Well, I’ve unlocked the secret of President Obama’s agenda for the economy. It certainly was not easy. But it finally came to me as the President signed the financial regulatory bill in July.
Apparently, the President of the United States, his top advisers, along with the current leadership in Congress, believe that best way to revive the economy, including the labor market, is to create lots of jobs for government regulators. After all, under the current regime of higher taxes and more regulation, it’s hard to figure out how or why private-sector job creation would be invigorated.
How about the following slogan: “Obama-nomics: Taxing and Regulating Our Way to Prosperity”?
No? You’re right. I’m not buying it either. Indeed, no one with a scrap of economic common sense would agree. But somehow, the American people have placed government in the hands of people devoid of any true understanding of how the economy works.
Back in the 1980s, the political Left mocked President Ronald Reagan’s across-the-board tax cuts as “trickle down economics.” But, of course, Reagan’s tax and regulatory relief measures worked, spurring the U.S. economy forward and helping to spread a global tax-cutting revolution. Reagan-omics succeeded because the private market was able to expand.
Now we have President Obama’s “tinkle on economics,” whereby the government deposits poisonous levels of spending, taxes and regulations all around the economy so that entrepreneurship, investment, business, and job creation — instead of growing — stagnate or decline. Under Obama-nomics, government waste crowds out the productive private sector.
Just consider the three “big accomplishments” of the Obama administration thus far.
First, a massive “stimulus plan” for the economy stimulated nothing but government spending. While the recession deepened and job losses mounted long after its passage in February 2009, the resulting historic budget deficits and debt levels threaten huge, destructive tax increases. That is, on top of already-promised tax increases coming at the end of this year.
The second accomplishment was the passage of ObamaCare in March of this year. In addition to various costly tax increases on personal income, pharmaceutical companies, medical device manufacturers, and health insurers, for example, it is heavy with regulation. For example, businesses are mandated to offer health coverage or pay a per-employee tax. Individuals, including the self-employed, are mandated to have health insurance, or, again, pay a tax.
Insurers will be limited in terms of their ability to price risk due to a guaranteed-issue mandate. The very existence of tax-free, consumer-controlled health savings accounts could be in jeopardy depending on how regulators define “acceptable coverage.” For good measure, health insurance exchanges, billed as means for expanding choice and competition, instead will serve as convenient vehicles for government mandates and regulation.
In the end, the only sure outcomes of ObamaCare are increased health care costs and fewer choices in the marketplace, due to government regulation and its accompanying costs.
And third, we have an unprecedented invasion by government into the nation’s financial system. It passed the House of Representatives by 237-192, with only three Republicans onboard. The Senate vote was 60-39, and its passage would not have been possible, given the Senate’s rules, if not for the support of three Republican senators — Olympia Snowe and Susan Collins, both of Maine, and Scott Brown, from Massachusetts. Brown, of course, caused quite a stir winning Ted Kennedy’s old seat in January, but wound up voting the same way the late Kennedy would have on this important issue.
The key problem with the financial regulatory law is twofold. It piles on regulation and bestows enormous power over the economy upon politicians and their appointees. But it does absolutely nothing to fix the foundational problems that caused the housing and credit mess that came to a head in September 2008, and helped create one of the deepest and longest recessions since the Great Depression.
What’s missing? Key policies that created a disconnect between mortgage lending and economic reality — such as Fannie Mae and Freddie Mac — persist as current enormous drains on taxpayers, while lurking as future threats as well. No one really knows what the final taxpayer tab will be for bailing out Fannie and Freddie, but the CBO threw a $400 billion guess-timate out there.
Meanwhile, as for what is included, it’s scary. The legislation has been written so vaguely that regulators will hold enormous sway over, for example, how much credit is available, the cost and terms of credit, the level of risk taking in the financial system, and the number and costs of future bailouts. While the President claims this measure ends taxpayer bailouts, it actually accomplishes just the opposite. Bailouts are institutionalized, with normal bankruptcy rules not applying for many firms. In fact, government regulators can even decide what companies are deemed too big and break them up.
In addition, uncertainty will last for quite some time, as hiring all of the new regulators needed to write the rules of and to govern our financial system will take at least a year. So, banks, other financial institutions, small businesses, consumers and investors will remain in a state of uncertainty, waiting to see the details and timeline for getting hit with increased costs for and reduced access to credit.
Obama’s “tinkle on economics” — good for regulators, bad for the rest of us.
Keating is chief economist for the Small Business and Entrepreneurship Council. He can be reached at firstname.lastname@example.org.