July 6th, 2009 by Pat Staley
Unemployment is at its highest in a generation, with no peak in sight. And that’s not including all the folks who, like me, are “underemployed” (in my case, that means being an accounting consultant without a client who has had a generous employer who has continued to pay me and provide benefits….for now). While job losses mount, there have been few tangible signs of economic growth on the horizon.
How can this be since we’ve “saved” the financial industry and the car companies, “stimulated” the economy, and are now prepared to “reform” health care and “protect mother earth” from the stuff that makes plants grow and soda pop fizzy?
Why the lack of growth? The simple fact is that economic growth must come from the private economy. Government can’t make the economy grow. It may be able to facilitate it with wise policy choices and the signals it sends to the marketplace. It can inflate an economy with profligate spending and lax monetary policy. But it can’t create real, sustainable growth. I know of no historical example to the contrary.
What makes the private economy “do the stuff” to make an economy grow? It has been famously posited that markets operate on the emotions of fear and greed. I will add two more: confidence and optimism. These two are in short supply in the economy right now.
One cause is that those with money to invest in activities that might grow the economy are sitting on the sidelines. One report describes over $400B in private equity capital that is univested.
I would offer that the reasons for this, rather than some hangover from the Bush administration, lie squarely on the policy choices made and proposed by the Obama administration.
If you were a decision-maker for a firm with major international operations, would you confidently make investments with Obama’s plan to remove the deferral of taxes on foreign profits, essentially subjecting these profits to double corporate taxation- both in the U.S. and host country? Nope, your capital is probably staying on the sidelines, and with it the fact that growth in international jobs by U.S. companies also tends to grow U.S.-based jobs for those companies
If you’re the owner of a small business, would you feel optimistic enough about future growth to hire more people? Especially considering:
- You have an income tax increase looming, not only from the reversal of the Bush tax cuts, but from all of the proposals to tax “high incomes”. Never mind the fact that your “high income” may very well be pass-through profits from your business (organized as an S-corp., etc.) that don’t result in cash in your pocket today. The tax increase is nothing more than skimming away the capital you might use to re-invest in your business.
- You are facing a potential huge increase in energy costs due to the Cap & Tax energy legislation.
- You are concerned about your workforce being strong-armed into unionization through the removal of the secret ballot to certify unions.
It’s easy to see why these businesses aren’t in a hiring frenzy.
If your company is involved in health care, would you have the confidence and optimism to be making big investments now with pending legislation that looks to many like a back-door nationalization of the health care system? Nope, you’re waiting and hoping the threat of Medicare-like price controls on your product or service will not come to pass.
These are just three examples for many as to why Obama’s policies are exactly what is holding the economy back. He is either unaware of how economic growth is created, or worse, doesn’t care. Perhaps, in making the omelet of a more Hopey and Changey America, a few million jobless are simply the eggs that need to be cracked.