Saturday, January 30, 2010

State o' da Union

Most of Obama's SOTU speech was pure BS. In fact, I have never been more pessimistic over a speech than after watching that nonsense. Below are two of the most absurd things that stuck in my mind after watching it:

And let's tell another one million students that when they graduate, they will be required to pay only 10 percent of their income on student loans, and all of their debt will be forgiven after 20 years –- and forgiven after 10 years if they choose a career in public service, because in the United States of America, no one should go broke because they chose to go to college.  (Applause.) 

The flip side of that is that no one should choose to go to college because they had no fear of being able to repay student loans. And putting more restrictions on how the lenders can be repaid only makes them less willing to lend. Over-investment is bad, be it in houses or education. The frightening thing is that after all our nation has been through with the current economic crisis, that lesson still has not been learned by policy makers.

Third, we need to export more of our goods.  (Applause.)  Because the more products we make and sell to other countries, the more jobs we support right here in America.  (Applause.)  So tonight, we set a new goal:  We will double our exports over the next five years, an increase that will support two million jobs in America.  (Applause.)  To help meet this goal, we're launching a National Export Initiative that will help farmers and small businesses increase their exports, and reform export controls consistent with national security.  (Applause.)

I am very much for free trade, because trade is not a zero sum game- it makes both parties better off and thereby increases overall wealth. Also, it makes sense to specialize which is why Adam Smith wrote about the division of labor on page 1 of The Wealth of Nations. Japan, for example, could grow some grain on their tiny country but it makes more sense for them to build grain in their automobile factories. Trade is really a technology for turning cars into grain (and vice versa).

Because both parties have an incentive to trade, we don't need Obama to tell us to increase exports. It will happen on its own when it makes sense. It scares me that politicians still think they are smarter than the collective wisdom of the market.


John Bailey said...

Not only will lenders be less likely to lend to future college students but they will add a question to the loan application asking what type of major the student is interested in. This could result in fewer public servents because they had to pay more for college due to less loan opportunities. The intention is good, make college more affordable, but the idea is very flawed.

Freemarket said...

It's almost like the road to hell is paved with good intentions or something like that.

Eludius said...

The unintended consequence of this (I think) is higher interest rates on shorter loans with more difficult qualification to get the loans. So while students will have more favorable terms for loan forgiveness, attaining a loan will be nearly impossible. Good job No'Bama!