Free Markets, Free People


Health Insurance Tax – another governmental attack on small business

So a day or so ago, I talk about how regulation and government intrusion is helping to kill entrepreneurship and, as a result, small businesses. The same problem, as we all know, is also exacerbating the unemployment picture.  A prime example?  That odious law known as ObamaCare.

The US Chamber of Commerce blog has this chart for us to peruse. It is all about the recently implemented “Health Insurance Tax”, aka “HIT”: As this awful law continues to be implemented when it is politically convenient for the Democrats, we see even more disaster lurking for those who are employed and actually “like their insurance and like their doctor”.  But HIT is already taking a toll.

The National Federation of Independent Business’ Research Foundation estimates that the Health Insurance Tax (HIT) will result in a reduction in private sector employment of 152,000 to 286,000 jobs by 2023, with 57 percent of the job losses coming from small businesses. This will amount to a reduction of U.S. real output (sales) by between $20 billion to $33 billion during the same time frame.

Just what we need – another “hit” to employment and a “hit” to GDP. But it is clear the Democrats don’t really care about that.  As one of our low information commenters is want to say “a few eggs must be broken” to make an omelet … or something. Any inanity will do when it is clear that a law is a bust and a failure. As the Chamber of Commerce blog notes:

The HIT, which went into effect on January 1, 2014, levies a tax on health plans sold on the fully-insured market. Eighty-eight percent of it is made up of small businesses. Revenue from the tax will rise by 41% in 2015 and reach $14.3 billion in 2018.

“Small businesses are crucial to rebuilding an economy that allows all Americans to prosper,” Katie Mahoney, Executive Director of Health Policy at the U.S. Chamber said. “We need to work to find ways to ensure small businesses and their employees have the tools to build on their current success, not hinder future growth.”

You’d think what she says would be fairly common knowledge, but apparently the deluded administration that runs this country thinks we’re coming out of the economic malaise it has worked so hard to keep in place, and thus its time for another little shot to the head of small business.

With the HIT – mission accomplished.


Economic Statistics for 8 May 14

Those chain stores that still report monthly sales showed exceptionally good April sales, helped by warmer weather and a late Easter.

Weekly initial jobless claims fell 26,000 to 319,000. The 4-week average rose 4,7540 to 324,750. Continuing claims fell 76,000 to 2.685 million.

The Bloomberg Consumer Comfort Index fell -0.8 points to 37.1 in the latest week.

The Fed’s balance sheet rose $7.1 billion last week, with total assets of $4.303 trillion. Total reserve bank credit rose by $5.6 billion.

The Fed reports that M2 money supply rose $51.2 billion in the latest week.

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Economic Statistics for 7 May 14

The MBA reports that mortgage applications rose 5.3% last week. Purchases rose 9.0% and re-fis 2.0%.

Gallup’s Job Creation Index rose 2 points to 25 in April.

Non-farm productivity fell a sharp -1.7% annualized in the 1st Quarter of 2014 while unit labor costs rose 4.2%. Weather distortions are being blamed. On a year-over-year basis, productivity is up 1.4%.

The JP Morgan Global Composite PMI fell -0.7 points to 52.8 in April. The Global Services PMI fell -0.8 points to 52.7.

Consumer credit expanded by a sharp $17.5 billion in March, but it’s mainly in non-revolving credit.

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Slowly killing the Golden Goose

You all know the nursery story about the Golden Goose.  Well, as we head into “Recovery Summer V” with no real recovery in sight, subject to false unemployment numbers and pitiful quarterly GDP earnings, it might be useful to look at something else that is likely a factor in all of this:

Business dynamism is the process by which firms continually are born, fail, expand, and contract, as some jobs are created, others are destroyed, and others still are turned over. Research has firmly established that this dynamic process is vital to productivity and sustained economic growth. Entrepreneurs play a critical role in this process, and in net job creation.

And all of that is a function of what?

That evil thing called “capitalism”.  Yup, evil capitalism encourages entrepreneurship and through that cycle, we see the market at work – creating profit, which creates jobs, which expands businesses and creates more of them and more jobs and more wealth and … etc., etc., etc.  It is that repeating cycle that has, at least till recently, gotten us where we are in terms of wealth and power as a nation.

Not government.  Government is a net leech.  It sucks the blood out of productivity in the form of taxes.  But government also plays another role – as a regulator. Most look at that as a necessary evil.  But most governments always go overboard with their regulatory regimes and end up making it harder and harder for entrepreneurs  to do what they do best.  The Brookings institute has taken a look at this and found that over the past few decades, the entreprenurerial role has declined and, as a result, we have, for the first time, seen more businesses exiting the economy than entering it:

Now Brookings tries to stay claim this can be reversed, even though it is such a widespread trend it should alarm us all.

In fact, we show that dynamism has declined in all fifty states and in all but a handful of the more than three hundred and sixty U.S. metropolitan areas during the last three decades. Moreover, the performance of business dynamism across the states and metros has become increasingly similar over time. In other words, the national decline in business dynamism has been a widely shared experience.

While the reasons explaining this decline are still unknown, if it persists, it implies a continuation of slow growth for the indefinite future, unless for equally unknown reasons or by virtue of entrepreneurship enhancing policies (such as liberalized entry of high-skilled immigrants), these trends are reversed.

Note the oblique way Brookings points to government, but nevertheless identifies the problem.  The phrase is “entrepreneurship enhancing policies”.  And what would that look like?  Well Brookings thinks liberalizing entry of high-skilled immigrants might to the trick.  I, on the other hand, think a thorough review of the regulatory regime and revocation of all unnecessary regulations along with those found to punish or hinder entrepreneurship would have a much speedier and positive effect than the Brookings suggestion.

Certainly, we know why there was a precipitous drop in 2008, but again, what has the government, in terms of policy, done to ease the situation?  Nada.  Nothing.  Except play a little crony capitalism (i.e. pick winners and losers) in the green energy game.  And, of course, most of their “winners” have gone belly up.

As a consequence of this refusal to consider steps concerning rolling back regulations (and, instead heaping even more on the books), we see the trend get worse on both the entry and exit levels.

Entrepreneurship IS the “Golden Goose” of capitalism.  One of the big reasons our economy continues to lag badly can be found in the chart above.  And what has this administration done in 5 plus years to address this problem?  Well, to be honest, it’s done more to exacerbate it that help it. Thus the Golden Goose on life support.

All hands prepare for “Recovery Summer VI”.  And VII.  And VIII …


Economic Statistics for 1 May 14

April auto sales cooled slightly, to an annual pace of 16.0 million vice March’s 16.4 million.

Challenger’s layoff count rose to 40,298 in April from 34,399 in March, led by layoffs in the retail sector.

Weekly initial jobless claims rose 16,000 to 344,000. The 4-week average rose 3,250 to 320,000. Continuing claims rose 97,000 to 2.771 million.

Personal income rose 0.5% in March, while personal spending increased by 0.9% The PCE price index rose 0.2% at both the headline and core level. On a year-over-year basis, personal income rose 3.4% while spending rose 4.0%. The PCE price index rose 1.1%, and 1.2% ex-food and -energy.

Markit’s final PMI Manufacturing Index for April fell 0.1 points to 55.4.

The Bloomberg Consumer Comfort Index plummeted from -25.4 to -37.9 in the latest week.

The ISM manufacturing composite index rose 1.4 points to 54.9 in April.

Construction spending in March rose a less-than-expected 0.2%, an increase of 8.4% from March 2013.

The Fed’s balance sheet fell $-0.3 billion last week, with total assets of $4.296 trillion. Total reserve bank credit rose by $4.6 billion.

The Fed reports that M2 money supply fell by $-25.8 billion in the latest week.

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Economic Statistics for 30 Apr 14

Real economic growth slowed to an annualized 0.1% in the 1st Quarter of 2014, well short of expectations. The GDP Price Index rose an annualized 1.3%. The ongoing sub-par economic growth we predicted in 2009 continues into its fifth year. As of yet, we have experienced no real recovery from the economic crash that began in October, 2008.

The Employment Cost Index hit a record low increase of 0.3% for 1Q 2014, a level only seen twice before in the 32 years of this index. On a year-over-year basis, the index is up 1.8%.

The Chicago Purchasing Managers Index made a big jump in April to 63.0 from 55.9 in March.

The MBA reports that mortgage applications plummeted -5.9% last week. Purchases fell -4.0% and re-fis -7.0%.

The Federal Open Markets Committee left interest rates unchanged today, with a Federal Funds Rate Target Level of 0% to 0.25%.

ADP’s estimate for private payroll growth in April is for 220,000 net new jobs.

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Economic Statistics for 29 Apr 14

The State Street Investor Confidence Index fell -4 points to 119 in April.

ICSC-Goldman reports weekly retail sales jumped 1.6% for the week, and were up 3.1% on a year-over-year basis. Redbook reports an 3.8% increase in retail sales over last year.

The S&P/Case-Shiller home price index rose 0.8% in February.

The Conference Board’s Consumer Confidence index was unchanged at 82.3 for April.

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