Obama Defends Bailouts, Handouts and Cop-Outs


State of the Union addresses provide insight into the vision of America embraced by the president, and in that regard Tuesday’s address by President Barack Obama didn’t disappoint.

He envisions a country where the federal government protects and creates union jobs and where the public sector is leading the charge to create a better America. “Think about the America within our reach: A country that leads the world in educating its people,” the president said. “An America that attracts a new generation of high-tech manufacturing and high- paying jobs.”

This is standard State of the Union boilerplate, but then the president ticked off many ways the federal government will accomplish this — through programs to retrain employees, subsidies to the green and automotive industries, grand infrastructure-building programs and through a new federally directed “blueprint” to rebuild the manufacturing industries. He said the federal government’s bailout of General Motors Co. and Chrysler was the key to saving the auto industry. In his view, the feds demanded responsibility in exchange for aid, which resulted in a new era of harmonious relations between workers and management.

But as Investor’s Business Daily reported, “Obama broke normal bankruptcy procedure when he bailed out GM so his union pals could get special treatment.” Perhaps the speech should be called the State of the Unions, given that Obama’s policies seem designed mainly to protect union workers from reform.

President’s Speech

“It’s time to apply the same rules from top to bottom: No bailouts, no handouts and no cop-outs. An America built to last insists on responsibility from everybody,” the president said, even as he defended such bailouts, handouts and copouts.

He called for a new era of responsibility, yet his aid packages have promoted irresponsibility, as local officials vie for added federal dollars rather than make the hard choices necessary to deal with their debt burdens. The president spoke about underpaid public servants, referring to teachers in particular, but here in California it has been the unsustainable growth in public-sector compensation that most threatens the government programs and infrastructure-building efforts the president says are so necessary to saving our nation.

The president sees a starving public sector unable to adequately meet the needs of the public, a world where heroic teachers must dig deeply into their own pockets to pay for school supplies. But public schools are short on cash not because of a lack of taxpayer support, but because of misdirected priorities driven by a lack of competition, bureaucratic inertia and union demands.

Obama said we should stop “bashing teachers,” which was a not-so-fair shot directed presumably at Republicans who have battled with those teachers’ unions that are the main obstacle to educational reform. “Of course, it’s not enough for us to increase student aid,” the president added. He said that if colleges can’t stop tuition from going up, then funding will go down. He also called on states to make “higher education a higher priority in their budgets.”

The president has it backward. Tuition keeps increasing because government aid keeps increasing. Free money keeps educational institutions from making tough choices and using their funds wisely. His misunderstanding of how Other People’s Money drives spending epitomizes the basic misunderstanding at the foundation of his speech and his administration. His point about state education priorities is off the mark.

California Schools

In California, education is guaranteed by constitutional amendment to receive at least 40 percent of the general-fund budget. Yet the system is a mess, and some of the highest-funded districts are the ones most plagued by corruption and incompetence. Obama should talk to the Democratic mayor of Los Angeles or a former Democratic state senator who leads an education-reform group about obstacles to reform, which revolve around union intransigence and bureaucracy more than funding.

Here in California the lush pay and benefit packages that many local officials have secured over the past decade are putting cities deeply in the hole, with compensation to police and firefighters often consuming 70 percent to 80 percent of their budgets. One liberal editorial page quipped that public agencies are becoming pension providers that offer public services on the side.

This threat is not just financial. San Jose Mayor Chuck Reed, a Democrat, told Vanity Fair that “Our police and firefighters will earn more in retirement than they did when they were working.” He continued, “It’s staggering. When did we go from giving people sick leave to letting them accumulate it and cash it in for hundreds of thousands of dollars when they are done working? There’s a corruption here. It’s not just a financial corruption. It’s a corruption of the attitude of public service.”

The president railed against inequality, but doesn’t mention the growing retirement chasm between workers in the public and private sectors. He criticized “bad debt and phony financial profits” but wasn’t speaking of the multibillion- dollar government pension debt or the phony rate-of-return projections used by pension funds to mask the growing debt burden.

The president’s reference to greed applied solely to a financial sector that did what its Washington regulators insisted it do: provide home loans to people who couldn’t afford them. I’m assuming his new “Financial Crimes Unit” will spare investigations of the legislators who crafted those rules. And yet the president also said that “responsible homeowners shouldn’t have to sit and wait for the housing market to hit bottom to get some relief.”

The president is right that it’s time for an economy based on responsibility, but he’s wrong to believe we’ll ever achieve that as long as his administration promotes more bailouts and protects the public sector from accountability.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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