Dear Friends,
It seems to me… Obama care is an economic train wreck. The devastation it’s already done, has lowered the standard of living of the World’s people for generations, let alone the future damage it will do. Since the growth of an economy is an aggregate thing, it piles upon itself, slow economic growth, for whatever reason, lowers the pile that is being piled on as well as the amount that is added… The effect is not only immediate but cumulative and everlasting. This is very bad, if you consider that we have been under this economic malaise, since the recession was claimed to have ended. So, not only are your economic outlooks lowered the well being of your children and grandchildren will be effected… negatively.
Think of this, the Federal Reserve has been printing 85 billion dollars a month for a year. In 12 months that accumulates to a bit over a trillion dollars. Now compare that trillion of printing to our actual GDP growth. The US is an economy that is about 15.7 trillion dollars, (according to the BEA)… at a growth rate of 2% yields annual growth of about 320 billion dollars. In other words, to get 310 billion in annual growth the Federal Reserve is printing, from whole cloth and adding into the economy, over a trillion! That implies a recession loosing 680 billion annually if the printing went away! Moreover, it’s a pathetic return at 1/3 of the money put in! Instead of getting more money out, due to the ability of banks to magnify the money supply, the FED is seeing negative return on their printed money! So… what is happening to that 680 billion? Is there so little business activity the money is setting in the banking system’s reserves, or is it going overseas? Now the question must become, why is it not spent here?
Businesses need to know what their cost structure will be to project future profit or loss. Obama care throws a huge monkey wrench in firm’s ability to predict. The law is thousands of pages long, it’s impossible to know how the bureaucrats will interpret and apply them, heck, they haven’t even written all of them yet, and they have already written tens of thousands of pages of regulation! Therefore, no one knows what they really are, or will be, and obviously how they will effect businesses. Moreover, Obama care is costing firms real money today to hire experts to answer these very unanswerable questions, money that could be better spent investing in labor or productive machinery. The sad part is, until Obama care is implemented, or not, the uncertainty of it will continue to corrode the economy, like acid. If it is implemented the continuing damage to economic growth will be immortalized in entitlement.
The lack of investment in machinery and labor will accumulate. As the demand for labor goes down the price of labor must go down. Meanwhile, Obama care is driving up the cost of doing business so prices must rise else firms will have to lay off or go out of business, further driving down the demand for labor. As people’s wages are driven down by Obama care, and the prices we all have to pay for the goods of society go up, our standard of living must necessarily go down… profoundly. In Complexity Theory this is called a feedback loop. The negative input into the system, is fed back into the system, by the system, in a self sustaining way, thus exaggerating the initial input.
Experts are telling businesses large to small that Obama care is going to hobble them. That is why so many firms and groups, using political favor, have escaped Obama care. The associated paperwork, taxes, and regulations will drive up their costs and lower their efficiency dramatically. No one knows how much… but everyone knows it will be impressive. Since the first responsibility of a business owner is to keep the doors open they will try mightily to do just that. Unfortunately, due to Obama care, they have to limit the hours their employees can work, else they get hit with the most draconian parts of the law, simply to keep the doors open. Small businesses, who have much more limited ability to hire lawyers and experts than large firms, are effected far more than big ones.
Small business is the engine of any economy. Real growth in an economy is organically driven by small startups not giant ones. Entrepreneurs get an idea and they start a business. If that new idea revolutionizes some aspect of business, a new economic cycle is started. Ford did that with the Model T, Gates did that with MSDOS… hydro-fracking and 3D printing are just the newest incarnations of this paradigm. When the environment for small business becomes toxic, as Obama care makes it, the cycle is shut down. Banks won’t loan money to a fly by night who has no useful projections of his or her cost structure. That would be an irresponsible thing to do with depositor’s money. The leviathan bureaucracy of today’s government, a Godzilla that has been expanded dramatically by Obama care, now has the ability to regulate in real time. Thousands of little bureaucrats in their cubicles, dutifully regulating anything they can get their hands on, especially new ideas… undermining economic growth in the process.
The main reason our economy is so wounded is Obama Care, pure and simple. This tragically flawed law stops the entrepreneurial process in it’s tracks. Small businesses are hurt the most… magnifying the effect on real economic growth. Diminished growth, that will be exaggerated over time, as future growth has a smaller base to expand upon. Nothing I have said here is astounding or out of left field, it is economics 101. Any economist will tell you that incentives count. This is a basic law of economics. But, due to the willingness of this administration to use the mechanism of government, for political ends, economists are cowed… one only need look at the way Nial Ferguson was treated. Obama and the democrats have silenced most opposition, and set regulatory incentives against the capitalist mode of production. That is why the republicans must not blink, they must defund Obama care… Not as much for ours, but our children and grandchildren’s economic future depends on it.
Sincerely,
John Pepin
