President Barack Obama has to deal simultaneously with two competing economic-policy objectives: first, he wants to create a perception that the financial system is under control. And second, he’d like to federalize the economy in important ways. These objectives are in conflict with each other, and judging from his recent comments, Obama is having trouble holding both of them in his mind at the same time.

As regards economic stability, the problems for Obama relate to capital markets (particularly the stock market), unemployment, and housing. In each of these areas, Americans perceive serious threats to the way they live their lives, or would like to. And these threats are fanned by news headlines that are shocking and frightening.

So in the last analysis, Obama’s true objective in respect of economic stability is to manage the headlines.

The stock market and housing matter greatly to ordinary people, because of the strong growth in these asset classes in recent years. Seeing your 401(k) balance and comparable home sales in your neighborhood go up month after month creates a powerful sense that you can consume beyond your current income. When your assets go into reverse, you start consuming far less and saving more. Multiply by 100 million households, and you have a recession. You don’t even need to add water.

The unemployment situation is the classic market response to economic distress. Recessions beget high unemployment, and high unemployment begets changes in the political fortunes of the party that holds power in Washington.

So ignore the complex analyses of these phenomena that you get from sophists like me. In terms of Obama’s economic policy, the objective is to stem the decline in stock prices and housing, and to reduce the unemployment rate.

Since neither he nor his advisers have the slightest clue how to accomplish any of that, they’re concentrating on managing our perceptions. In recent days, Obama has himself told us that it’s a good idea to invest in the stock market because it’s undervalued. (One presumes we’re expected to believe that the mere presence of Obama himself will soon make the stock market go up.)

In addition, he’s sent out people like Christina Romer to tell us that the recently-enacted fiscal stimulus package is like penicillin to the economy, and it just needs time to work. Therefore, unemployment will someday get better, even if it gets worse in the meantime. (You may recall a highly-respected Stanford economist named Christina Romer who has written many papers questioning the value of fiscal stimulus as a policy tool, and questioning the conventional wisdom that tax cuts aren’t good for the economy. This is the same Christina Romer, but she has a different boss now. When well-credentialed scholars of unquestioned integrity get top jobs in the White House, their integrity often becomes a secondary priority.)

If managing the headlines is his first priority, Obama’s second goal is transitioning the US economy over to much more government control. He wants to end low-cost energy use in the US and move over to high-cost wind and solar energy. He wants to provide universal health insurance at a time when health expenditures are rising sharply for the baby-boomer population. He wants to sharply improve the finances of state governors, which ultimately means increasing payouts to teachers, education administrators, hospitals, and other unionized public employees. And he wants to do all this in a context of “fiscal discipline,” which means raising taxes on capital, business and high incomes.

I’m not going to question here whether the US should embark on a path toward broad government control of the economy. In a very real and inescapable way, this is the path that Americans voted to take, last November 4th. The question “should America become a socialist nation?” has already been answered affirmatively by the voters when they gave Obama a clear victory with increased Democratic majorities in Congress.

My concern is: how are we going to pay for it all? To increase spending on socially-determined outcomes is necessarily to displace spending from privately-determined ones. There is only one way to accomplish higher social spending without causing deep pain among private individuals, and that’s to increase the size of the economic pie that we are redistributing. Socialism is a luxury that is only available to rich nations.

And here, Obama is doing the things that really determine the grade he should receive for economic policy. The priorities and the policy objectives that Obama and his team have articulated are precisely ones that will cause the economy to grow much less vigorously in the near and medium term.

The Nobel-prize winning economists that are advising the President are deeply committed to the apparently-logical view that if consumers demand something, producers will supply it. When consumers demand less, all government has to do is demand more and everything gets good again. Right?

Wrong. From the business and market perspective, nothing could be worse than an aggressive, activist government threatening higher taxes and tighter regulations. The uncertainty created by activist government simply destroys business confidence. Business doesn’t supply more because demand is higher. Business supplies more when the risk-adjusted returns to capital justify the additional production. Economists have suggested long before Keynes was born that supply creates demand, not the other way around.

Obama couldn’t be doing more to destroy business confidence if that’s what he had intentionally set out to do, and frankly, it’s hard not to get the impression that this is indeed the case. Certainly Obama has done nothing to suggest otherwise.

Bottom line: Obama wants to go on a massive government spending spree. But he’s working as hard as he can to destroy the means that will make the spending spree possible. He earns an F for economic policy.