually better off than we were a decade earlier and we return to the positive growth of the past once again. Vladimir Putin, who had the insolence to criticize the volatility of the American economy, should remember that Russia still has a long way to catch with the U.S. as a result of its experimentation with central planning.  Those who criticize capitalism for allegedly not allowing the majority of the population to benefit from its prosperity should realize that the American poverty line is higher than the median income in China, which is considered by many now as an exemplary economy.

Ronald Reagan once said: “The government is not a solution, but a problem.”  We may add to that: “Capitalism is not a problem, but a solution.”

Not for Obama, though.  He campaigned for president by accusing Romney of being … the ideal capitalist.   Indeed, Mitt Romney is rich and successful. But only people who have no understanding of the invisible hand do not appreciate the fact that private equity companies like Bain are much more effective tools of market regulation, than central planners, and create much more public wealth than the Ukrainian academician or the Obama administration.

In going after Romney’s business record and promoting his own policy of governmental regulation, Obama goes after the very system of private enterprise, after the goose, which lays the golden eggs.

Yuri Yarim-Agaev is President of Transcom Financial and Distinguished Visiting Fellow at the Hoover Institution.

  • CarolL

    Thank you, Yuri, for a wonderful article. I also very much enjoyed your comments on National Review Online.

  • Mary Sue

    Very good article. You know, the likes of Obama like to imagine that the United States (and Canada I guess, too) cause chaos in their unfettered free markets by virtue of pollution. Making claims about letting corporations poison the air, water, and soil for profit. Or Corporations are ripping off their employees and robbing them blind while paying CEOs millions. We've got idiots that say that here, too. Command and Control can be invoked for a number of 133t causes, such as Environmentalism, the Poor Exploited Worker™, Traffic Jams, and that's just for starters. That's of course to fool the masses, as flatout command and control rarely appeals to the average Joe Sixpack.

    Obama's just like the academic guy. Heck, he IS the academic guy. They all have these ivory tower ideas that were cooked up in theory and look great on paper, but fail In Real Life. Then they're arrogant enough to call people stupid that don't fall for their tricks.

  • aamused

    Very desperate articlle Yuri .And that title ? man a great hook for the first two suckers who bit .BTW Mary Sue is NOT a Canadian .
    I dont know if you really have a grasp of the English Language . But ironically you've learned how to take part of a statement out of context , and build an idealogical construct from it .
    In this country we call it propaganda , a word I'm sure you're familiar with .LOL……go knock'em out Yuri suckers exist in the same proportions no matter what part of the world .

    • Mary Sue

      Keep it up, aamused. You grow more amusing in your insanity. I understand that people can just come on the internet and say anything, and you'd never know, but man. Seriously. What reason would I have to present as Canadian if I was not? You're basing your opinion on facts not in evidence. (in other words, none at all). Stop lying, aamused!

      You're just as bad as that idiot Alison Acker. Google her and "raging grannies".

  • amused

    BTW Yuri , you're NOT listed at all in the Executive management .The President is Johan Ericson and the Company is on the Stockholm exchange . Nor are you listed on Transcom WWSA -anywhere in their operations .
    And Yuri, Transcom Financial services is an OUTSOURCING COMPANY – They answer the customer service lines . No wonder you are a Romney man – OUTSOURCING . And yes they've Got big clients Americn Express, Barclay , VW -350 clients infact.
    But the performance ? from your 5yr high of 19.10 Euros/dollar ? on 12Nov.2007 the company tanked to a low of 5.02 – 10Mar.2009 – peaked again at 17.12 in Jan 2010 and has slid down eversince to a flat line for all of 2012 AT **0.62 !! I think someone lost money Yuri – BIGTIME . Bloomberg's got the Company redlined .Maybe mary Sue would like to buy some of your stock ?

  • 4LuvOfCountry

    Made a SUPER FUNNY blog post about Obama's Facebook Timeline showing what a crook he is. Please send to all the undecideds and independents you know so we can get the votes for ROMNEY. THANKS!

  • amused

    Yuri , your [alleged] Company , introductory statement on it's homepage – Transcom Financial Services
    PRESIDENT Eric Johan

    Transcom is a global outsourced service provider entirely focused on customers, the service they experience and the revenue they generate. Our customer management and credit management services are designed to strengthen our clients’ customer relationships and secure their revenue streams.

    Great for American jobs , down here in Fla , we just lost 1000 jobs in ONE COMPANY , the whole customer services department to be OUTSURCED as of Jan.1 2013 . LOL>…who knows , may be to your Company eh ? Hope that brings your stock up . What are you doing here anyway ?????

    • Mary Sue

      Outsourced as of Jan 1, 2013


  • http://www.adinakutnicki.com adinakutnicki

    The Red-in-Chief is hell bent on creating the United Socialist States of America. He has done everything possible to create a swathe of economic destruction – http://adinakutnicki.com/2012/08/07/barack-hussei… the entire nation.
    His mission is to make sure that the U.S. is no longer a super power, and more on par with third world nations. Doing so requires economic deconstruction.
    Most intrinsically his policies are not happenstance, they are purposeful.

  • http://www.adinakutnicki.com adinakutnicki

    The Red-in-Chief is hell bent on creating the United Socialist States of America. He has done everything possible to create a swathe of economic destruction – http://adinakutnicki.com/2012/08/07/barack-hussei… the entire nation.

  • Old Joke


    ~ CONSERVATIVES vs. Ann Coulter, Sean Hannity, & John Cornyn……..

    ~PHUCK Coulter, Hannity & Cornyn..

    • gray man

      asinine comment.

  • Goering

    Yuri seems to be deliberately creating a straw man argument. For example the Obama qoute for some reason leaves out the next line: "The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together." Also Obama has made plenty of pro market statements, for example from the 2011 State of the Union Address: "Our free enterprise system is what drives innovation.". Another and more likely interpretation of the Poufle quote is here: http://www.barackobama.com/auto-recovery/ . The quote about demand is puzzling and all the more confusing is the next leap to central planning there does not appear to be any data that says anyone in the administration is actually suggesting either theory. Yuri, free from facts, is then free to battle heroically against positions no appears to be actually taking. Its not clear if Yuri is a sloppy researcher or deliberately misleading but one thing appears to be consistent: inaccuracy.

    • gray man

      "The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together."
      Which is false. Any moron knows that. That is the point.
      "Our free enterprise system is what drives innovation." Which is why he stifles free enterprise every chance he gets.

  • Jim_C

    I'm not buying this article for several reasons. First, a willful misinterpretation and misrepresentation of Obama's policies and his advisors, among whom are many entrepreneurs and capital-C Capitalists. Second, the invoking of Adam Smith's "invisible hand" as if Smith meant it to mean "markets self-regulate," which it does not. It is an unfortunately all-too common misreading of Adam Smith that undermines the author's credibility. The idea that markets self-regulate is an article of faith, not fact.

    Use the election loss to get past these hoary old canards and let the ghost of St. Reagan rest in peace, and go about the business of recrafting and re-envisioning your message.

    • gray man

      "among whom are many entrepreneurs and capital-C Capitalists. Second, the invoking of Adam Smith's "invisible hand" as if Smith meant it to mean "markets self-regulate," which it does not."
      I don't think entrepreneurs and capitalists mean what you think it means.
      Markets have been self-regulating since markets were formed. I don't think "self-regulate means what you think it means.

  • Ghostwriter

    Jim_C,aren't the fears of what Obama MAY do have some basis in fact?

  • lawissues

    Donetsk is a capital of Ukrainian mafia, so every businessman who go there should know places where he can get appropriate medical care. This is my list of Donetsk hospitals http://ukraine-vacation-guide.com/dir/hospital/do… If you know other good Donetsk hospitals and clinics, add them please.