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Why Obamanomics Isn’t Working

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:           

 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.

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Posted in General Commentary | 5 Comments »

5 Responses

  1. Jim Kalen Says:

    People invest when there is a market for goods and services. You seem to think they invest when they think the appropriate ideology is going to be followed. That is plain wingnuttery.

  2. Kevin Says:

    So you think it’s wingnuttery if people take a look at likely future costs/risks and decide that market is just not worth investing in???

  3. J. Ewing Says:

    I’ve always said the most brilliant thing Reagan ever said on the economy was (and I paraphrase), “We’re going to change the tax laws, and then they’re going to stay the same as long as I’m President.” Whether business liked the new tax laws or not, as soon as they were announced businesses could PLAN long-term investments.

    You’ve also explained, but I would add new emphasis, that every dollar the federal government borrows is one dollar of capital that businesses and individuals cannot use to invest and grow the economy. Unless, of course, there is no capital available for government to borrow, in which case they just print up the new money, thereby making EVERY dollar worth less. It’s the “cruelest tax of all.”

  4. Pat Staley Says:

    Two important elements for a market to function correctly are that the players know or are able to know the rules, and the players have confidence the rules will be followed.

    There have been significant impairments to both of the conditions due to the Obama administrations actions.

    There are so many examples of not knowing what he rules are with Cap & Tax, Health Care, Card Check, Financial Reform (which I didn’t even touch on, for brevity sake) all up in the air, and a propensity to pass hundreds-of-pages-long legislation without hearings, debate, or even the ability for members of Congress to read it.

    Add to that the fact that Obama and co have often sought to subvert the rules to their political advantage. This is exactly what they did- to the detroment of secured creditore- in the GM and Chrysler bust-outs.

    This is also exactly what happened with the AIG bonuses- Congress passes and Obama signed a law guaranteeing the bonuses. When the scat hit the fan on their becoming public, Obama & co used public shaming and the threat of worse to score political points at the expense of a few individuals.

    In this environment, very little gets done in the private sector. Uncertainty kills growth, and there is an excess of that emotion raging right now.

  5. J. Ewing Says:

    And as terrible as this situation is for all of us, there is a part of me that worries that the economy WILL turn around before the next election, enough to allow these clowns to claim success and continue their depradations and usurpations against us. The worse it gets for the public, and the more they realize whose “fault” it is, the better chances Republicans have to put a stop to it, and maybe, just maybe, “undo” part of it.