"Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall."

That was the argument opponents of TARP and bailout fever have been making: When government puts taxpayers on the hook for the risks of private companies, it creates an incentive for more risk, not less. Creative destruction is not bad, but is the cleansing rain of the free market — as essential as water is to plants. Insulate the market from creative destruction and you get less destruction, but also the same mistakes later on.

The conceit of Obama's Wall Street speech was that he and government bureaucrats can "manage" our economy better than free markets. Government cannot, as the failure of every socialist economy has proved. Just because Obama believes he has the intellectual firepower to micromanage financial markets doesn't mean he can.

Khabalox, you make some good points. Part of the problem is that there are different definitions for "economic profit" and "accounting profit." You can go read Wikipedia for details on those differences, but economic profit is indeed the important thing to talk about here.

Probably one of the most important misconceptions about economics is about profit. The key function of profit is the role in plays in communicating. One of the really remarkable things about a society that most people never think about is all the pieces that go into the simplest things. I think it was Friedman who used the pencil as an example--all the steps and effort that goes into getting graphite, wood, metal, whatever erasers are made of, paint, all to the same place, at a factory with electricity and plumbing and machines to make pencils. Then all the work that goes into packaging and distribution. What makes all these processes come together is people taking pieces of the activity and doing them profitably. It's the profit that lets them know that they are doing the right thing, in the right amount. If there's everything to make pencils but graphite, someone will have an opportunity for profit by supplying it. And if there's too many pencils in Minnesota and not enough in Phoenix, someone missed out on a profit opportunity, and someone else is going to fix it.

So back to the healthcare debate: as you said, the definition of profit includes looking at what else you could be doing that would be more profitable. You see this in technology all the time--companies still make floppy disks, but they put a lot more effort into making other things. Government intervention in any activity is a double edged sword: first, it distort profit signals (say, making it more profitable to use corn syrup than sugar because of tariffs) or taking away the profit in doing an activity so people stop doing it. The other edge of the sword is that when government takes on an activity, they don't operate with those profit signals. So if the government took on making pencils, there might not be enough graphite, and there almost certainly would be too many pencils in one town and not enough in another. Allowing profit signals to work is what allows these enormously complex activities to occur.

And trust me: providing healthcare is a lot more complex than making pencils.

I'll admit that I don't pay particularly close attention to politics in general, and only slightly more to the President in particular, but I don't see a pattern of lack of basic econ knowledge. So I've now gone back and clicked some of the hyperlinks (the 'gaffes' link in the 17th paragraph has an extra 'h' at the beginning btw), and I don't see the "mounting evidence" that some of the bloggers are bemoaning. The most credible ones I've seen are:

Comparing health insurance to car insurance. This is only a flawed analogy, and aren't all analogies flawed (otherwise they would be called the-exact-same-thing, right?) I don't see how it exemplifies Obama's lack of economic knowledge.

Comparing the public option to public higher education. This is perhaps the best example, and the details he omits deserves to be pointed out. The change in the ratio of public:private students and dollars spent on education (and countless other metrics) over time should be laid out. It's clear that public universities have taken an ever increasing market share away from private universities. What's not clear however, but what is being assumed by the conservatives making this point, is that 1) this is a bad thing and 2) this is only due to government subsidies (as oppsoed to failures of management. But that is really a discussion for another time.

"Dow is like a tracking poll" ere is the complete quote for reference.
"[The stock market] is sort of like a tracking poll in politics. You know, it bobs up and down day to day. And if you spend all your time worrying about that, then you're probably going to get the long-term strategy wrong."

This is another analogy, and probably a poor one from a political perspective. But is it bad from an technical perspective? What is a tracking poll? It is a measure of a populations (the pollees) opinion on a particular subject, e.g. "Is the President doing a good job?" What is the DJIA? It is a compliation of stock prices. And what are stock prices? They are a measure of a populations (investors) opinion on a particular subject (is GM a economically sound business?). The key point is that a stock price on any given day is reflective not of the actual health of a company, but rather what investors THINK the health of the company is. Anyone who has read even a little history about stock markets knows that the prices assigned to stocks are not always rational. Seth Klarmen, author of "Margin of Safety, Risk Averse Investing Strategies for the Thoughtful Investor" makes this point quite well in the opening chapter of his book. (Good luck finding it though, as it goes on eBay for north of $1000).

The second and third sentences are absolutely true. Any sensible investor knows that the day to day movement of the market is mostly noise. To get a better idea of what is going on, you have to look at longer trends.

All in all, the uproar about this "tracking poll" comment only shows that those who disagree with it seem to have an unyielding faith in the rationality of the market and it's individual participants. They seem to think that prices reflect reality, rather than investors perception of reality. We have two clear examples of how this is not the case in the past decade, but I guess political commentators are only too happy to suffer collective amnesia if it helps them make their point.

Other "gaffes" linked to:
From Fred Barnes :
"only government has the resources to jolt our economy back into life" - if anything, this is a question of theoretical debate (that is, debate of economic theory).

"Tax on $1 mill plus to pay for health care" The point being made is that taxing is the wrong thing do during a recession. Yes, in general, but if you spend more than you tax (which certainly no one would acuse Obama of NOT doing), then you're net economic activity will go up.

(The other economic "failures" Barnes cites are not examples of Obama's lack of knowledge, but rather of differing opinions on how to apply fiscal policy.)

The Tire Tariff: I haven't read too much about this yet, but it sounds like a shot over the bow. If China is (unfairly) subsidizing tire manufacturers, then perhaps something has to be done. But I predict this will be largely forgotten 6 months from now, and will spiral into a trade war as some seem to fear.

So what are the other economic gaffes that I'm missing? So far Obama seems to be doing pretty good for some who went to Harvard Law instead of Wharton.