Free Markets, Free People

stimulus

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Call it crony capitalism or venture socialism, either way, it sucks

And neither have anything in common with real capitalism.   But they do have a tendency to privatize profits while socializing losses.

Examples abound, and unsurprisingly, most come in the “green” industries associated with long-time Democratic fund raisers and Obama supporters.  For instance, one with which we’re all familiar:

The most publicized instance of so-called “crony capitalism”—investing taxpayer dollars in firms tied to political donors—is the failed solar panel company Solyndra. The Fremont, Calif., firm was the first to receive a taxpayer-backed loan guarantee from the Department of Energy (DOE) in September 2009, worth more than $530 million. The funding for the loan was allocated in the controversial stimulus package passed earlier that year.

Obama bundler George Kaiser was a major stakeholder in Solyndra through his Kaiser Family Foundation, and made several trips to the White House in March 2009 to meet with senior administration officials. In July 2009, Kaiser bragged about securing face time with “all the key players in the West Wing of the White House,” as well as his “almost unique advantage” when it came to steering taxpayer funds toward his pet causes.

“There’s never been more money shoved out of the government’s door in world history, and probably never will be again, than in the last few months and in the next 18 months,” Kaiser told members of the Tulsa Rotary Club. “And our selfish parochial goal is to get as much as it for Tulsa and Oklahoma as we possibly can.”

Although things did not pan out for Solyndra—the company filed for bankruptcy in September 2011—Kaiser can expect to see a better return on his investment than American taxpayers. As part of an agreement to restructure Solyndra’s loan agreement in 2010, Obama’s DOE granted priority status to private investors like Kaiser with respect to the first $75 million recovered in the event of the firm’s bankruptcy, a move that many suspect violated federal law.

Taxpayers, meanwhile, are unlikely to recover much of the money invested on their behalf.

Sound familiar (*cough* GM *cough*).  There the bankruptcy laws were tinkered with as well.  And in the case of Solyndra, that isn’t the full extent of the cronyism:

Emails uncovered by Congressional investigators reveal that Solyndra helped secure its $535 million loan guarantee with the help of Steve Spinner, another prominent Obama donor. After bundling more than $500,000 for Obama in 2008, Spinner was named to the White House transition team and later served as “chief strategic operations officer” of the DOE loan program that funded Solyndra.

Here’s the other shoe:

Spinner’s wife Allison worked for a law firm that represented Solyndra and several other green energy outfits that applied for taxpayer funding. Records show that her firm, Wilson Sonsini Goodrich & Rosati, received $2.4 million in federal funds in legal fees associated with Solyndra’s loan application.

Ethical questions?  Conflict of interest?  Bah.  And what in the world is the Federal government doing paying a law firm of an applicant for legal services in relation to their loan application?

Like I said, Solyndra is just one of many examples.  It just happens to be the best known of the bunch.  I would bet you never heard of this little bit of cronyism:

California investment guru John Doerr, for example, has personally contributed more than $170,000 to Democratic campaigns and committees since 2008, and more than $2 million over the past 20 years. His investment firm, Kleiner Perkins Caufield & Byers (KPCB), which lists former Vice President Al Gore as a partner, has given more than $1 million to Democrats since 2005.

An early and outspoken advocate for federal investment in “green” technology, Doerr was named to the president’s Economic Recovery Advisory Board in 2009, where he helped craft the $787 billion stimulus package. Of the 27 companies list in KPCB’s “green-tech” portfolio, 16 received some form of taxpayer support.

And:

Another prominent Obama donor who has benefitted handsomely from the president’s policies is Steve Westly. A frequent guest at White House events and state dinners, Westley served as California co-chair and a National Finance Committee member of Obama’s 2008 campaign and currently sits on the DOE’s Energy Advisory Board.

He has bundled at least $700,000 in campaign donations for Obama since 2008 and personally given about $260,000 to Democratic campaigns and committees since 2007.

Westley’s investment firm, the Westly Group, had a financial stake in four green energy companies that received more than half a billion dollars in federal funding in 2009. The group’s website once touted the firm as being “uniquely positioned” to take advantage of the influx of taxpayer funding in green technology, and currently notes that “To win in the clean technology space, a company must navigate the halls of government.”

Westly has openly acknowledged that knowledge of federal policy is key to investing in green technology. In response to a reporter’s question about which green energy companies he likes to invest in, Westly said: “Who cares what I think. Let’s talk about ‘what does Obama like? Here’s what he likes,’ because here’s where the federal government is putting money. And let me tell you, whatever he likes, that’s what I like.”

Access and a relationship equal profit.  Nice, if you’re an insider, huh?

Here’s something Obama “liked”:

One of the companies Obama “liked” was the Exelon Corporation, a Chicago-based utility and recipient of hundreds of millions of dollars in stimulus funding. One of the most politically connected firms in the country, Exelon employees have made up one of President Obama’s top sources of campaign contributions throughout his career.

Exelon was Obama’s fourth-largest campaign donor when he ran for Senate in 2004, contributing more than $73,000, according to the Center for Responsive Politics. The firm donated $326,000 to Obama’s presidential campaign in 2008. The firm has ties to several top Obama bundlers, as well as to Obama campaign adviser David Axelrod and former White House chief of staff and current Chicago mayor Rahm Emmanuel.

As the Washington Free Beacon reported in June, an Exelon subsidiary was recently awarded a lucrative 20-year contract to install solar panels manufactured by federal inmates on government facilities.

The “Chicago way”. 

Finally, cronyism comes in many forms:

DreamWorks Animation CEO Jeffrey Katzenberg has bundled at least $500,000 for Obama’s reelection campaign, and is the largest contributor to Priorities USA, the Obama-allied Super PAC.

The Securities and Exchange Commission is currently investigating whether DreamWorks made illegal payments to Chinese officials in order to secure exclusive film rights in the communist nation. The New York Times reported that Katzenberg, as well as Vice President Joe Biden, were intimately involved in negotiating an agreement under which China would up its annual quota of foreign-produced films from 20 to 34 and allow studios to keep a greater percentage of box-office revenue.

DreamWorks announced a $2 billion deal with the Chinese government in February to build a production studio in Shanghai just days after Chinese Vice President Xi Jinping held an extensive meeting with Barack Obama in Washington, D.C.

Nice to have the leverage to engage the president and VP in your business pitch, no?  Guess 500K bundles help make that happen.

So, wondering what happened to all the money?  Still perplexed as to what the stimulus was spent on?  Bruce Bartlett knows:

“As of March 31, $452.6 billion of net stimulus funds had been disbursed in ways that show up in the national income accounts. Of this, the vast bulk, $399.7 billion, went for transfer payments. Another $9.6 billion went for subsidies and $68.1 billion for capital transfers to state and local governments. Only $37.8 billion went for consumption and $11.8 billion for investment — the only two categories of outlays that we know add to growth.”

And in the “investment” category, most of that apparently went to cronies.

That’s no way to run a government – an honest government, that is.

~McQ

Twitter: @McQandO

Jobs for June? Not many

But the “official” unemployment rate stayed at 8.2%.  The broader measure of unemployment – includes job seekers as well as those in part-time jobs – inched up from 14.8% to 14.9%.

GDP?  Predictions have been revised down:

Federal Reserve officials last month lowered their economic-growth projections to between 1.9% and 2.4% this year, and forecast the jobless rate would hold between 8.0% and 8.2%.

That’s not a recovery rate by any means (and given how accurate former predictions have been, I wouldn’t count on the unemployment rate staying as low as 8.2%).  But it is the reality of the situation and one that will definitely have an effect on the election.  That is if people are reminded of some promises made by the administration.  You remember these:

 

juneunemployment

 

Can you say “utter failure”?  Of course you can.  As with ObamaCare, the people were sold a bill of goods about the recovery plan.  In fact it ended up being a huge political payoff plan while our leaders told us they were focused like lasers on recovery.  4 years later, here we are.

We were supposed to be at 5.6% now, with the stimulus plan enacted. 

That was the promise.

Of course, this administration has promised all sorts of things it hasn’t delivered, so I’m sure that their failure here doesn’t necessarily come as a surprise to anyone but the media.

Forward.

~McQ

Twitter: @McQandO

The economy: A little graphic context

This chart will blow you away (via James Pethakoukis):

 

032612gapingmaw

 

The NY Fed explains:

The first figure shows how these three labor market variables evolved over the four post-1973 business cycles (excluding the short 1980 cycle), along with developments in the Great Recession and current recovery. We start at the lowest level of the unemployment rate before the recession and then follow the changes for three years after the rate reaches its maximum level. For the current expansion, the maximum unemployment rate occurred in October 2009.

The employment-to-population ratio displays a classic V-shape recession and recovery pattern in the 1970s and 1980s. In the recession and recovery of the early 1990s, however, the employment-to-population ratio instead displays a U shape, only returning to its pre-recession level three years after the peak in the unemployment rate. In the recession and recovery of the early 2000s, neither the participation rate nor the employment-to-population ratio returns to its previous level, so we see an incomplete U-shape pattern.

In the most recent cycle, the employment-to-population ratio traces out an L shape, but the unemployment rate falls because the participation rate declines substantially (a much more gradual decline was expected by many given the aging of the baby boomers); in other words, a larger share of the population is out of the labor force rather than participating and being unemployed.

We’ve seen a lot of happy talk about how well the economy is doing now.  Most of that comes from the media which has about as much of a grasp on the economy and how it works as does the current occupant of the White House.

A look at those four recessionary cycles gives context to the depth of the one we’re currently battling.    If you look closely at the part of the chart depicting our current situation, you realize that while we’ve seemingly bottomed out, the employment-to-population ratio is not rising.   And that, of course, is because of the horrendous drop in the labor force participation.

It points out two things – one that the “official” unemployment rate should be taken with a grain of salt.   And two, that the stimulus had little apparent effect (sorry, but I don’t buy the “it could have been worse” argument.  We have no way of knowing that) if the purpose was to shorten the recessionary cycle and keeping employment below 8%.  It did neither of those things.

Finally, no matter what numbers and happy talk the media and administration throw out there, unemployment and the state of the economy are a very personal things to voters.  Those who remain unemployed certainly aren’t seeing an “improvement” in the economy from where they sit.  And it is from there they’ll make their decision as to who they’ll vote for in November.  All the media smoke and mirrors about the improving economy aren’t likely to sway those who remain unemployed or are underemployed to see it their way.  They’ll, instead, vote the reality of their situation and are unlikely to vote for the candidate who they feel has done little to ameliorate their situation.

~McQ

Twitter: @McQandO

Marcellus shale — a job boom brought to you by drilling, drilling and drilling

This could be happening on federal land as well, if the Obama administration would get out of the way.  The Marcellus shale formation, found in Pennsylvania and New York, is reviving parts of the Rust Belt and providing good paying jobs for the area and much needed energy for the nation.  The article is from the Pittsburg Tribune-Review:

Largely because of energy sector growth, including drilling for gas in Marcellus shale, life is changing for people in Washington County. Its job growth ranked in the top five nationally when federal statistics trackers compared the first and second quarters of 2011 to the year prior.

Butler County, bolstered by Westinghouse Electric Co.’s move from Monroeville, ranked near the top nationally in job and wage growth, according to the U.S. Department of Labor.

The drilling industry has helped people across Pennsylvania, said Kurt Rankin, an economist with PNC Financial Services Group, Downtown.

"It’s like found money," Rankin said. "It does have a secondary spillover effect in that the jobs that are created there are relatively high-paying jobs. That brings an entirely new income base to those counties."

From 2000 to 2007, the state recorded 17,000 to 20,000 workers in mining and logging, Department of Labor records show. That has jumped by more than 50 percent, largely since May 2009. More than 33,000 Pennsylvanians worked in that sector as of November.

MshaleThis is waiting to happen in many areas, but government and environmentalists continue to block much of it, especially on federal lands.  Despite Obama’s claim that “all-of-the-above” is his energy policy, his administration’s actions have hardly enabled this sort of growth in areas controlled by the federal government.  Sen. John Thune outlined the reality of the President’s energy policy and it doesn’t match the President’s rhetoric:

Over the past three years, the president has systematically discouraged new energy exploration and development. His proposed five-year offshore lease plan sharply restricts the sale of leases for energy exploration and bans energy development on 97 percent of the available offshore areas. Since Obama issued his six-month deepwater moratorium in 2010, the number of permits issued for offshore energy development has declined a staggering 40 percent to 50 percent.

As a result of the president’s policies, energy production in Alaska and the Gulf of Mexico is projected to decline. Energy production in Alaska is threatened to such an extent that the future viability of the Trans Alaska Pipeline System, a vital source of domestic oil, is now in question.

The president is also restricting energy production on federal lands. While energy production from federal areas was relatively high in 2010 and 2011, almost all of that production was from leases issued before he entered office. Under the Obama administration, the issuance of new drilling leases and permits to drill on federal lands has declined by 44 percent and 39 percent, respectively.

Is it any wonder that his only fallback position when confronted by higher gasoline prices is to look toward tapping the Strategic Petroleum Reserve (which is not there to help lower gas prices)?

All-of-the-above?  Another myth brought to you by the master of doublespeak.  Remember that when you’re pumping $5 a gallon gasoline this summer.

~McQ

Twitter: @McQandO

Pelosi-math

I think I’ll check, but I’d guess that if you ever looked up the definition of the term “gas bag” you’d be likely find the picture of ex-Speaker of the House Nancy Pelosi next to it. She’s much more illustrative of the term than say some generic bag filled with hot gas.

Her latest:

“But I’ll tell you this,” said Pelosi, “if President Obama and the House congressional Democrats had not acted, we would be at 15 percent unemployment. Again, no consolation to those without a job, but an important point to make."

At her Oct. 6 briefing, Pelosi said: “Without the Recovery Act and accompanying federal interventions, whether from the Fed or ‘Cash for Clunkers’ or other initiatives, this unemployment rate last year at the time of the election would’ve been 14.5 percent, not 9.5 percent.”

Between her and Debbie Wasserman Shultz, you could compile a book length list of the groundless claims they’ve made.  And this is right up there in the top 10 for Pelosi.  Of course she doesn’t cite any basis for this claim but there it is nonetheless.

So what about her numbers?   Well, lets look at the numbers an agency which at least ran some came up with:

A report published by the Congressional Budget Office in August estimated that in the fourth quarter of 2011, the stimulus signed by President Obama in 2009 would have the impact of reducing the national unemployment rate between 0.3 points to 1.1 points from what it otherwise would have been. The report also said that although CBO initially estimated that the stimulus would cost $787 billion, CBO had subsequently increased its estimated cost to $825 billion.

It was on the basis of these numbers that Barack Obama made the claim that spending this money would keep the unemployment rate under 8%.  It went to 9.5% from about 4.8%.  In real math, that’s 4.7 points.  So essentially Pelosi is just adding the two (9.5 and 4.7 and adding a few tenths) to get her "14.5%” number.  There is obviously no backing for this claim.

Oh and cost per job? Well, pick your number but whichever you choose, these were expensive jobs:

According to the CBO report, 600,000 to 2 million people have jobs as of now that were "created or retained" because of the $825 billion stimulus. If the maximum number of 2 million is accepted, that works out to a cost of $412,500 per job. If the minimum number of 600,000 is accepted, that works out to a cost of $1,375,000 per job.

So any way you slice it, expensive.  But back to Pelosi.  Even if you accept the higher number of 2,000,000 and add that into the unemployed while subtracting it from the employed total and divide it out, you come up with roughly 10.5%. Even if you accept the projection’s top end estimate that 2,000,000 more jobs would have gone, you can’t get to her number from there.

Also note the “points” the CBO report claims might have been shaved by the so-called stimulus.  They are nowhere near the 4.7 Pelosi wants you to believe in.

Yeah, I know, typical political nonsense.  I just have to wonder, and the question and her answer are on video at the link, whether anyone in the press even challenged the numbers?  Since she’s used them twice recently, I’d guess not.  Also note her attempt to again blame Bush and the Republicans with her “300 days the Republicans were in power” and claim they did nothing to create jobs at that time.  And then look at the unemployment rate at that time (mentioned above).  Duh.  Again, I doubt that was challenged.

Typical of the “watchdog press” of today I’d say.  And very typical of Nancy Pelosi and the “lets make numbers and claims up out of thin air” crowd.

~McQ

Twitter: @McQandO

Dems double down on government spending in face of stimulus fail

It seems “insanity” has indeed gripped the party of the left.  That is, doing the same thing over and over again and expecting different results:

House Democrats this week have amplified their calls for new spending on infrastructure and other federal projects in the face of May’s discouraging job-creation figures.

Even as Republicans are insisting on "trillions" of dollars in spending cuts, Democrats maintain that a targeted injection of additional federal dollars in the near-term would go a long way toward reversing the hiring slump. Friday’s disappointing job report, they say, only bolsters their case.

I’ll again remind readers that it was the Obama administration and Democrats who said that if we’d give them the almost one trillion dollars in borrowed stimulus money, they’d keep unemployment under 8%.  And, of course, the plan was to spend all that money on “infrastructure and other federal projects”.

Worked real well didn’t it?

Now, with much of every dollar spent still coming from borrowed money, they want to repeat the failure while saddling the economy with even more debt?

It all comes down to what they believe the role of government to be:

"The American people, while concerned about the deficit, place much more emphasis on job creation, and they see a role for the government," Rep. Raul Grijalva (D-Ariz.) told The Hill. "A fast injection of job stimulus on the public side would help tremendously. … It [the job report] helps our argument about investment."  

No.  It wouldn’t “help tremendously”.  If that were the case, the stimulus would have helped “tremendously” and we’d be looking at less than 8% unemployment as promised instead of 9.1%.  But as is obvious to everyone but Democrats, it didn’t help at all.    In fact, considering that 9.1% unemployment rate, it can be argued that things got worse.

That’s because where the government actually could help, it won’t, can’t or isn’t willing to help.   Deregulation, for instance.  Make it easier for businesses to do business and hopefully expand and hire.   They can quit making war on the private sector as well.  The NLRB’s shameless politically motivated attempt to shut down Boeing in South Carolina at the behest of unions.   The seemingly permanent moratorium in the Gulf of Mexico and the slow-walking of the permit process that has crippled domestic oil and gas production and cost thousands of jobs and millions, if not billions, in economic impact.  Cut taxes and leave more in the pockets of both consumers and business.  Cut spending – deeply – and quit borrowing money.

Unfortunately, all that is boring economics and at conflict with the “government is the answer” mindset that is prevalent in Democratic circles:

Rep. Earl Blumenauer (D-Ore.) said that only in Washington is targeted new spending being demonized.

"Once you get outside the Beltway, almost everyone agrees that we should be rebuilding our crumbling infrastructure and investing in clean American energy that reduces our dependence on oil," Blumenauer said.

I have no idea where this guy gets this nonsense, but I live out here and I don’t hear anyone claiming that the solution to our problem lies in “rebuilding our crumbling infrastructure” and “investing in clean American energy”.  Not once have I heard the typical Americans I know ever mention those two options as how government should be responding.

So either Rep. Blumenauer has selective hearing, or he’s making it up on the fly.  Most people I’ve talked too are convinced that government is the problem, not the solution.  That government can contribute to a recovery by getting the heck out of the way, quit throwing road-blocks in front of business, reduce taxes and cut spending and getting its own house in order.

But double down and increase spending on make work and pie-in-the-sky energy projects? 

No, not what I’m hearing.  At all.

~McQ

Twitter: @McQandO

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Deciphering Paul Krugman’s latest message

Get your “Captain Krugman” decoder rings out and follow me through this Paul Krugman piece.

Today the line of attack on what he calls the “Obama-McConnell tax cut deal ” is to put forward the argument that the reason we’re in this mess to begin with is because of the debt carried by American families. Yes, that’s right – you did it, now shut up and take the medicine. Oh and the banks – yes, the banks because they “abandoned any notion of sound lending and because everyone assumed housing prices would never fall”.

Yeah, you guessed it  – not a thing about the Community Reinvestment Act, Congressional pressure on banks to lend to very marginal borrowers or Freddie Mac and Fannie Mae.  It was you, dear citizen … and the banks.  The government?  Sparkly clean by omission.

Anyway, because that debt is so high in relation to income and the families are in the middle of trying to deleverage that debt, they’re not spending much – or as much as is needed to kick start the economy, in Krugman’s opinion (they might if they had more but then that means even deeper tax cuts and Krugman ain’t going there).  And of course there’s that problem with high unemployment to factor in as well.

So, backing into this favorite theme of the past two years (Deficit?  Screw the deficit – spend, spend, spend), what or who should be spending to get the economy going?

Why yes Sparky, he means the government.

What the government should be doing in this situation is spending more while the private sector is spending less, supporting employment while those debts are paid down. And this government spending needs to be sustained: we’re not talking about a brief burst of aid; we’re talking about spending that lasts long enough for households to get their debts back under control. The original Obama stimulus wasn’t just too small; it was also much too short-lived, with much of the positive effect already gone.

It’s true that we’re making progress on deleveraging. Household debt is down to 118 percent of income, and a strong recovery would bring that number down further. But we’re still at least several years from the point at which households will be in good enough shape that the economy no longer needs government support.

But wouldn’t it be expensive to have the government support the economy for years to come? Yes, it would — which is why the stimulus should be done well, getting as much bang for the buck as possible.

Remember that last phrase because that’s the point of the post.  Now, with all of that background, Krugman says that this “Obama McConnell tax cut deal” will provide some stimulus but not the sustained stimulus Krugman says is needed from government.  And that first stimulus was too small – even though it was much larger than Krugman said was necessary at the time.  Nope  a massive stimulus is still needed no matter what we have to do to pump that money out there (even while the Fed is trying to sponge up the multi-trillion dollar spill of cash they tossed out there before):

The point is that while the deal will cost a lot — adding more to federal debt than the original Obama stimulus — it’s likely to get very little bang for the buck. Tax cuts for the wealthy will barely be spent at all; even middle-class tax cuts won’t add much to spending. And the business tax break will, I believe, do hardly anything to spur investment given the excess capacity businesses already have.

This is the point where cognitive dissonance smacks right into the Krugman “reasoning”.  A) he wants a new and much bigger stimulus – that’s no secret.  B) he claims this bit of stimulus (tax cut deal) will “cost” more (deficit) than it will deliver (bang for buck).  C) you can’t be trusted (shades of Clinton) to spend your own money the way the government would (perfectly, of course – properly, with no waste, and at exactly the right time and in the right place – having a coughing fit yet?).

For such a supposedly gifted economist it is like he missed Econ 101 in favor of Propaganda 101.  Either that or he really does believe, in the face of much evidence to the contrary, that a government spending money in a recession always returns “more bang for the buck” than does an individual (millions of individuals) in a market being allowed to keep and spend more of his money.  I am forever at a loss to explain that sort of thinking.

Pushing money out into an economy just to be getting it out there isn’t going to solve our economic problems.   In fact, if government has to be the big consumer of loan money to do so, guess what there’s less of for the private side of things?  Can you say “vicious circle”?And what does Krugman think a pure borrowing-based second stimulus plan is going to do to the debt?  Given the “bang for the buck” we received with the last stimulus, what makes Krugman think this one would be a better deal and superior to letting people keep more of their own money?

What I expect, instead, is that we’ll be having this same conversation all over again in 2012, with unemployment still high and the economy suffering as the good parts of the current deal go away.

The long and short of it is, this about isn’t economics, it’s about politics.  What Krugman wants is anything he can call economic improvement because he knows that Obama and the Democrats are in awful political shape.  His belief is if the Obama administration will quickly pass a huge stimulus and pump money into the economy, things will look somewhat better than they do now and he can make rosy predictions that should help carry the day for Obama’s re-election in 2012.  If it all collapses after that, who cares?  There will be plenty of time to make stuff up on the fly again and, of course variously blame the Republicans, the American people and, of course, the banks for any problems the economy may suffer.

~McQ

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Recession cafe: today serving Obama economic hash

CNN has a story about a bike store owner who has retrenched and is weathering the recession. Contained in the story is the kernel of the economics of the problem we face and how the administration still doesn’t get it.

Here’s the quote:

Both then and now, D’Amour said the chief problem for small business owners is access to financing. And lawmakers want small businesses to know this complaint is reaching Washington.

President Obama urged Congress last week to move forward on a bill designed to help small businesses, including a $30 billion lending fund to loosen credit lines and $12 billion in tax breaks.

That will help but it won’t solve the problem, said Anne Mathias, director of policy research at Concept Captial.

"It’s not going to bring a rush of people into stores to buy whatever it is these different small businesses have to offer, but it will help," she said. "It’ll help kind of at the back end."

Republicans say the bill won’t have much effect and are urging the president to extend the Bush administration’s tax cuts.

Todd McCracken, the president of the National Small Business Association disagrees.

"Putting money in the pockets of both consumers and small business people so they can take advantage of the opportunities when they come along is crucial," McCracken said Sunday morning on State of the Union with Candy Crowley.

Access to financing, although important, isn’t the base problem. Consumption is – or the lack thereof. Additionally, payroll taxes will be going up for everyone in January (a little known part of allowing the Bush tax cuts to expire).

Question: if you are charged – both short term and long term – with getting the economy moving by implementing policies/laws at a national level, how would you go about it?

Well, in the short term you can provide businesses with all the financing in the world, but unless consumption steps up, it doesn’t do anything useful.  Until buyers are buying, businesses won’t be hiring.

So what’s the best way to quickly boost consumption?  Obviously it is to put more money in the hands of consumers.  And one such way to do that is to cut payroll taxes, or, as has been suggested, have a payroll tax holiday.

That, of course, has been rejected by the Obama administration which feels it would “cost” the government to much money.  They’d rather government “cost” the consumer too much money and the consumer stay home as a result one supposes. 

Instead, the administration is proposing a $100 billion “research and development” credit for businesses.  A couple of observations – that’s not a short term fix and not all businesses engage in R&D. 

The point, of course, is the administration is more concerned about the government revenue stream than the economy and it is, as John McCain has said, just “flailing around”.  It is much more concerned with the “cost” incurred by government necessary to actually have some impact on the economy than it is the “cost” it will impose on the tax payer for it’s future multi-year deficit fueled budgets. 

It refuses the other side of tax cuts – spending cuts.  Instead, it simply intends to shift the burden of its profligacy to you.  And these tax cuts are for show only – a way of claiming to do what the GOP wants without really doing much of anything.  When this tiny and piece meal approach fails to get the dead weight of the economy moving, the left will claim to have tried the right’s prescription and that tax cuts didn’t work.

Anyway, the administration plans to “pay” for this tax credit (oh, so now PAYGO is important) by increasing taxes through closing “tax loopholes” for multinational corporations and some energy companies. This, dear friends, is simply another much desired wolf from the liberal agenda in sheep’s clothing.

The National Tax Payer Union points out that those taxes being proposed as “closing loopholes” will actually make our domestic oil and gas business uncompetitive.   It will, for instance, tax all the revenue Chevron earns (both here and overseas) because Chevron is an American based company but won’t do the same to BP (or Venezuela or China) because BP isn’t an American based company.  Unilateral nonsense like that will put Chevron in an unenviable competitive situation.

Make sense?  Especially in times of recession? Can anyone guess what a Chevron may decide to do (hello Toronto, any office space to lease up there?).  And, of course, the taxes in question will be passed along to the hard pressed consumer with increased prices.  That’ll spur increased consumption, won’t it?

The rest of the proposed economic package is the usual failed stuff – increased infrastructure spending.  The only laudable portion of the package is the proposed extension of the middle class portion of the Bush tax cuts.  But again – that doesn’t put more cash in the pockets of consumers, it simply maintains the status quo.

But the “rich” – tough noogies.  You may have seen administration flunkies out pushing the canard that the tax will only effect 3% of the small businesses out there.   The Wall Street Journal blows that bit of spin out of the water – first by explaining the smoke and mirrors the administration used to produce that number and then pointing out what the number really is:

According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007.

So, the proposal by the administration to get the economy moving is maintain the status quo taxes on the middle class (no immediate impact), provide a limited benefit (at best a long term impact) cut to some business in the area of research and development, more infrastructure spending (long term because of the government project process), an increase in taxes on American oil and gas companies (immediate negative impact) and an increase in taxes for 48% of the small businesses in America (immediate negative impact).

If that’s not a bad tasting hash of ideas, I’m not sure what to call it.  And yeah, you can bet your bottom dollar it will get the economy moving.

Excuse my sarcasm, but obviously this is “rocket science” to the administration, and they’re totally baffled by it.  Someone, anyone, tell me why the GOP should support this?

~McQ

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Stimulus spin

This is being pointed to as a validation of the “stimulus” plan:

The oft-criticized stimulus plan boosted the economy in the second quarter by as much as 4.5%, the Congressional Budget Office said on Tuesday.

In a report published the same day as Minority Leader John Boehner’s criticism of President Obama’s economic policy, the CBO said the stimulus law boosted the economy by between 1.7% and 4.5%, lowered the unemployment rate by between 0.7 percentage points and 1.8 percentage points and increased the number of people employed by between 1.4 million and 3.3 million.

Of course it boosted the GDP by a sizeable amount.  When you pour almost a trillion dollars out of the government bucket and that is part of the calculation of GDP, then naturally the GDP is going to be “boosted”.

The question is, what good did it do.  Claims of “increasing the number of people employed” is, as is obvious, a guess cranked out by an economic model. 

But look around you.  When what the bucket has dumped out drains away, what do we have?

9.5% unemployment – at least at an official level – 1.5% higher than what was promised if the “stimulus” wasn’t passed.

A stagnant economy. 

Businesses neither expanding nor hiring.

Car sales – down.

Housing sales – way down.

Consumer confidence – in the tank.

Expanded regulation, increased taxation and a war on business.

Policies that have been described as an “economic Katrina.”

So let the left and the media try their best to make this more than it is – the effect on GDP calculation that absurd levels of governmental deficit spending will have.

Take that out and there isn’t much to shout about, is there?

In practice, that means the stimulus plan is the main reason the U.S. economy grew during the second quarter. The Commerce Department estimates the economy grew 2.4% in the second quarter, a figure most economists expect to be sharply revised lower in a report due Friday.

Uh, no, there isn’t.

One last little point:

The CBO also upwardly raised the cost of the stimulus plan to $814 billion from $787 billion.

Nice.

~McQ

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