Saturday, July 17, 2010
Obama's war on jobs
It is much easier for the government to screw up the economy than to fix it. This is a fact that that President Obama is probably coming to appreciate as he reaches the close of his second year in office. Although Obama almost certainly means well, the effects of his policies are what count. Overall the effect is similar to what would happen if President Obama had declared war on the national economy.
The financial reform legislation passed this week is only the most recent anti-business legislation passed by the Obama Administration. The new law guarantees future bailouts by giving the government the right to seize businesses to prevent their collapse. It also establishes new layers of federal bureaucracy to create new rules for banks and financial companies (with the notable exception of auto finance companies). The new law adds costs of compliance to business and makes credit harder to obtain in the midst of credit crisis while simultaneously failing to address the problem of Fannie Mae and Freddie Mac, the quasi-government entities widely credited as being a root cause of the sub-prime mortgage crisis.
The war on jobs began shortly after Obama took office with the passage of the stimulus package. Obama claimed that the passage of the American Recovery and Reinvestment Act would keep unemployment below 8% (http://www.time.com/time/business/article/0,8599,1910208,00.html). In reality the spending package spurred unemployment to continue rising to the 10% range, where it remains today. In Georgia, the unemployment rate has been even higher than the national average at over 10% (http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LASST13000003).
The number of jobs created by the stimulus is disputed, but the fact is that when stimulus funds run out, so do the stimulus jobs. Jobs created by the $787 billion stimulus reportedly cost an average of $117,933 per job to create (http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1857) while not creating a lasting boon to the economy.
The second assault on the economy was in the form of government interference in the auto industry. The Obama Administration pumped billions of dollars into General Motors and Chrysler in an unsuccessful attempt to prevent the companies from restructuring in bankruptcy. During this process, Obama not only interfered with the control of private companies, he also short-circuited the bankruptcy process and contract law. Obama’s bailout deal placed unions above secured creditors of the companies (http://www.cbsnews.com/stories/2009/05/07/politics/otherpeoplesmoney/main4997900.shtml, http://online.wsj.com/article/SB124109550079373043.html). Ultimately, the Obama Administration even forced the CEOs of both companies out and gained the right to appoint members to the boards (http://www.worldcarfans.com/109050119091/chrysler-bankruptcy-announced-by-obama---ceo-nardelli-to-step-down, http://www.washingtonpost.com/wp-dyn/content/article/2009/03/31/AR2009033101521.html). When the US government arbitrarily usurps contract law, it makes businesses less likely to engage in contracts that they are not sure will be honored. This ultimately costs jobs.
The third assault against the job market was the passage of Obamacare. Like the new finance reform law, Obamacare requires many new costly reports, including the new requirement that businesses issue a 1099 to every business or individual from whom they purchase more than $600 in goods or services (http://money.cnn.com/2010/07/09/smallbusiness/irs_1099_flood/index.htm). Additionally, Obamacare is already health care more expensive to businesses (http://www.businessinsider.com/henry-blodget-obamacare-already-jacking-up-health-insurance-costs-for-businesses-2010-3). As a result, businesses are cutting benefits to workers and hiring as few new employees as possible. Some companies are also considering additional layoffs to cut the new costs.
The next attack on jobs will likely come soon. It could be an attempt to ram through the carbon cap-and-trade tax bill that will dramatically increase energy costs. Hopefully, there will not be time to pass this bill before the election.
More likely, it will come in the form of the expiration of President Bush’s tax cuts. These across-the-board tax cuts that affected all Americans are set to expire at the end of 2010 unless Congress acts. If the cuts expire and taxes increase, it might suck as much as a $1 trillion from an economy that is struggling to recover. In spite of the fact that Democrats usually refer to them as “Bush’s tax cuts for the wealthiest Americans,” taxes were cut for all American and if they expire everyone’s taxes will increase (http://www.smartmoney.com/personal-finance/taxes/how-the-expiring-bush-tax-cuts-affect-you/). There will be less money for consumers to spend and less money for businesses to hire new employees.
One possible cause of these anti-business and anti-job policies is that President Obama doesn’t have a single person in his administration that has ever run a business (http://www.weeklystandard.com/Content/Public/Articles/000/000/016/619dvjlm.asp). They don’t know that their ideas are hurting the job market because they have never run a business. Obama appointees come almost exclusively from government and academic circles. They don’t understand free markets and have no idea what they are doing. The uncertainty derived from sweeping anti-business reforms certainly has a chilling effect on the economy as business owners hunker down to see what will happen next.
July 17, 2010
graur razvan ionut