Obama cannot repeal basic economic laws

Two examples: You can't borrow if you can't repay; and trade barriers beget trade barriers.
Two examples: You can't borrow if you can't repay; and trade barriers beget trade barriers.

John Adams famously told us that facts are stubborn things, and nowhere is that more true than in the dismal science of economics. Eventually reality and basic laws take hold.

It is a basic economic law that people won'ꀙt loan you money if they don'ꀙt think you can pay it back. (And we have learned what happens when this law is ignored) This rule applies even to governments. This week the British government tried to sell $2.55 billion in bonds to finance their own attempts to raise spending and stimulate their economy. They couldn't find enough buyers.

More ominously, the same thing nearly happened to the U.S. government: "A record $34 billion five-year note auction on Wednesday was met with what traders described as subpar demand, with the government forced to offer a higher yield to attract buyers." For years people have worried about what would happen if the Chinese and others stopped lending us money. This week we nearly found out.

For decades, under Democrats and Republicans, we have refused to face the reality that we can'ꀙt afford the government we have created at the tax levels we are willing to pay. Now President Obama is promising to accelerate this trend by massively increasing spending while only raising taxes on 'ꀜthe rich,'ꀝ thus exponentially increasing our already staggering debt. This week our creditors sent a clear signal that they may not be willing to continue enabling this willful disregard for basic economics, just as Congress begins serious consideration of the President'ꀙs budget. This could get interesting.

In the meantime, we were reminded recently of another basic economic law: protectionism doesn'ꀙt work. The Seattle Times editorialized:

President Barack Obama has signed an omnibus spending bill that bans Mexican trucks from the United States. Mexico has retaliated by slapping punitive taxes on some of this state's products'ꀦ.Mexico has slapped tariffs on a long list of U.S. goods, including 20-percent taxes on potatoes and pears. Packers in this state sold $40.3 million in potatoes to Mexico last year, and $33.5 million in pears.

Trade policy is as predictable as the rising and setting of the sun. Barriers beget barriers, action creates reaction. Calling new barriers "Fair Trade" won'ꀙt change the fact that our trading partners will retaliate, raising consumer prices and killing jobs, especially here where one third of all jobs are dependent on trade. Backtracking on trade policy will hurt Washington more than any other state. So, again, where is the outrage?


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About the Authors & Contributors

Chris Vance

Chris Vance

Chris Vance, a former Republican party chairman, is a senior fellow at the Niskanen Center.