Why small business isn’t hiring, and why the tax credits won’t work. I love this line:
The good news is that, when it comes to reshaping the U.S. mortgage market [any market for that matter — ed.], the Obama administration’s top guns are bringing to bear all of the brisk, rough-’n’-ready entrepreneurial know-how they picked up in their previous careers as university professors, nonprofit activists, and holders of political sinecures.
Sad, but true.
Maybe small business owners are aware that Obama’s tax credit deal is as alterable as Darth Vader’s deal with Lando Calrissian.
Oh, I get it, Alan — it’s cuz Obama, Lando and Darth Vader are all black. Racist!
Small business isnt hiring because out of fear over what further regulations and burdens Obama will levy against them…
The Employee “Free Choice” Act and Obamacare come to mind first…
If you cannot reasonably estimate what employees will cost your enterprise you are going to avoid hiring any more until certainty returns to the equation.
Well, Vader isn’t really black — just charred.
all of the brisk, rough-’n’-ready entrepreneurial know-how they picked up in their previous careers as university professors, nonprofit activists, and holders of political sinecures.
Yes, they’re like the social workers who have no children but know about child rearing because they read it in a book in college.
At least Vader had a brain.
The thing that gets me is, they argue they can’t lower business taxes because they need the revenue. Apparently, so they can spend it all giving government bailouts and incentives to… business.
As a small business owner myself, I agree wholeheartedly with the businessperson quoted in the linked piece:
It’s sales, not budget deficits, or taxes, or anything else that the government has direct control over, that is the big question.
So how do you help sales recover? You borrow a bunch of money, pump it into the economy, and get people spending. The stimulus is working, but it’s much too small.
“The stimulus is working, but it’s much too small.”
The picture that came to mind reading this was a guy with a bucket on the Titanic, furiously scooping out water and shouting “I need a bigger bucket!”
“So how do you help sales recover? You borrow a bunch of money, pump it into the economy, and get people spending. The stimulus is working, but it’s much too small.”
Then you tax the sh#t out of the productive people to pay for it and bring the whole mess down….AGAIN.
Keynes DOESN’T work. Paul Krugman is an idiot. Keep repeating.
Er…Jim, from whom do you borrow it? You have two choices: you can borrow it from the wealthy, who will, of course, then spend less in consumption, driving down your sales, or you can borrow it from future taxpayers via the Chinese, which means you’ve got to go on record about those tax increases (otherwise the Chinese won’t buy your bonds), and what do people do when they know big tax increases are coming down the road? Spend more? Ha ha.
It’s a nice theory, Jim, but it depends on a magical outside agency to lend wealth that simply doesn’t exist. It’s a closed system. You cannot create the wealth out of thin air that would allow you to do this “pump priming.” It has never worked, not once, in the entire history of mankind. It’s the proverbial free lunch, always attractive, always a wild goose chase.
Buying is an act of faith. You trade wealth in your hand for something — a product or service — that you believe will do you good later, after you buy it, and do you more good than anything you might be able to buy a little while from now, holding on to your money. You have to believe in your ability to predict the future, at least a little bit, to buy things.
Government cannot mandate faith, any more than it can command us all to be happy, because government is just force. You can’t force people to be happy, or have faith in the future. The best you can do — the best government can do — is minimally muck with the system itself, be itself very reliable and predictable, and, to the extent it can do so absolutely reliably, try to make the future as predictable as possible.
Which means Obama could probably have his economic recovery and a significant tax increase — if he just made a complete, clear, and absolutely reliable commitment to what it would be. It is in no small part his appearance of incompetence, shifting with the wind, political gamesmanship, and history of breaking promises to everybody and anybody when convenient, that probably makes people think darkly of the future under his (mis)leadership.
from whom do you borrow it?
There’s lots of money out looking for a safe place to sit — if money was hard to come by we wouldn’t have such measly interest rates.
It’s a closed system.
No, it isn’t. Wealth can be created — it’s created all the time. If you have a billion dollars you can put it in a mattress, or lend it out to someone (whether the government or a private borrower) who will put it into the economy. One of these options can create wealth.
Government cannot mandate faith
Fortunately it does not have to — there is robust demand for U.S. government debt, because there is abundant faith in the bond market that it’s the safest debt around. There’s so much domestic demand that we’re borrowing less from abroad than we were before the crisis.
try to make the future as predictable as possible.
That’s a fool’s errand. People don’t care about whether the government is predictable, they want the economy to be predictable, and no government can deliver a predictable economy. Blaming the government for our inability to see into the economic future is childish — it’s blaming the weatherman for the weather.
http://www.powerlineblog.com/archives/2010/02/025520.php
Read it and wake up, Jim
Oh, investors most certainly do care about stable economic policies…
I’ve seen guys like Jim at the much maligned Vegas tables. “C’mon, dude, just loan me the money for one more roll. I’m due for win.”
Face it, Jim. The porkulus failed. Big time. Doubling down on it would just be throwing good money after bad. Keynesianism failed during the Great Depression. It failed in the 70’s. It’s failed every time its been tried. At some point, you have to accept reality. As a smart man once said, doing the same thing over and over again and expecting a different result is the very definition of insanity.
We know what works. It’s worked every time its been tried. Lower the taxes, don’t drive the debt at a faster rate, on average, than we can ever hope to keep up with, and get the government the hell out of the way. Right now, we’re looking at trillion dollar deficits for as far as the eye can see. We can’t grow out of that. Not now way, not no how.
Jim only sells products to the US Government. You can check my Rolodex if you don’t believe me. Leave him alone.
“The picture that came to mind reading this was a guy with a bucket on the Titanic, furiously scooping out water and shouting “I need a bigger bucket!”
– – – – –
Yeah, and if you watch him, he’s scooping water out of his cabin and dumping it in the hall. Figures on just saving himself for now.
There’s abundant faith in government obligations? In the bond market? Uh, no, Jim. There’s so much uncertainty about anything that Obama could possibly snatch away from us that no one is letting their money see the light of day. Who’s going to loan out their stash when Obama could say, tomorrow, “Hey, everybody, let’s forgive all debt owed to us by anyone who has a lower net worth than we have! Or, all debt owed to us by anyone named Sally! Or, all debt that might have to be repaid by one of my supporters, or by a union member, or . . . ”
The rule of law went away when Obama told the holders of the automaker’s bonds that he’d really prefer that they not take them into a courtroom, but that, instead, they should be virtuous and charitable and just walk away from the money so that Obama could make better use of it.
And then he showed them just how strongly he – the president of the US – a guy with his own world-class military, his own justice and his own prison system – felt about wanting to take their money for his own purposes. Must have been impressive, because they mostly did just walk away.
Thata boy, Jim, keep f##king that chicken. Hahahahaha.
“Yeah, and if you watch him, he’s scooping water out of his cabin and dumping it in the hall. Figures on just saving himself for now.”
Best line I’ll read all day.
Jim – “Fortunately it does not have to — there is robust demand for U.S. government debt, because there is abundant faith in the bond market that it’s the safest debt around. There’s so much domestic demand that we’re borrowing less from abroad than we were before the crisis.”
Check out this piece about the “Household sector”, which was the second largest buyer of treasuries last year.
http://barbarous-relic.blogspot.com/2009/12/phantom-buyers-of-treasury-debt.html
Looking at the comments, the “Household Sector” appears to be a “fudge factor” or simply a residual. In any event, until these unidetified buyers can be identified, your assertion that domestic demand is higher is unproven and unprovable.
“Wealth can be created — it’s created all the time.”
and the power to tax is the power to destroy, unlike energy wealth can be created and wealth can be destroyed.
All my life I have heard politicians use the phrase “investments”, when they really mean buying votes. Well, when are those investments paying off? We should have boodles of money flowing in.
If business invest in unproductive assets, they go broke( unless you are friends of Turbo Tax Geithner, or Goldman Sac ). If government ‘invests’ in unproductive activities, it just gets more money.
The best way to get people to spend, is to destroy their savings. That is coming. Have you seen the pre tax return on a CD? And, ( rolling eyes ) they say we have to save more. Please.
Liars, all of them
You’re wrong, Jim, and I know you’re wrong because my company’s small business market is one of the few that are experiencing rising sales right now. Yet they are hoarding cash and they don’t want to buy anything, let alone expand their operations. Frankly, I don’t blame them, they’re just using common sense.
“So how do you help sales recover? You borrow a bunch of money, pump it into the economy, and get people spending. The stimulus is working, but it’s much too small.”
Why not just get the mint to print more money? We’ll all be rich!!!
Seriously, this has as much merit as Beavis and Butthead asking “Why don’t poor people just get credit cards?”
I happen to be unfortunate enough to live in an area inhabited by many professors. When Obama began campaigning the first thing that struck me was that I was hearing the politics of freshman intro to current events and every liberal trope from these halfwits. Obama even has the condescending tone of the MSW down.
In my youth, I watched All in the Family at an overly young age. One dialog that sticks out where Edith is pointing out to Archie that his racism doesn’t keep him from appreciating talent.
Edith: “But Archie, you like Harry Belafonte, and he’s black.”
Archie: “Harry Belafonte is not black. He’s a good looking white guy dipped in caramel.”
Pres. Obama is Adlai Stevenson dipped in caramel.
Check Adlai Stevenson’s wikipedia (I know, I know) page and read what it says about his attitudes and perception among the non-media and non-political classes (i.e., working people). It is eerily applicable to Mr. Obama.
Jim,
Japan did what you recommended in the 90’s and the net result was…nothing, other than a lot of debt. Nothing but more debt is not good. It just sucks up potentially productive capital from businesses who could really use it.
There is also a declining demand for US debt. It’s not selling well at home or abroad and Fed is printing the money to make up the difference.
A much more efficient approach is to drastically cut government spending and drastically cut taxes and regulation. Marginal tax rates are now approaching 50% and that is the highest in the world right now. That is a devastating drag on the economy. Let’s do what Chile and did create a flat tax. Theirs is at 8% and it has taken them from a third world county to a modern and prosperous nation in a generation.
What kind of business are you in?
Jim:
The thing that drives sales growth is demand. Giving a business owner money who has no demand for their products may stay afloat a little longer, but will still ultimately fail (‘pushing on a thread’ as F.A. Hayek once said). I have no doubt that people still want to buy TV’s, computers, cars, microwave ovens, etc. but are not spending the money. They aren’t spending the money because they don’t feel safe in doing so. They don’t feel safe in doing so because they are uncertain as to what the government is going to force them to spend that money on. Things like health insurance they may not want (Obamacare individual mandate), or higher utility and food bills (cap and trade), or for factory produced items due to labor cost increases (card check), etc. Borrowing money and giving it to them to spend will not alleviate their concerns and they will only hoard it to meet these costs (again, pushing on a thread). Only when the government shows the people that it will not saddle them with such costs will they feel safe in spending their money for the things they want, thereby signalling to business owners an increase in demand via sales growth – and this without a ‘stimulus’.
Oh, I get it, Alan — it’s cuz Obama, Lando and Darth Vader are all black.
Actually, Darth is half white and half black – just like Obama 🙂
But seriously folks…as others have pointed out, wealth can be created; finished goods are worth more than the sums of their parts. Banks create fiat money (through lending), but only nominally. The real value of a fiat money supply is determined by aggregate national wealth. An increase in the nominal money supply without an accompanying increase in national wealth does not increase the actual money supply; it debases the currency, causing inflation. (Read Friedman’s Free To Choose.)
Keynesian policy puts the cart before the horse. It creates new nominal money in hopes that the economy will grow faster than it would otherwise. Unfortunately, the government spends a lot of borrowed money on itself – an entity that does not increase wealth (and in some ways subtracts from it). Also, it often subsidizes inefficient private industries; the Export-Import Bank, which funded Enron’s Dabhol power plant debacle in the 1990s, serve as one example.
Every accountant knows that accounts receivable are a liquid asset – part of the money supply. As more and more of financial institutions’ receivables are owed by government, that’s less and less actual money supply that the private sector has access to. If Keynes did not prescribe forever-rising debt, he created the formula that creates political addiction to it.
The point you made on the incompetence of the administration’s financial advisers to deal with the current crisis is correct and well deserved. However, considering the absolutely staggering economic incompetence, idiocy and greed demonstrated by the self-proclaimed geniuses who ran the banks, investment houses and insurance companies (some of whom are now in the administration) that led to all this, it doesn’t comfort me at all if they were running the show instead. They all need to go, to be replaced by individuals much more knowledgeable AND responsible.. The days of buck-passing (both literally and figuratively) are long past.
mac29
“However, considering the absolutely staggering economic incompetence, idiocy and greed demonstrated by the self-proclaimed geniuses who ran the banks, investment houses and insurance companies…”
IMHO, their activities were the inevitable and logical outcome of warped policy decisions on the national level. As long as the Feds are guaranteeing your loans, you are facing a no lose situation in overextending. And, if you don’t do it, your competitors will, so you really have no choice.
Jim parrots the standard liberal retort when the latest loony plan goes awry: “it wasn’t funded properly”. So we should just open up our wallets until the charlatans in this administration get it right, is that it Jim?
I can see why you are, and always will be, a small businessman.
IMHO, their activities were the inevitable and logical outcome of warped policy decisions on the national level. As long as the Feds are guaranteeing your loans, you are facing a no lose situation in overextending. And, if you don’t do it, your competitors will, so you really have no choice.
Add to that government pressure to loan money to people with poor credit histories to avoid being labeled as racists and you compound the problem. Those bad loans were then sold to Fannie and Freddie, backed by the US taxpayers.
Who’s going to loan out their stash when Obama could say, tomorrow…
If people were reluctant to lend to the treasury, treasury bills would pay decent interest. Instead, treasury rates are at historic lows. Investors are talking with their wallets, and what they’re saying is that they trust the government to pay them back (and to keep inflation in check, so that the money they get back is worth more than the money they put in). They don’t have that same faith in the private sector economy.
There is also a declining demand for US debt.
Not so.
unlike energy wealth can be created and wealth can be destroyed.
Yes, and having people sit unemployed, when we could be putting them to work, is wealth being destroyed. Young people entering the workforce this year will have markedly lower lifetime earnings because of the state of the economy today. They will pay for decades for our refusal to put more money into the economy.
http://www.powerlineblog.com/archives/2010/02/025520.php
Read it and wake up, Jim
A good post. Some things to note:
This is the same Douglas Elmendorf whose estimates are dismissed (by other commenters here) whenever they endorse Democratic policies. Now he’s cited to prove that we should care about the deficit. Can we agree that the CBO is the best arbiter of fiscal questions that we have?
This is the director of the same CBO that projects that passing the Senate health care bill would reduce the deficit by nearly a trillion dollars over 20 years. If the deficit is unsustainable, doesn’t that seem like a good thing to do?
PowerLine editorializes that cuts have to come from “Medicare and Social Security, because that’s where the money is.” But in fact defense is larger than either of those. Perhaps a level of military spending that exceeds that of every other country on Earth, combined, is not sustainable?
‘This is the director of the same CBO that projects that passing the Senate health care bill would reduce the deficit by nearly a trillion dollars over 20 years.”
That’s only if the revenue projections are accurate. He has reservations about those. So we would have only a 19 TRILLION dollar deficit instead of 20. Great! (see latest deficit projections)
“This is the same Douglas Elmendorf whose estimates are dismissed (by other commenters here) whenever they endorse Democratic policies.”
As soon as you find where I did that, you’ll have a point with me.
“Perhaps a level of military spending that exceeds that of every other country on Earth, combined, is not sustainable?”
If I’m not mistaken, the unfunded liabilities of MC and SS exceed defense by a factor of 10. Yes, let’s leave China and Russia to defend others. They do so well at it. The UN has proven themselves too.
Yes, clearly the money supply is far too…small.
“Perhaps a level of military spending that exceeds that of every other country on Earth, combined, is not sustainable?”
The entire US military budget is $685.1 billion. How much do you think we can cut? 20%? 50%? 100%? Let’s try 100%. Congratulations. You just reduced the deficit to 1/2 trillion. But, the country was invaded and taken over by the Haitian military. Sic transit gloria patria.
Yes, and having people sit unemployed, when we could be putting them to work, is wealth being destroyed. Young people entering the workforce this year will have markedly lower lifetime earnings because of the state of the economy today. They will pay for decades for our refusal to put more money into the economy.
Shortly before Bush left office, Congress passed TARP to bail out the banks. That was over $700 billion. Obama voted for it. Early last year, the Democrats passed an economic stimulus bill that was close to $800 billion. Funny thing is, they have not spent the money. It’s being used as a massive slush fund. If spending more money was going to improve the economy so much, why are they hoarding several hundred billion dollars while talking about a “jobs bill” (AKA Stimulus, Part II)?
Also, China is getting restive about buying much more of our debt. Last year, it was reported that the government has been printing huge sums of money to buy our own treasuries. That’s setting us up for massive inflation. Smooth. We’re likely to go from a strong country experiencing a recession to a banana republic thanks to the Obama administration using the same economic policies that made Zimbaewae the economic powerhouse it is today.
If I’m not mistaken, the unfunded liabilities of MC and SS exceed defense by a factor of 10.
What a silly comparison. If you want to put it that way, all future defense spending is an unfunded liability. The only reason it isn’t counted as one is that we have the option, at any time, of reducing our defense spending; we just almost never do.
Early last year, the Democrats passed an economic stimulus bill that was close to $800 billion. Funny thing is, they have not spent the money. It’s being used as a massive slush fund.
Where do you get this sort of fantasy information? Recovery.gov will tell you all about where the money has been and is being spent.
Last year, it was reported that the government has been printing huge sums of money to buy our own treasuries.
Crazy talk. The government sells treasuries, it does not buy them.
If you want to put it that way, all future defense spending is an unfunded liability. The only reason it isn’t counted as one is that we have the option, at any time, of reducing our defense spending; we just almost never do.
You display a profound ignorance of the law and accounting. MC and SS are unfunded liabilities because we are legally liable for them, having made it a law that they will be paid into the future. Defense is discretionary, and can be, and is, raised or cut every year by the Congress, and there is no way in the world for anyone to even attempt to project what it will be in the future. It would be monumentally stupid to declare the Pentagon an “unfunded liability.”
Recovery.gov will tell you all about where the money has been and is being spent.
Not with any useful level of accuracy or honesty.
Jim says:
“Where do you get this sort of fantasy information? Recovery.gov will tell you all about where the money has been and is being spent.”
On another board, Jim was arguing that the reason the stimulus hadn’t worked was that it hadn’t yet been spent.
“Crazy talk. The government sells treasuries, it does not buy them.”
Incorrect. The Federal Reserve buys treasuries as the principle means of increasing the money supply.
Rand says:
“MC and SS are unfunded liabilities because we are legally liable for them…”
Moreover, they are going to mushroom in the not-too-distant future, whereas no such marked expansion of defense spending is in the offing. Already, they account for a larger portion of the national budget than defense.
“Recovery.gov will tell you all about where the money has been and is being spent.”
It will also make up new congressional districts. Wishful thinking, I presume.
It will also make up new congressional districts. Wishful thinking, I presume.
Jim seems to be some sort of masochist, to continue to show up here and flaunt his stupidity.