Barack Obama's Marionette Economy

When will President Obama learn that a top-down micromanaged economy just won't work?

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Bruce Yandle is an economist at the Mercatus Center at George Mason University and the dean emeritus of the Clemson College of Business and Behavioral Sciences.

According to Friday's Commerce Department report, the economy improved slightly during the last quarter, but more importantly, we now have an estimate for 2011's overall economic growth, and it does not look pretty. The number is a dismal 1.7 percent, which looks even worse when compared with 2010's 3.0 percent. But we should keep in mind that some serious 2011 shocks pushed the growth numbers lower. There was magnified tax and regulatory uncertainty in Washington, a massive Japanese earthquake which caused supply interruptions, southern European credit meltdowns, a trembling Euro community, and the first-ever modern U.S. credit downgrade, which all pushed the numbers lower.

In 2012, experts and politicians will continue to focus on how to boost economic growth. We received more than a glimmer of President Obama's plan last week when he outlined his ideas for top-down management of the economy. The president offered a blueprint for a marionette economy, with the strings pulled by Washington.

[See a collection of political cartoons on the economy.]

This blueprint recommended tax punishments for firms that expand globally, tax benefits for firms that employ people in hard-pressed regions, research and development benefits for firms that attempt to produce the right stuff, fine-tuned rules to support clean energy, and higher taxes on individuals that earn a million or more dollars a year. There was even a mandate to require school aged children to stay in school till age 18 or else. Each proposed nudge seems designed to appeal to one or another special interest group, because special interest appeals help elect presidents.

But pulling strings in an effort to manage the economy just doesn't work. The United States' mangled market economy operates on the basis of the uncoordinated actions taken by millions of people in pursuit of happiness. Those decisions can and will be affected by tax changes and regulations, but we cannot build the economy of our dreams by simply sitting in a room and planning it. As the president pointed out, it is true that American manufacturing is surging again, and that employment is growing in industries that were mainly expanding abroad. But that growth in manufacturing employment will not rescue millions of unemployed American workers. There is just too little labor used in manufacturing today, and it's decreasing due to amazing advances in technology.

[Read the U.S. News debate: Is a Flat Tax a Good Idea?]

The president's focus on higher education may offer a better option for reducing unemployment. If we are going to subsidize the sector, it makes more sense to fund community colleges that can fill the growing need for technically trained workers. But in helping students along the way, it doesn't make sense to micro-manage the student loan process. Doing that will encourage the creation of more debt than those future workers can pay off.

With hope riding high for a stronger 2012 economy, treating the economy like a Washington-directed marionette is not the way to go. It is time for the puppeteers to back off the stage, clear the way and give free people a chance to show what they can do when tax and regulatory burdens are low and opportunity is high.

  • Check out our editorial cartoons on President Obama.
  • Read the U.S. News debate: Do the Rich Pay Their Fair Share in Taxes?
  • See an opinion slide show of 10 wasteful stimulus projects.