Obama Prolongs the Recession with High Food and Gas Prices and anti-Business Policies

Posted by PITHOCRATES - May 27th, 2011

Consumer Spending and Wages are Flat thanks to Inflation

Consumer spending at last shows some growth.  No, wait a minute.  It’s not growth.  It’s only inflation (see April consumer spending shows weak gain by the Associated Press posted 5/27/2011 on the Los Angeles Times).

Consumer spending rose 0.4 percent, reflecting a surge in the category that covers food and gasoline, areas which showed big price gains last month, the Commerce Department reported Friday. Excluding price changes, spending rose a much smaller 0.1 percent.

Incomes rose 0.4 percent but after-tax incomes adjusted for inflation were flat for a second straight month.

Analysts are worried that weak income growth and big gains in gasoline and food prices are leaving consumers with little left to spend on other products. That could dampen economic growth. Consumer spending is closely watched because it accounts for 70 percent of economic activity.

Increased consumer spending is a good thing.  But not when consumers are only paying more for the same stuff.  That’s not new economic activity.  That’s just inflation making life more expensive.  Food and gasoline are the main culprits.  And it’s gasoline that plays a large role in making food more expensive.  Because gasoline is used everywhere in bringing food to our grocery stores.

Worse, Americans are paying more.  But not earning more.  Which leaves less disposable income to stimulate the economy. In other words, the U.S. is still in recession.  And won’t be coming out of it anytime soon.

Still no Recovery in the Housing Market

So we’re still mired in recession.  Of course that means houses should still be cheap.  With low interest rates.  Put the two together and someone should be buying houses at least (see Pending Home Sales Plunge, Reaching Seven-Month Low by Reuters posted 5/27/2011 on CNBC).

Pending sales of existing U.S. homes dropped far more than expected in April to touch a seven-month low, a trade group said on Friday, dealing a blow to hopes of a recovery in the housing market.

Damn.  Housing sales had been the backbone of the U.S. economy.  Because furnishing a house drives so much consumer spending.  The more people that bought houses the better.  So that was U.S. policy.  Putting people into houses.  Which led to the subprime mortgage market.  A housing bubble.  The subprime mortgage crisis.   And a glut of foreclosed homes on the market driving housing prices down further.

It’s a buyer’s market now.  Because so few are buying.  So the economy is not going to get any assistance from the housing market any time soon.

Universal Health Care Ruins Massachusetts First, then the United States

So things are bad.  But can they get any worse?  Are there any new big regulatory compliance or taxes in the pipeline?  Anything that could snuff out even the most anemic of economic recoveries?  As it turns out, yes (see Health Insurance Premiums Continue to Rise Under RomneyCare by Peter Suderman posted 5/27/2011 on reason).

Not only are Masachusetts’ health insurance premiums higher than elsewhere in the U.S. on average, they’ve grown at a faster rate since the adoption of RomneyCare, according to a report released yesterday by the state government. The report, which was published by the state’s Division of Health Care Finance & Policy, notes that for the last two years, private group insurance premiums rose by between five and 10 percent per year despite the fact that the regional consumer price index, which measures inflation on common goods and services, rose by just two percent..

The Obama administration has explicitly stated on numerous occasions that RomneyCare was the model for the federal overhaul. Given the Bay State’s spiraling costs, it seems more and more likely that, thanks to ObamaCare, we can all expect higher health insurance premiums in our future.

So Obamacare is Romneycare at the national level.  So the American people can expect spiraling health care costs and insurance premiums.  That can’t be good for the economy.

Obamacare hasn’t really kicked in yet.  Most of the activity has been by companies seeking waivers to be excluded from the requirements of Obamacare as it places too great a cost burden on their small businesses.  But these are only one-year waivers.  So small business costs will be going up eventually.  When they do in fact comply with Obamacare.  And that will be a great disincentive to hire new employees.  Being that small business is the biggest generator of jobs, Obamacare will further stretch out this recession.  Or make it an even more severe recession.

The Obama Administration would like Gas at $8/Gallon

If only we could get a break on gasoline prices.  That is such a large part of consumer prices that if they went down the economy might tick up.  So the government should focus all of its powers on lowering gas prices (see Obama’s Bad Policy, Harmful Regulations Add to Gas Prices by Darrell Issa posted 5/27/2011 on USNEWS).

From the campaign trail, then Senator Obama spoke of increased electricity prices as a means for advancing his agenda, noting that costs would “necessarily skyrocket.” Energy Secretary Stephen Chu was equally blunt. “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe [currently $8 a gallon],” Mr. Chu announced. Last year, President Obama declared that America must be the nation that leads the “clean energy economy.”

So the plan was to make gasoline prices high all along.  To make gasoline so expensive that the more expensive green energy became cost competitive.  To encourage the American people to choose it.  And by ‘encourage’ I mean force.  Talk about devious. 

Even as compliance costs for traditional and affordable sources of energy rise, the administration’s willingness to promulgate even tighter regulatory controls and raise taxes on oil and gas producers rolls along. In his fiscal year 2012 budget, President Obama requested more than $60 billion in direct tax and fee increases on American energy production over the next 10 years.

Tighter regulatory controls and higher taxes won’t help the economy.  Especially when those controls and taxes are on the one thing that drives most prices.  Gasoline.  It’s almost as if the Obama administration is trying to prolong the greatest recession since the Great Depression.

The Government’s Help is killing Small Business

So how about the man in the street.  Or, rather, a man on an airplane.  Stephen Carter, Yale law professor, sat next to a small business owner on a recent flight.  An actual person.  Not the abstract business people who are trying to cheat the government out of their taxes or take grandma’s medications away.  A flesh and blood real person.  They had an interesting conversation.  About small business.  The greatest generator of American jobs.  And he asked this business owner why he was prolonging the recession by not hiring new employees (see Carter: Economic Stagnation Explained, at 30,000 Feet by Stephen L. Carter posted 5/26/2011 on Bloomberg).

“Because I don’t know how much it will cost,” he explains. “How can I hire new workers today, when I don’t know how much they will cost me tomorrow?”

He’s referring not to wages, but to regulation: He has no way of telling what new rules will go into effect when. His business, although it covers several states, operates on low margins. He can’t afford to take the chance of losing what little profit there is to the next round of regulatory changes. And so he’s hiring nobody until he has some certainty about cost.

One thing business people don’t like is uncertainty.  Because when they screw up they can’t just raise taxes or print money.  They have to deal with real the consequences of bad decisions.  So they are very careful about making costly decisions.  Like hiring people.

“I don’t understand why Washington does this to us,” he resumes. By “us,” he means people who run businesses of less- than-Fortune-500 size. He tells me that it doesn’t much matter which party is in office. Every change of power means a whole new set of rules to which he and those like him must respond. ‘‘I don’t understand,” he continues, “why Washington won’t just get out of our way and let us hire.”

Republican.  Democrat.  It doesn’t matter.  Every time there is a change there are new rules to follow.  And more of that thing they so hate.  Uncertainty.

“I think about retirement a lot,” he says. “But I can’t.” I wait to hear about how much he loves the business he founded, or about his responsibilities to his employees, or perhaps to the town, somewhere in the Dakotas, where his factory is located. Instead, he tells me that it’s impossible to make a sensible decision about winding down his firm when he doesn’t even know from one year to the next what the capital gains rate is going to be.

So it’s just not the Wall Street robber barons affected by the capital gains tax.  The greatest employer, small business, is affected, too.  He is just one of many.  Unable to make decisions like when he can retire.  Does he have enough money to retire?  And pay his capital gains tax?  If not it could be a problem.  Because you just can’t un-retire when you sell or close down a small business if you calculated wrong.  Instead, you’ll be an old guy trying to find a job.

I ask him what, precisely, he thinks is the proper role of government as it relates to business.

“Invisible,” he says. “I know there are things the government has to do. But they need to find a way to do them without people like me having to bump into a new regulation every time we turn a corner.” He reflects for a moment, then finds the analogy he seeks. “Government should act like my assistant, not my boss.”

An assistant doesn’t tell the boss how to run his business.  Because an assistant doesn’t know how to run his boss’ business.  Government bureaucrats aren’t even as knowledgeable as the assistant.  The assistant at least has a job in a business.  Few in Washington have ever run a business.  Let alone had a real job.  Yet here they are constantly trying to tell others how to run their businesses.

On the way to my connection, I ponder. As an academic with an interest in policy, I tend to see businesses as abstractions, fitting into a theory or a data set. Most policy makers do the same. We rarely encounter the simple human face of the less- than-giant businesses we constantly extol. And when they refuse to hire, we would often rather go on television and call them greedy than sit and talk to them about their challenges.

Recessions have complex causes, but, as the man on the aisle reminded me, we do nothing to make things better when the companies on which we rely see Washington as adversary rather than partner.

The best thing Washington can do to help small business?  Stop helping. 

In the Recession Business?

From small business regulation to inflation to the high cost of health care to the high cost of gasoline it would appear that the current administration is actually in the recession business.  Or utterly incompetent.  One almost has to lean towards incompetence.  Because there is an election in 2012.  And making the worst recession since the Great Depression more like the Great Depression can’t possibly help at the polls.  Even if you have compromising photographs of the Republican candidate having a good time with someone that is not his or her spouse.

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