With the appointment of Christine Romer to head up his council of Economic Advisors, the key person to advise the President on economic policy, Obama has put in place an economic team that consists of centrists if not right of center policy makers. He has already put to rest the "socialist" criticism leveled continually by his Republican critics, but are they paying attention?

Conservative economist Lawrence Kudlow certainly is, saying that:

"Obama talked about a liberal-conservative consensus. But what's especially encouraging is the appointment of Ms. Romer, who easily could serve as CEA head in a Republican administration (just like Geithner could have been McCain's Treasury man)."

Another very encouraging sign this morning was when Obama announced further details of his economic stimulus plan, he made a point to say that they are also going to cut spending, mentioning cutting farm subsidies to farmers making over $2.5 million a year. The words structural reform" also came up, something that is going to have to happen if we are ever going to get our economy stable again.

The fact is that for two decades or more we have been spending more than we make at all levels, and this has artificially propped up the economy, like sawdust in a car engine that is going to eventually blow up. Everywhere you look you see examples of this. We have been running on kited credit cards and the bill has finally come due. It is so massive that tax increases are not going to fix the problem, and we have to change the way we operate on a fundamental basis, that is, structural reform.

The Wall Street geniuses that have nearly crippled the economy were making investments based on unbelievable amounts of leverage, in other words borrowing most of the money to buy various investments, sometimes up to 97% of the amount. When the borrowers couldn’t meet the monthly payments, because they too borrowed more than they could pay back, the house of cards collapsed and we now see it collapsing all around us.

The State of California has been spending more money than it has for years now. Due to things like the school initiative that requires any extra money be put into schools year by year, or the budget busting pay increases for state workers, bloated pensions, and a dysfunctional legislature that wont deal with it all, California is in a deep hole that raising taxes will not fix. There is going to have to be structural reform.

And all the bail outs. What are we really bailing out? We are bailing out old structures that are going to end up dying anyway. The car companies, financial firms that use highly leveraged investments based on greed, empty shells of companies and institutions that are being destroyed in their present form and will never be the same again. We cant do business like this any more, and the sooner we face it, the better.

The last one is the Federal government. The Federal government is in huge debt and this will not stand up over time either. They are the ultimate backstop for all this bail out money, but the obligations being taken on now are going to prevent any of the major spending programs that liberals have wanted for years, if we were ever going to be able to do it anyway.

Social Security alone will take an extra $150-200 billion a year to fix over twenty years. That’s not much you say? By itself it is very doable, but when you add Medicare which will cost even more, $5 trillion in unfunded pensions right now for Federal employees, a massive federally financed health insurance program for everyone, $150 billion a year in new energy research and incentives, the huge cost of veterans medical care coming out of Iraq, the list just goes on and on of new potential and actual demands on the Treasury. Without covering any of that we borrowed a trillion this year and expect to do the same next year, or more.

On top of all that, the Fed is flooding the banking system with loans that Bloomberg estimated are now well over $7 trillion. Supposedly this will all get paid back, but what if it doesn’t? What if only 20% of it doesn’t? That is another huge tab.

We are about to enter a long period of structural reform of our entire economy and with the way not only that business operates but also with how the government does business. It comes in many ways back to greed and the lack of responsibility, and it is not just Wall Street greed, it is union greed, it is household consumers who have 13 credit cards greed, it is the State and Federal government spending money they don’t have greed. We are all culpable in this.

We are really going to have to reign it in, which everyone has begun doing and is the main reason our economy is going south right now. Sales of everything have fallen off a cliff, people are stopping the spending, paying off credit, and starting to save money. Over the long term this will right the ship, but in the meantime it will be a lot of pain.

In order to have the kind of wealth that we were spending without having, productivity will have to increase dramatically, and that kind of increase can only happen with technological advancement, probably something on the order of the invention of the computer. That miracle could actually happen, an energy source like cold fusion that could make clean electricity cheaper than dirt for example. Until then it is going to be a painful ride, but Obama has been nothing short of brilliant in his prequel days to the Presidency in starting us on the next long, hard slog.