Wednesday, July 15, 2009

Economy at the Bottom of Obama’s Priorities

I think by now it is becoming obvious that Obama has no intention of fixing the economy. Fixing the economy appears to be at the bottom of his agenda. You need to judge a president by his policies, and not what he says in speeches. His policies are all devastating to the economy, and will prevent any kind of recovery unless they fail to pass or are over turned at a later date. He talks a bunch about everything he is doing to fix the economy, but let’s look at what has actually been done so far, and what he is planning to do to fix the economy.

The Stimulus Bill

This was nothing but a pork-barrel liberal wish list with a massive welfare plan thrown in for good measure. It has nothing to do with stimulus, and as a result is an over all negative to the economy. All of the wasted money will need to be paid back with interest in the future. Obama claims that the stimulus is working as planned. We have spent about 10% of it in the first 5 months. Most of it will be spent in 2010, and 2011. If we were planning to stimulate the economy in 2011, than we were planning on the economy not recovering until then. With the recession (soon to be depression) starting in late 2007, it is already about as long as any recession since the great depression. Planning on it continuing until 2011 is like planning on a depression, and doing pretty much nothing about it for a year or two. As you can see there is no actual intention of fixing the economy with the stimulus bill. If you really wanted to stimulate the economy in the short term you need to drastically reduce business and personal tax rates (i.e. Regan). That puts all of the money directly into the economy at a pretty fast rate (depending on how low you go with rates). Having the government spend the money wastes at least half of the actual stimulus portion of the money, and allows them to spend the rest of it on stuff that does not even stimulate the economy. A bunch of the money went to extending and increasing unemployment benefits. If you would have lowered taxes instead of raising unemployment pay, it would have provided for a much larger incentive to go out and get a job, and for employers to stop laying off people. There is no way I would go for additional stimulus offered by the architects of the first bill. However, if you want to actually stimulate the economy, you could cancel what has not been spent, and redo it now as a massive tax cut. That would only happen if Obama’s priority was to fix the economy.

The Health Care Bill

Trying to push a massive heath care bill though right now is laughable. It’s like the guy who has been living beyond his means on credit cards for 40+ years, is at major risk of losing his job and has taken a recent massive pay cut, and yet goes ahead and shops for that luxury yacht he has always wanted. You would call that person insane. No sane person or responsible lender would lend that person the money for the yacht. It works differently though when you can print your own money I guess. So let’s see what situation the United States is currently in. We have been running a budget deficit for 40+ years (living off credit cards). The few Clinton year surpluses were not surpluses net of Social Security, so they do not count. The U.S. tax income is down 22% this year and dropping fast. That’s like taking a huge pay cut with the threat of more cuts or unemployment to come. So now Obama is out shopping for the luxury yacht called “Universal Health Care” that we simply can’t afford. The responsible individual would wait for his job situation to stabilize and pay down some his debt, before even thinking about a yacht. Obama is simply not responsible with America’s money. Now this is being sold as a way to lower costs long term while adding health insurance for all uninsured. Those two things simply can’t happen at the same time. Insuring tens of millions is going to cost hundres of billions extra on an ongoing basis. The cost savings are not really explained. Adding demand to the existing supply of health care will raise the cost according to the law of supply and demand. So not only do we need to pay for all the new people covered, but the cost for everyone will also go up as well because of increased demand. The government simply can’t mandate new lower payout amounts. Doctors and other providers will simply leave the system if it is not worth it any more, causing further downward pressure on supply. Rationing health care will be the only solution to the supply and demand imbalance caused by the bill. Because of the ongoing expenses required to cover this bill, taxes will be going up on top earners. Also, there will be a penalty for individuals and businesses that do not provide or take out health insurance. This is where the economy gets destroyed by this bill. About 60% of the high income individuals own or run small businesses. Small businesses are also the most likely to be hit with penalties for not providing health insurance. This is a double whammy that will continue to depress the opportunities for small businesses that create the vast majority of new jobs in this country. As long as this bill is hanging over the U.S. economy, there will be no recovery. Nobody will be starting new small businesses now unsure of how high taxes are going or if health insurance will be mandated. If it actually passes, small business job creation will crawl to a near stand still, and the economy will not recover. If, Obama’s priority was to fix the economy, he would put this bill on hold until the economy has recovered and the budget deficit has been removed (i.e. indefinitely). Continuing to push for this bill now is a major headwind against economic recovery. Obama could step up and lead, by saying that we can’t currently afford the healthcare bill, and need to focus on economic recovery, but I doubt that happens.

The Cap and Trade Bill

This is just a feel good enviro-nazi bill that addresses a problem that does not even exist at massive expense to U.S. jobs and the economy. The heart of the bill is something like this. We want to double the price of gasoline, heating oil, natural gas, and electricity (from natural gas and coal), so that the cost of electricity produced from solar and wind becomes more competitive. The bill ignores several key facts. Solar and wind by themselves for example, simply can’t replace the electricity that we get from coal and natural gas no matter how hard we try. If electric cars are going to replace gas powered cars, we are going to need more electricity not less. But wait! If the cost of electricity doubles, that makes electric cars less competitive. No problem. Lets triple or quadruple the cost of energy until wind, solar, and electric cars are competitive. Ultimately, this is just a massive energy tax that does not even lower the amount of CO2 produced in the United States since we still will need the energy and baseline energy alternatives do not exist. Nuclear Energy is the only source that could meet the U.S. needs without producing CO2, but nothing in the bill promotes Nuclear. Another problem is that the world is not signed up to do the same. So energy costs go up drastically for U.S. businesses and individuals, while they do not change at all in the rest of the world. This will simply ship jobs over seas where energy and environmental costs are lower. I would love to see how the union manufacturing shops with vastly higher labor costs, will continue to compete when energy costs become vastly higher as well. To get this bill through the House it was watered down a ton, and is not even supported by the top Global Warming advocates anymore. Most of the costs are delayed for about ten years, but it must make energy prices go way up at some point in the future to actually work. The economy is in no shape to take on the uncertainty of a massive energy tax plan, or the effects of a massive new energy tax. This is a job and economy killing bill, and if Obama had the economy as a top priority he would put this one on hold for a while. It would also be nice to see the science behind Global Warming actually debated before taking on these massive expenses. The globe has been cooling for 8 years now, and the current June 2009 temperature anomaly against the 1979-2009 satellite measurement record is zero, meaning that today we are not above the average temperature of the last 30 years. This bill can wait for Global Warming to be confirmed scientifically before we purposely add more headwinds to the economy.

The Government Meddling in the Private Sector.

This simply needs to stop. Anything the government does to help the economy in the private sector hurts the economy. Bailing out weak companies hurts the strong. Recently CIT which is a major small business lender started teetering on bankruptcy and is looking for a bailout. The argument goes that they are the top small business lender and must be saved. Let’s imagine for a second that they became the top small business lender by under cutting their competitions fees and taking on more risk than there competition would. So this business model fails, and the government comes in with a bailout that props up the failed model at the expense of the successful ones. Had CIT failed, the competition would have picked up a good portion of the business with the exception of the loans that should never have been made. This is how capitalism works. Bailouts distort and destroy the free market. The same is true for the car makers. Had we just let them go unassisted into bankruptcy they would have either been liquidated or emerged as much smaller and profitable companies. Ford would have likely picked up significant market share because people do like to buy American. The additional market share would have allowed them to hire a good portion of the employees from GM and Chrysler, and get them working on cars that people actually want. By propping up GM and Chrysler post bankruptcy like we are doing, we are allowing the weaker companies to compete unfairly against Ford. They don’t need to turn a profit because the government is there to backstop their losses. So to move their crappy cars they undercut the competition on price, even if that means no profitability ever. So we are just hurting Ford at taxpayer expense by propping up the weak competition. All these government interventions in the private economy are delaying the recovery and hurting the economy. We need to stop all of it, and support capitalism and free markets as the way out of this mess. The economy may go a bit deeper short-term, but it will find its bottom much faster and set the stage for a natural, unforced recovery. If, Obama wanted the economy to recover, he would get the government out of the private sectors business.

Quit Destroying Americas Job Engine

Small business is the growth engine of the American economy. They have led us out of all of the recent recessions through massive hiring. We will not get out of this recession/depression until small businesses are comfortable hiring again. Enacting policy after policy that hurt small businesses is no way to fix the economy, but that’s what Obama is doing. How about throwing these guys a bone rather than choking them to death. Below are the many ways that Obama is killing job creation in small businesses.

1) Increased or planned increased tax rates on small business owners (Bush Cuts expire, and top 5% pay for health care)
a. Less incentive to start a new business
b. Less incentive to expand or take risks if reward is reduced

2) Mandatory health insurance coverage with penalties.
a. Less incentive to start a new business
b. Less incentive to grow business to where coverage is mandatory
c. Increased costs if penalties apply

3) Increased or planned increases of energy costs
a. Increased costs to all businesses
b. Increased competition from low energy cost countries

4) Increase to Minimum Wage
a. Increased labor costs
b. Less incentive to hire entry level employees

5) Increased regulation and red tape (equal pay laws…)
a. More regulations to follow
b. More lawsuits to defend

6) Bailouts to big businesses only
a. Unlevel playing field that favors the big over the small

So Obama’s many policies are all huge negatives on the economy, while he continues to talk about all that he is doing to fix the economy. He either does not understand economics enough to see the effects on the economy from his proposals, or he is actually proactively trying to depress economic activity to help push through a wealth redistribution agenda. He may be successful in shifting some wealth from the top to the bottom, but he will also be successful in shrinking the overall wealth of the nation. When you take away all incentive to create wealth, and incentivize those who are unemployed or underemployed, you are going a long way to destroy the economy and overall wealth. Let’s just hope somebody can stop this nonsense.

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At 12:34 PM, Blogger Rice and Salt said...

Shorter Binders: I hate Obama.

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