Part II of Dynamic, Resilient but Not Divine


The Obama Administration will "keep a boot on the neck of BP" - Tony Salazar and Robert Gibbs

TheAMD.com observes that the Administration's stated tactic for controlling BP is broadly representative of the President's treatment of the entire U.S. economy.

Uncertain Times

Economic uncertainty is risk.  Increased risk reduces spending, borrowing and investment, which translates into lower employment and less robust growth.

Economic uncertainty resulting from public policy is a special kind of risk.  The damage from politically motivated ambitions may be more debilitating because it is also arbitrary.  Consumers, businesses, entrepreneurs and investors recoil from political economic uncertainty because it is an unquantifiable,  unhedgeable and unknown risk. 

The only thing more debilitating economically is certainty that the future operating environment will be less favorable than that which exists today. 

"Why would a small business owner hire anyone new if he knows that taxes are going up, health-care costs are sure to rise, and the cost of each new employee is uncertain?" - WSJ - It isn't Working: Three years of spending and monetary stimulus haven't helped jobs - Link

In 19 months Barack Obama has generated more political economic uncertainty than any President certainly since FDR.  Additionally, he has established a set of future business conditions that are less favorable than those which exist today.  This powerful combination of debilitating forces may eventually displace the Housing Market as the U.S. economy's primary affliction.  

The Great Depression's Architect

In my opinion, from an economic perspective FDR is the worst President in American history.  My criteria are:

• The amount of economic damage inflicted by a President's policies during his tenure in office
• The legacy economic damage inflicted by a President's policies after his tenure has expired

On both counts FDR has no equal.  His policies directly created, intensified and lengthened the worst economic downturn this country has experienced.  Furthermore, the institutions he implemented during his reign of economic terror have been negatively and unsustainably distorting the U.S. economy for 70 years.  Today Social Security, Fannie Mae, HUD and the FHA are just a few of FDR's contraptions causing trouble.

FDR eviscerated the U.S. economy with centralized directives which strangled production.  His steady-stream of unconstitutional New Deal mandates whipsawed the economy in unprecedented ways, magnifying uncertainty.  Command economy edicts inhibited the nation's dynamic ability to adjust to deteriorating conditions.

The nation never had a more volatile or intrusive Government than under FDR... nor a weaker economy.

The Ghost of FDR

My singular fear regarding the 2008 election was that the resulting President would use the worst economic downturn since The Great Depression to implement a New Deal agenda which would further inhibit a recovery by sapping the nation's dynamism. 

I have observed that, based solely on his political proclivities, Obama had the potential from an economic perspective to be the second worst President in American history.  (see criteria above)  In fairness, any person with his political values and ambitions placed into office at the exact time in history (relative to a financial crisis and massive, sustained depression) would have the potential to duplicate FDR's economic devastation.

I observe that to date, Obama's policy pursuits have mimicked the ambitions of FDR and, should they be implemented, would have a similarly debilitating economic influence.

The President has pursued initiatives including Cap and Trade, Health Care Reform, Financial Regulatory Reform, the nationalization of the Student Loan Industry, the expansion of housing subsidization through HUD, FHA, Fannie and Freddie, Stimulus Spending, raising the minimum wage, increasing taxes, and accumulating trillions of dollars in debt.  Each of these undertakings has the effect of inhibiting the nation's economic flexibility, competitiveness, capacity for growth and demand for employment.  Yet the ability to adapt, compete, grow and hire employees is the only way the private sector will elevate the economy out of the ongoing malaise.

In short, Barack Obama has his boot on the neck of the U.S. economy.  Despite protestations to the contrary, the President's economic policies are increasingly responsible for the malaise and directly inhibiting a potential recovery.

A Smattering of Real World Implications Resulting from Obama's Boot

Tanning
If you are the owner of a tanning salon you are less likely to hire employees, expand your business or open new locations due to a pending $2.7 billion tax on your industry levied to pay for Health Care.  Today there are 19,000 tanning salons in America.  Whatever growth the industry was experiencing has been stifled, and it would come as no surprise should the number of salons fall over the next 12 months.  These are businesses that employ Americans, and they are being hobbled by arbitrary tax policy and the expansion of unaffordable welfare programs.

Deep Water Drilling
If your expertise is deep water drilling, you are less likely to form a new company dedicated to your chosen profession in an environment where the President has arbitrarily banned your industry from operating.  It matters not that the courts have and will again deem his executive order to be an abuse of power.  The political flagellations alone create volatility, uncertainty and paralyze entrepreneurial undertakings and capital investment within the deep water drilling industry.

The Gulf of Mexico: An Accidental Tragedy Compared to a Political One
Kayne West famously declared that "George W. Bush hates black people".  Is it possible that Barack Obama hates all people living along the Gulf in areas dependent upon the deep water drilling industry for economic prosperity?

The BP oil spill was a disaster, but it was also an accident.  Obama's subsequent ban on deep water drilling, following his expansion of such activities months earlier, was a politically motivated decision which has decimated a coastal economy dependent upon the industry. 

I have not seen such an analysis, but it may be argued that the devastation from Obama's arbitrary ban on deep water drilling is more debilitating economically than BP's oil spill.  It certainly has the potential to be longer-lived.  Gulf industries are recovering, but economic activity dependent on deep water drilling won't recommence until the President arbitrarily decides to allow it.

The Health Insurance Industry
Insurance executives are less likely to create start-ups, or invest capital in growth with Health Care Reform looming.  Congressional mandates as to how insurers must operate will squeeze margins and are likely to put many companies out of business.  This absence of growth and hiring, combined with concerns about the future of the industry are directly contributing to unemployment.

The Student Loan Industry
Much of the student loan industry existed only because of political mandate, making for a peculiar dynamic.  But with the wave of a pen, the Government recently nationalized the industry's entire operations. 

I know one entrepreneur who ran such a company which employed more than 50 people.  Overnight the business was shut down never to return.

Financial Regulatory Reform
The Financial Regulatory Reform Bill contained more than 2,300 pages.  But there is little certainty within the reams of paper as much of the legislation directs other Government agencies to create even more bureaucracy and intrusive regulatory controls.

Health Care Reform
The same dynamic holds for Health Care Reform.  The 2,000 page bill authorizes the creation of more Government which will invent exponentially greater regulation.

...

The sheer volume of intrusive regulations is debilitating.  Financial Regulatory Reform and Health Care Reform have created unheard of uncertainty within more than 30% of the economy. But remarkably neither have established specific policies, goals, restrictions, regulations and costs which will be imposed on private enterprise.

Businesses don't invest capital or hire new employees if they can't decipher what the future will look like.

The Paralyzing Influence of Potentially Strangling Legislation
Cap and Trade and Card Check, while not adopted, remain priorities of the Administration.  Either of these two bills would place incremental operating costs of businesses.  The threat of future incremental cost burdens imposed on private enterprise is sufficient to reduce business formation and capital investment.

Dismal Reality

History has demonstrated that a recession may be transformed into a long-lived Depression if the private sector is burdened sufficiently by public policy which stifles dynamism and innovation.

Today companies have cash but are not investing it.  Businesses are profitable but not hiring new employees.  These entities aren't stupid, they are behaving rationally in a economy threatened by policy proposals that would raise costs, decrease competitiveness and increase taxes.

The real tragedy of the last two years is that the economy could have been progressing towards a sustainable recovery.  Unfettered market forces and American dynamism would have transformed misallocated capital into productive enterprise. 

Housing prices might have fallen to an affordable level.  Instead the Government needs to entice people to buy overvalued properties with subsidized debt.  Without the threat of the largest all-inclusive tax hike in U.S. history, businesses would be forming, investing and hiring.

Almost half-way through the Obama Presidency unemployment is higher and the housing market in worse shape than before the "cure" was implemented.  Economic trends are negative and will continue now that unnecessary, subsidized jobs and deficit-financed GDP gains are evaporating.

The future is not bright, and it is increasingly because Obama has his boot on the neck of the American economy.  It is unlikely that a vibrant recovery will manifest near-term under the crushing weight of the President's political agenda.

The solution to our problems are commonsensical.  They do not derive from more legislation, greater regulation or larger Government.  Sadly, I do not believe beneficial change will be implemented during the next 2 years because our President is an ideologue who doesn't understand the source of this nation's wealth, nor comprehend that his actions are directly impeding its creation.