Tag: small business

Federal Job Creation

The board game Monopoly first took off during the Great Depression. A different game has become popular during today’s Great Recession. In this game, politicians race against high unemployment to create jobs in order to save their own. The players (politicians) have unlimited tax and borrowing authority, and can call upon friendly economists to help them maneuver. The players even get to keep score, although the media can penalize shoddy scorekeeping. Ultimately, voters will decide which players win and lose in the fall elections.

Okay, I’m being facetious. But as politicians continue to throw trillions of dollars at the economy in a vain effort to create jobs, and the media continues to go along with it by obsessing over meaningless job counts, the entire spectacle has become surreal. If government job creation is a game, the losers have been the taxpayers underwriting it, as well as the employers (and their employees) who are closing shop, laying off workers, or not hiring because of uncertainty over what big government schemes will be next.

Two news articles point to this “regime uncertainty” being generated by Washington.

First, the government’s chief technology officer, Aneesh Chopra, received a somewhat hostile reception at the recent Consumer Electronics Show in Las Vegas according to the BBC:

“The government doesn’t spur innovation or entrepreneurship. The government often gets in the way,” said Mr. [Gary] Shapiro, president of the Consumer Electronics Association (CEA) which stages CES.

It [CEA] also had little support for President Obama’s $787 billion stimulus act calling it “panic spending” and warned of the growing federal deficit.

“The government is often a barrier,” said Mr. Shapiro. “High taxes and regulatory bureaucracy are barriers.”

Mr. Chopra’s response was typical of the political-bureaucratic mindset:

He said the US government was planning a summit with a number of chief executives from the “most innovative companies in the country to directly advise us to make government more efficient and more effective”.

Ah, another summit.

In the other article, the CNBC headline says it all: “Many Reluctant to Hire Because of New Taxes, Rules.” The article makes it clear that what businesses don’t need is another orchestrated summit:

The prospect of increased federal and state regulation and taxes has been particularly disruptive to the hiring plans of small- and medium-sized businesses, which have historically generated about two-thirds of the nation’s jobs. “I don’t really see the private sector hiring much in the next few months,” says Brian Bethune, an economist at Global Insight. “For the small-business sector there is just too much uncertainty about what happens beyond 2010.”

In reporting that its small business optimism index fell for the second straight month in December, the National Federation of Independent Business Tuesday said members’ No. 2 reason for not expanding payrolls was the prospect of government policy initiatives…”We’re hearing it more and more from our membership,” says Bill Rys, the NFIB’s tax counsel. “At the federal level, there’s uncertainty about tax rates, health care costs, energy costs. You also have what’s going on at the state and local levels, with new fees and taxes. They’re reluctant to jump back in.”

Unfortunately, instead of heeding the business community’s message, the Obama administration is focusing its energies on tinkering with the game’s scorekeeping. From ABC News:

The Obama administration has taken some heat and mockery for using the nebulous and non-economic term of jobs being “saved or created” by the $787 billion stimulus program.

So it’s gotten rid of it.

In a little-noticed December 18, 2009 memo from Office of Management and Budget director Peter Orszag the Obama administration is changing the way stimulus jobs are counted.

The memo, first noted by ProPublica, says that those receiving stimulus funds no longer have to say whether a job has been saved or created.

“Instead, recipients will more easily and objectively report on jobs funded with Recovery Act dollars,” Orszag wrote.

In other words, if the project is being funded with stimulus dollars – even if the person worked at that company or organization before and will work the same place afterward – that’s a stimulus job.

The American people are rightly growing tired of this nonsense. But it’s important that they understand that the idea of government job creation was flawed from the get-go. The government cannot simply wave a magic wand and create jobs without making private sector jobs disappear at the same time because of higher taxing and borrowing. There is no free lunch with government.

Tuesday Links

Today’s White House ‘Jobs Summit’

Today’s Politico Arena asks:

The WH Jobs Summit: “A little less conversation? A little more action? ( please)”

My response:

Today’s White House “jobs summit” reflects little more, doubtless, than growing administration panic over the political implications of the unemployment picture.  With the 2010 election season looming just ahead, and little prospect that unemployment numbers will soon improve, Democrats feel compelled to “do something” – reflecting their general belief that for nearly every problem there’s a government solution.  Thus, this summit is heavily stacked with proponents of government action.  This morning’s Wall Street Journal tells us, for example, that “AFL-CIO President Richard Trumka is proposing a plan that would extend jobless benefits, send billions in relief to the states, open up credit to small businesses, pour more into infrastructure projects, and bring throngs of new workers onto the federal payroll – at a cost of between $400 billion and $500 billion.”  If Obama falls for that, we’ll be in this recession far beyond the 2010 elections.
 
The main reason we’re in this mess, after all, is because government – from the Fed’s easy money to the Community Reinvestment Act and the policies of Freddy and Fannie – encouraged what amounted to a giant Ponzi scheme.  So what is the administration’s response to this irresponsible behavior?  Why, it’s brainchilds like ”cash for clunkers,” which cost taxpayers $24,000 for each car sold.  Comedians can’t make this stuff up.  It takes big-government thinkers.
 
Americans will start to find jobs not when government pays them to sweep streets or caulk their own homes but when small businesses get back on their feet.  Yet that won’t happen as long as the kinds of taxes and national indebtedness that are inherent in such schemes as ObamaCare hang over our heads.  Milton Friedman put it well:  “No one spends someone else’s money as carefully as he spends his own.”  Yet the very definition of Obamanomics is spending other people’s money.  If he’s truly worried about the looming 2010 elections (and beyond), Mr. Obama should look to the editorial page of this morning’s Wall Street Journal, where he’ll read that in both Westchester and Nassau Counties in New York – New York! – Democratic county executives have just been thrown out of office, and the dominant reason is taxes.  Two more on the unemployment rolls.

Credit Card Act Is Affecting the Job Market

Despite the economic stimulus and various financial bailouts, our economy continues to shed jobs.  One of the reasons for continued job losses is the decline in new hires, especially the lack of new hiring by small business.

As bank analyst Meredith Whitney discusses in the Wall Street Journal [$], all the major credit programs created by Congress and the Federal Reserve have been targeted at big corporations and Wall Street firms.  However, small companies, especially start-ups and partnerships, do not issue bonds in the debt markets, nor do they borrow from Goldman Sachs.  So these firms have been left out in the cold, as federal credit inventions have favored corporate America.

Adding insult to injury is that not only has Washington subsidized credit to large firms, it has taken actions that restrict the credit available to small firms and start-ups.  The prime example of this is the Credit Card Reform Act signed by President Obama in May.

As Whitney reports, “Credit cards are the most common source of liquidity to small businesses, used by 82 percent as a vital portion of their overall funding.”  In restricting the usage of credit cards and reducing the ability to risk-base price, Washington has eliminated the most important source of credit to small business.

Of course, being unable to project their future health care costs, or tax burdens (yes, they are going up, but by how much), many small businesses have either been forced to or chosen to sit on the sidelines of our economy.  Washington needs to recognize that Wall Street and corporate American are not the sum of our economy, if we hope to turn the employment situation around.