Friday, September 30, 2011

The Problem with Obamanomics

The Obama administration has produced multiple programs aimed at improving the economy and increasing employment. These programs include the stimulus package, bailouts for banks and businesses, short term tax cuts, and tax incentives for companies to hire workers. Unfortunately, unemployment is stuck over nine percent, economic growth remains anemic, and the national debt continues to balloon.  

The jobs bill that the President presented - in full campaign mode - to a joint session of Congress is more of the same: short term payroll tax cuts for workers and businesses, other short term incentive tax cuts and credits for businesses, infrastructure projects and state aid, extension of unemployment benefits, etc. The $447 billion dollar cost is proposed to be covered by tax increases and some decreases in projected spending - all in later years.  In essence, more increase in the deficit now with a hope that we will pay it off later.

The philosophy of the Obama administration’s approach appears to be large government expenditures to stimulate the economy and short term incentives to businesses so that they will hire workers.  Apparently the huge deficit the government currently incurs is not considered stimulatory enough - so even more deficit spending is required.

The plan also treats businesses as wayward children.  Many businesses have the capital to hire, but they are not doing so.  Obama’s solution is to manipulate businesses as some parents attempt to manipulate their children - by bribing them with candy so that they will comply with parental dictates.  

Businesses are not hiring because they do not perceive it as in their interest to do so.  Businesses are not children who do not plan past the next candy bar; businesses attempt to anticipate the future and act in their own perceived best interest.  Right now the future is murky and uncertain. A short term incentive is unlikely to induce businesses to hire employees and incur the associated risks and obligations.

What would incentivize businesses to hire, is a long term plan to reduce future uncertainty and improve the business environment.  The report of the Simpson-Bowles commission I think goes a long way in the right direction.  Personal and corporate taxes have to be reformed.  Now we have the worst tax system - high marginal rates and many loopholes called deductions.  The rates should come down and the deductions eliminated.  A believable plan for long term debt reduction needs to be instituted (learn the lessons of Europe).  While I support universal basic health care, such health care should not be tied to employment and thus serve as a disincentive for hiring.  While I support regulations to protect consumers, the environment and to prevent the financial shenanigans that led to the 2008 collapse – the regulations need to be clear and reasonable.

The Obama administration seems to believe that short term programs will ignite short term changes in business behavior.  I believe the converse is true: instituting needed long term policies will lead to changes in both short term and long term business behavior. 

The failure of the Obama economic plan could lead to a massive Republican victory in 2012.  Such a victory might lead to a better economic result, but I fear might also lead to adoption of devastating, non-evidence-based, government mandated, social policies that will remove reproductive freedoms, discriminate against gays, inject religion into schools and public policy, increase gun violence, and increase the number of citizens who do not have health care. This may be Obama’s lasting legacy.

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