Friday, July 30, 2010

Obama's consistent Economics Failure

From an op-ed in the Forbes written by Warren Meyer:

My training is not in economics, but in business and management. Perhaps I am biased by my background, which includes 15 years of strategy and planning at large corporations and 10 years running my own business. But my framework for economic growth is a simple one: For growth to occur, someone has to make an investment.

When I use the term “investment,” I am using it rather broadly. Clearly building a new steel mill is an investment. But hiring an additional employee and paying his or her salary ahead of any new revenues is an investment too. Quitting one's job and giving up a regular salary with a large company to start a new business represents an investment as well.

Here is my first law of economic growth: When we encourage more investment, and ensure this investment is being channeled to the most productive uses, growth will follow.

For all the talk about fiscal stimulus and jobs creation at the federal and state level, almost no one in government is doing anything about reducing the roadblocks to investment. For example, millions of people are newly unemployed, and in past recessions a large number of these folks have eschewed looking for a new corporate job and have started businesses of their own. Unfortunately, such prospective entrepreneurs will face a tangle of registration, regulatory and licensing hurdles, many of which have been backed by established businesses that want to avoid just this kind of new competition. Even steps like the extension of unemployment benefits tend to discourage such entrepreneurship by increasing the opportunity cost of working for oneself.

No one in government, that I have heard, has even suggested any sort of regulation holiday as a potential economic stimulus program. In fact, most of the legislative moves at the national level have made private investment less attractive. Business people making investments today have to plan for higher labor, energy and borrowing costs due to a series of 2,000-page pieces of legislation that few if anyone fully understand (or have even read). Capital gains tax reductions will almost certainly expire next year, and most business people who look at looming government deficits have to assume these shortfalls will be closed the same way they always have been closed: With new taxes on the backs of the most productive.

Rather than attempting to make investment easier, almost all government stimulus efforts to date have focused on trying to better optimize how and where investment capital is deployed. The core assumption behind all of these programs is that a few people in government can invest money more productively than the private entities from whom the government took the money.

This is frankly an absurd assumption, something I know from my own experience of trying to make just these sorts of capital allocation decisions, though on a much smaller scale. In various corporate strategic planning and marketing roles, I was in the position for years of helping to make investment decisions in some of America's largest and best-managed corporations.
Read it all.

I think Mr. Meyer is exactly right. The elites in government think they are smarter than a free market, even if they have never actually run a business.

Government needs to get out of the way of business. Regulation is best at stifling innovation, but it is also pretty efficient at stifling the entrepreneurial spirit we need to new business start ups.

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