Dear Friends,
It seems to me, from the totalitarian communist to the anarchist, everyone agrees that the US economy is broken. All disagree on the reason or cause, but agreement is uniform, that there is a problem.
If we use the analogy that an economy is like a car engine then the parts of an engine will have their analogs in the economy. Like small business being the pistons, the workers the explosion and money, the air for the engine to work. We can say that the rectified terms, or weights and measures, are the cam shaft, regulating the working. But what does an engine need, to run well, or to run at all… Oil.
Confidence in regulation, costs, market demand, etc are the oil that allows the engine to run. Without these confidences an engine will seize up. The piston dare not ride up and down the cylinder with no confidence it won’t be ripped apart, the cam stops keeping time and the power of labor goes into energy of destruction instead of being used as work. The engine destroys itself. In our little analogy the economic engine destroys itself.
The policies of the Obama administration have in essence drained the oil from our economic engine. The health care reform he passed is so laden with traps for the unwitting small business owner he dares not move until he knows with some certainty what his eventual costs per employee will be. Demonizing the small business owner by using class warfare to raise his taxes is not a good way to restore confidence the system is fair.
Recognize this fact; people do not hurt themselves. When a billionaire tells you he will screw the rich, he is really going to screw you. No one hurts themselves. It is not human. Believe me that the small business owner who labors 80 hours a week, his whole life for his business, will see a substantial tax increase, if the taxes go up due to the sunset. But the billionaire’s taxes will most certainly go down. If you believe otherwise you probably own the Tappan zee bridge too.
Today on Fox News it was stated, several times, that government spending is at a 50 year high while taxation is at a 50 year low… as a percentage of the economy. According to Keynesian economics the economy should be spinning out of control not grinding slowly along like there is no oil in the engine. Government spending this high should result in huge public demand while low taxation should result in huge private demand in the economy, both together, pushing the accelerator to the floor. Yet unemployment is going up and no one even projects economic growth exceeding 3% in the years to come.
If we take John Maynard Keynes to be partially correct, in his demand side economic theory, then with the demand side of the equation so high why is the supply side so slack? Keynesian economics is blind to the reason.
Uncertainty is a killer to the economy. Look at the days of FDR. He was all about random regulation, price freezes, rent control etc. No one knew if they could invest in any business today because government regulation tomorrow could make it unprofitable and you will loose your shirt. All because of uncertainty.
Why would you hire another person even if you really need them? Your embedded costs per employee may skyrocket due to the new Health Care law, Your taxes will certainly go up, You may be looking at runaway inflation due to the monetizing of the debt, coupled with unpredictable regulation and no economy could function properly.
The problem with draining oil from a car engine is that it usually does permanent damage. When the rings encounter the cylinder walls without an oil barrier they weld themselves to it. When business is destroyed by regulation the business owner is reluctant to take chances again. He or she feels they were not in a fair game, the game was rigged… And it was. Discouraging entrepreneurs is a way to permanently damage an economy.
But maybe more regulating food will do the trick…
