$1.86 Gas Means Economy Collapsing?

Last night in the second debate, President Obama said that the reason we had $186 gasoline in 2009 when he took office, and not now, is that the economy was collapsing then.

Yes, in the land of Obama's Bizarro School of Economics cheaper fuel does not mean lower costs for consumers, lower costs for travel and more tourism, lowers costs of consumer and commercial goods.  No.  It means the economy is collapsing.

Obama wants you to pay higher gasoline costs, because in his bizarro land, it means the economy is strong ...  as it has been the last three-plus years when unemployment exceeded 8%.

Was he lying?  Or just too economically ignorant to be or remain President or the United States?

You decide.

What Clint Eastwood Should Have Said

How The government Can Help Job Creation: Get Out of the Way!

The following written testimony was entered into the record of the House of Representatives Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending hearing.

How the Government Can Create Jobs
September 13, 2011

Mr. Chairman, Mr. Ranking member, and all distinguished members of this panel. Thank you for inviting me here today to offer my opinions as to how the government can help the American economy recover from the worst crisis in living memory.

Despite the understandable human tendency to help others, government spending cannot be a net creator of jobs. Indeed many efforts currently under consideration by the Administration and Congress will actively destroy jobs. These initiatives must stop. While it is easy to see how a deficit-financed government program can lead to the creation of a specific job, it is much harder to see how other jobs are destroyed by the diversion of capital and resources. It is also difficult to see how the bigger budget deficits sap the economy of vitality, destroying jobs in the process.

In a free market jobs are created by profit seeking businesses with access to capital. Unfortunately Government taxes and regulation diminish profits, and deficit spending and artificially low interest rates inhibit capital formation. As a result unemployment remains high, and will likely continue to rise until policies are reversed.

It is my belief that a dollar of deficit spending does more damage to job creation than a dollar of taxes. That is because taxes (particularly those targeting the middle or lower income groups) have their greatest impact on spending, while deficits more directly impact savings and investment. Contrary to the beliefs held by many professional economists spending does not make an economy grow. Savings and investment are far more determinative. Any program that diverts capital into consumption and away from savings and investment will diminish future economic growth and job creation.

Creating jobs is easy for government, but all jobs are not equal. Paying people to dig ditches and fill them up does society no good. On balance these “jobs” diminish the economy by wasting scarce land, labor and capital. We do not want jobs for the sake of work, but for the goods and services they produce. As it has a printing press, the government could mandate employment for all, as did the Soviet Union. But if these jobs are not productive, and government jobs rarely are, society is no better for it.

This is also true of the much vaunted “infrastructure spending.” Any funds directed toward infrastructure deprive the economy of resources that might otherwise have funded projects that the market determines have greater economic value. Infrastructure can improve an economy in the log-run, but only if the investments succeeds in raising productivity more than the cost of the project itself. In the interim, infrastructure costs are burdens that an economy must bear, not a means in themselves.

Unfortunately our economy is so weak and indebted that we simply cannot currently afford many of these projects. The labor and other resources that would be diverted to finance them are badly needed elsewhere.

Although it was labeled and hyped as a “jobs plan,” the new $447 billion initiative announced last night by President Obama is merely another government stimulus program in disguise. Like all previous stimuli that have been injected into the economy over the past three years, this round of borrowing and spending will act as an economic sedative rather than a stimulant. I am convinced that a year from now there will be even more unemployed Americans than there are today, likely resulting in additional deficit financed stimulus that will again make the situation worse.

The president asserted that the spending in the plan will be “paid for” and will not add to the deficit. Conveniently, he offered no details about how this will be achieved. Most likely he will make non-binding suggestions that future congresses “pay” for this spending by cutting budgets five to ten years in the future. In the meantime money to fund the stimulus has to come from someplace. Either the government will borrow it legitimately from private sources, or the Federal Reserve will print. Either way, the adverse consequences will damage economic growth and job creation, and lower the living standards of Americans.

There can be no doubt that some jobs will in fact be created by this plan. However, it is much more difficult to identify the jobs that it destroys or prevents from coming into existence. Here’s a case in point: the $4,000 tax credit for hiring new workers who have been unemployed for six months or more. The subsidy may make little difference in effecting the high end of the job market, but it really could make an impact on minimum wage jobs where rather than expanding employment it will merely increase turnover.

Since an employer need only hire a worker for 6 months to get the credit, for a full time employee, the credit effectively reduces the $7.25 minimum wage (from the employer’s perspective) to only $3.40 per hour for a six-month hire. While minimum wage jobs would certainly offer no enticement to those collecting unemployment benefits, the lower effective rate may create some opportunities for teenagers and some low skilled individuals whose unemployment benefits have expired. However, most of these jobs will end after six months so employers can replace those workers with others to get an additional tax credit.

Of course the numbers get even more compelling for employers to provide returning veterans with temporary minimum wage jobs, as the higher $5,600 tax credit effectively reduces the minimum wage to only $1.87 per hour. If an employer hires a “wounded warrior”, the tax credit is $9,600 which effectively reduces the six-month minimum wage by $9.23 to negative $1.98 per hour. This will encourage employers to hire a “wounded warrior” even if there is nothing for the employee to do. Such an incentive may encourage such individuals to acquire multiple no-show jobs form numerous employers. As absurd as this sounds, history has shown that when government created incentives, the public will twist themselves into pretzels to qualify for the benefit.

The plan creates incentives for employers to replace current minimum wage workers with new workers just to get the tax credit. Low skill workers are the easiest to replace as training costs are minimal. The laid off workers can collect unemployment for six months and then be hired back in a manner that allows the employer to claim the credit. The only problem is that the former worker may prefer collecting extended unemployment benefits to working for the minimum wage!

The $4,000 credit for hiring the unemployed as well as the explicit penalties for discriminating against the long-term unemployed will result in a situation where employers will be far more likely to interview and hire applicants who have been unemployed for just under six months. Under the law, employers would be wise to refuse to interview anyone who has been unemployed for more than six months, as any subsequent decision not to hire could be met with a lawsuit. However, to get the tax credit they would be incentivized to interview applicants who have been unemployed for just under six months. If they are never hired there can be no risk of a lawsuit, but if they are hired, the start date can be planned to qualify for the credit.

The result will simply create classes of winners (those unemployed for four or five months) and losers (the newly unemployed and the long term unemployed). Ironically, the law banning discrimination against long-term unemployed will make it much harder for such individuals to find jobs.

At present, I am beginning to feel that over regulation of business and employment, and an overly complex and punitive tax code is currently a bigger impediment to job growth than is our horrific fiscal and monetary policies. As a business owner I know that reckless government policy can cause no end of unintended consequences.

As I see it, here are the biggest obstacles preventing job growth:

1. Monetary policy

Interest rates are much too low. Cheap money produced both the stock market and real estate bubbles, and is currently facilitating a bubble in government debt. When this bubble bursts the repercussions will dwarf the shock produced by the financial crisis of 2008. Interest rates must be raised to bring on a badly needed restructuring of our economy. No doubt an environment of higher rates will cause short-term pain. But we need to move from a “borrow and spend” economy to a “save and produce” economy. This cannot be done with ultra-low interest rates. In the short-term GNP will need to contract. There will be a pickup in transitory unemployment. Real estate and stock prices will fall. Many banks will fail. There will be more foreclosures. Government spending will have to be slashed. Entitlements will have to be cut. Many voters will be angry. But such an environment will lay the foundation upon which a real recovery can be built.

The government must allow our bubble economy to fully deflate. Asset prices, wages, and spending must fall, interest rates, production, and savings must rise. Resources, including labor, must be reallocated away from certain sectors, such as government, services, finance, health care, and educations, and be allowed to into manufacturing, mining, oil and gas, agriculture, and other goods producing fields. We will never borrow and spend our way out of a crisis caused by too much borrowing and spending. The only way out is to reverse course.

2. Fiscal policy

To create conditions that foster growth, the government should balance the budget with major cuts in government spending, severely reform and simplify the tax code. It would be preferable if all corporate and personal taxes could be replaces by a national sales tax. Our current tax system discourages the activities that we need most: hard work, production, savings, investment, and risk taking. Instead it incentivizes consumption and debt. We should tax people when they spend their wealth, not when they create it. High marginal income tax rates inflict major damage to job creation, as the tax is generally paid out of money that otherwise would have been used to finance capital investment and job creation.

3. Regulation

Regulations have substantially increased the costs and risks associated with job creation. Employers are subjected to all sorts of onerous regulations, taxes, and legal liability. The act of becoming an employer should be made as easy as possible. Instead we have made it more difficult. In fact, among small business owners, limiting the number of employees is generally a goal. This is not a consequence of the market, but of a rational desire on the part of business owners to limit their cost and legal liabilities. They would prefer to hire workers, but these added burdens make it preferable to seek out alternatives.

In my own business, securities regulations have prohibited me from hiring brokers for more than three years. I was even fined fifteen thousand dollar expressly for hiring too many brokers in 2008. In the process I incurred more than $500,000 in legal bills to mitigate a more severe regulatory outcome as a result of hiring too many workers. I have also been prohibited from opening up additional offices. I had a major expansion plan that would have resulted in my creating hundreds of additional jobs. Regulations have forced me to put those jobs on hold.

In addition, the added cost of security regulations have forced me to create an offshore brokerage firm to handle foreign accounts that are now too expensive to handle from the United States. Revenue and jobs that would have been created in the U.S. are now being created abroad instead. In addition, I am moving several asset management jobs from Newport Beach, California to Singapore.

As Congress turns up the heat, more of my capital will continue to be diverted to my foreign companies, creating jobs and tax revenues abroad rather than in the United States.

To encourage real and lasting job growth the best thing the government can do is to make it as easy as possible for business to hire and employ people. This means cutting down on workplace regulations. It also means eliminating the punitive aspects of employment law that cause employers to think twice about hiring. To be blunt, the easier employees are to fire, the higher the likelihood they will be hired. Some steps Congress could take now include:

a. Abolish the Federal Minimum Wage

Minimum wages have never raised the wages of anyone and simply draw an arbitrary line that separates the employable from the unemployable. Just like prices, wages are determined by supply and demand. The demand for workers is a function of how much productivity a worker can produce. Setting the wage at $7.25 simply means that only those workers who can produce goods and services that create more than $7.25 (plus all additional payroll associated costs) per hour are eligible for jobs. Those who can’t, become permanently unemployable. The artificial limits encourage employers to look to minimize hires and to automate wherever possible.

By putting many low skill workers (such as teenagers) below the line, the minimum wage prevents crucial on the job training, which could provide workers with the experience and skills needed to earn higher wages.

b. Repeal all Federal workplace anti-discrimination Laws

One of the reasons unemployment is so high among minorities is that business owners (particularly small business) are wary of legal liability associated with various categories of protected minorities. The fear of litigation, and the costly judgments that can ensue, are real. Given that it is nearly impossible for an employer to control all the aspects of the workplace environment, litigation risk is a tangible consideration. Given all the legal avenues afforded by legislation, minority employees are much more likely to sue employers. To avoid this, some employers simply look to avoid this outcome by sticking with less risky employee categories. It is not racism that causes this discrimination, but a rational desire to mitigate liability. The reality is that a true free market would punish employers that discriminate based on race or other criteria irrelevant to job performance. That is because businesses that hire based strictly on merit would have a competitive advantage. Anti-discrimination laws titled the advantage to those who discriminate.

c. Repeal all laws mandating employment terms such as work place conditions, over-time, benefits, leave, medical benefits, etc.

Employment is a voluntary relationship between two parties. The more room the parties have to negotiate and agree on their own terms, the more likely a job will be created. Rules imposed from the top create inefficiencies that limit employment opportunities. Employee benefits are a cost of employment, and high value employees have all the bargaining power they need to extract benefits from employers. They are free to search for the best benefits they can get just as they search for the best wages.

Companies that do not offer benefits will lose employees to companies that do. Just as employees are free to leave companies at will, so too should employers be free to terminate an employee without fear of costly repercussions. Individuals should not gain rights because they are employees, and individuals should not lose rights because they become employers.

d. Abolish extended unemployment benefits

In addition to being a source of emergency funds, unemployment benefits over time become more of a disincentive to employment than anything else (although the disincentive diminishes with the worker’s skill level — i.e. high wage workers are unlikely to forego a high wage job opportunity to preserve unemployment benefits). For marginally skilled workers unemployment insurance is a major factor in determining if a job should be taken or not.

Even if unemployment pays a significant fraction of the wage a worker would get with a full time job, the money may be enough to convince the worker to stay home. After all, there are costs associated with having a job. Not only does a worker pay payroll and income taxes on any wages he earns, the loss of unemployment benefits itself acts as a tax. Plus workers must pay for such job related expenses as transportation, clothing, restaurant meals, dry cleaning and childcare, and they must forgo other work that they could do in their free time (providing care for loved ones, home improvement, etc.).

Understandably, most people also find leisure time preferable to work. As a result, any job that does not offer a major monetary advantage to unemployment benefits will likely be turned down. This entrenches unemployment insurance recipients into a class of permanently unemployed workers.

It is no accident that employment increases immediately after unemployment insurance expires for many categories of workers. In fact, many individual will seek to max out their benefits, and remain unemployed until those benefits expire. If they work at all, it will be for cash under-the-table, so as not to leave any money on the table.

Mr. Schiff's oral testimony is here:



Unfortunately, we can't expect the government to show any actual common sense.

The President's Speech

From Patterico.com:

I just presented my wife with a proposal that I buy me a shiny new car I can’t afford. I asked her if she is going to put family first and approve my proposal now.

It is a bipartisan proposal, even though she doesn’t agree with it, because the word bipartisan sounds good.

And it won’t cost us a cent, because my proposal pays for the car, through unspecified cuts in the “out years.”

One of my bipartisan proposals to pay for my shiny new car includes my wife taking on a second job and not spending any money on new clothes.

She’s not buying my proposal. In fact, there is no such proposal. I made it up for rhetorical purposes. Not that I’m that enamored of my 11-year-old car with 130,000 miles. Here’s the problem. I’m not going to do something we can’t afford and justify it with phony arguments and lies.

Read that last sentence out loud three times, Mr. President.

Sounded nice, huh?

That would have been a better speech.

Click on Patterico.com above for the comments.

False Claims of Terrorism in Debt Deal

Charles Krauthammer:

You had one congressman, I wrote it down — Mike Doyle in the meeting with the vice president yesterday actually said, ‘We have negotiated with terrorists. The small group of terrorists has made it impossible for us to spend any money.’ Well, that’s a hell of a definition of terrorism. Normally a terrorist says, ‘I want you to convert. I want your daughter, I want your money, I want your submission.’ This guy says a bunch of terrorists in Congress have stopped us from spending money we don’t have. You think that’s an argument that will carry with the American people? I think not.”

Of course, terrorism is not about goals, but a strategy or tactic. These Congresscritters who cheapen the word "terrorist" truly make me angry.

Hey, you clowns, terrorism is a tactic that involves actual creation of terror through death or destruction. What you Congressclowns don't like is the game of chicken, known in negotiating circles a "brinksmanship." Sometimes brinksmanship is the only thing that brings parties close enough to be able to make a deal.

I don't know if this current debt deal is good or bad. I don't know what good and bad mean in this context. I don't know who, if anyone won. Usually in Congress any deal means the American people lose, but that remains to be seen.

What is disappointing is that I don't see anything in the current deal that will shrink government.

Concerned Women of America Speak Out, With Humor: Spenditol Ad

Stimulus Failed to Stimulate

Can there be any doubt at this juncture that the Porkulus bill passed in early the Obama Administration, 2009, has failed to actually stimulate?

Economists who deal in something other than Paul Krugman-like wishful thinking are not surprised.

I have said it before. Barack Obama has the economic sophistication of a middle school Marxist. He has demonstrated his economic incompetence (and that of his administration) over and over.

We have to dump Obama in 2012. It can't come soon enough.

Obama the Luddite

President Obama seems determined to prove that he knows absolutely nothing about economics, except the economic theories espoused by Marx (Karl, not Groucho). From Fox Nation:

President Obama explained to NBC News that the reason companies aren't hiring are not because of his policies, it's because the economy is so automated. ... "There are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM, you don't go to a bank teller, or you go to the airport and you're using a kiosk instead of checking in at the gate."

This is the same, sad Luddite opinion that prevailed in the days of Franklin Roosevelt and before and which has been wholly discredited by the booms of the 1960's, 1980's, and 1990's and the first half of the 2000's, all the while that we were becoming more and more automated.

It is no surprise that our president is an economic dunce.

The government is a cause of our serious unemployment problems, through excessive regulation and taxation. We need to eliminate most of the government agencies that now exist, and go back to the basics.

Moron of the Day: Debbie Wasserman-Schultz (D-FL and DNC Chairman)

Debbie Wasserman-Schultz is as fuzzy-headed as they come, literally and figuratively:

Visit msnbc.com for breaking news, world news, and news about the economy

Congratulations to today's Moron of the Day, second time winner, fuzz-head Debbie Wasserman-Schultz who brags that President Obama has turned this economy around.

Economic Policy Made Simple

To end unemployment, first you have to create unemployment. Repeal all government agencies, except those necessary for foreign relations and defense, and make those former government workers find real jobs that produces stuff or services people with things that they actually want and need.

Say good bye to the wasteful United States Environmental Protection Agency. We need an new environmental paradigm. We need to get rid of our central planning model and trade it for something that works better.

We don't need those agencies to protect us. In the long run, they do more harm than good. For every person they favor with "help," they hurt more than one in the process.

Without the excessive regulatory state, we would have innovation again. More jobs. More advances in every field.

Our politicians lack the guts and the foresight.

I said it and I'm glad.

Recycling A Campaign Ad That Remains Fresh

This campaign ad tells us all we need to know about Barack Obama's understanding of economics.  Too bad Mr. Britton did not win the campaign.

S&P Downgrade is "Political" Per Obama

Standard & Poor's downgrade of United States securities is devastating, but probably inevitable thanks to Obamacare and other big spengding out-of-control entitlement programs.

How does the nation's supposed leader react? He doesn't want to take the downgrade seriously, calling it "political."

In his world, everything is "political." We don't need no stinkin' reality, man!

He also thinks that a massive government takeover of health care is going to save the government money.

We have an administration with zero understanding of economics.

Moron of the Day: Internal Revenue Service

On this week ending on Tax Day Friday, what could be more appropriate than awarding the IRS the Moron of the Day award.

Congratulation IRS for being our Moron of the Day, working hard to chase foreign capital out of the country.

Dumb.

Really dumb.

Rand Paul Makes Sense

Comparing the cuts to the annual deficit. Staggering.

Who Are You Going to Call?

President Obama met with some business "leaders" (i.e., big business CEOs) to ask them how the government can create jobs.

Here's a hint: Their answer will be wrong. The Big Business call for government solutions are meant to restrict trade to help their own bottom lines. No surprise.

Restricting trade hurts jobs overall. Maybe it help jobs who are favored by the protectionist legislation Big Business likes.

The answer to more jobs overall is not one generally pleasing to Big Business. It is: stop placing barriers to entry into the markets for all goods and services. Stop taxing, licensing, permitting, and regulation, regulation and more regulations. All this government tinkering helps Big Business keeps its smaller competitors out (and jobless) and keeps prices up.

The government punishes businesses for having employees, punishment Big Business is better able to weather. The government punishes business by taxing payrolls. By punishing work and rewarding non-work, the inevitable happens. The government punishes by imposing costly regulation. The state governments especially punish employers who hire minority workers, by preventing the employers from firing the non-productive. The inevitable result: higher unemployment among minorities, particularly African Americans. Big Business is better positioned to take the risks.

President Obama is plainly asking the wrong people about what the government can do to "help" them create jobs. The right answer is do less. Much, much less that government is doing now.

Good luck.

Saving Social Security

Obamanomics in Practice

Bankruptcy for California?

Private business sometimes go bankrupt. That can result from many things. Losing your biggest (or only) customer, for example. A business cannot force customers to come through its doors and lay down money for its products or services.

To run a state into bankruptcy takes real (negative) talent. And public employee unions. And maybe a clueless (i.e., largely "progressive") electorate. Like California.

Think about it. Bad economy, you still have to pay taxes. The government can and does force its "customers" through the door and forces them to pay. The government can cut programs. It can lay people off. It will always continue to have some income. It merely needs to cut the cost of services to the level that the state can afford on its income.

Yes, cuts get pretty unpopular with those who receive the benefits. Running a state government requires fortitude, fortitude that squishy liberals don't have. They don't want to cut the benefits of X, because they have made X so dependent on the government benefits that X might suffer. How many X's will suffer if the government goes down the tubes completely?

The Federal government is now considering allowing states to go into bankruptcy. What king of terrible governing -- governor and the legislature -- would allow that to happen. It is not like California has been unaware of its downward fiscal trend.

Man up, California. You have a problem. Go solve it as if you were run by responsible adults, rather than "gimme, gimme" children. Real adults learn how to say no to children.

Obama Announces Plan to Fix Regulations That Kill Businesses and Jobs.

There was an Op-Ed in the Wall Street Journal today purportedly authored by Barack Obama (who, the WSJ helpfull informs us "is president of the United States"):

From child labor laws to the Clean Air Act to our most recent strictures against hidden fees and penalties by credit card companies, we have, from time to time, embraced common sense rules of the road that strengthen our country without unduly interfering with the pursuit of progress and the growth of our economy.

Sometimes, those rules have gotten out of balance, placing unreasonable burdens on business—burdens that have stifled innovation and have had a chilling effect on growth and jobs. At other times, we have failed to meet our basic responsibility to protect the public interest, leading to disastrous consequences. Such was the case in the run-up to the financial crisis from which we are still recovering. There, a lack of proper oversight and transparency nearly led to the collapse of the financial markets and a full-scale Depression.

Over the past two years, the goal of my administration has been to strike the right balance. And today, I am signing an executive order that makes clear that this is the operating principle of our government.

This order requires that federal agencies ensure that regulations protect our safety, health and environment while promoting economic growth. And it orders a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive. It's a review that will help bring order to regulations that have become a patchwork of overlapping rules, the result of tinkering by administrations and legislators of both parties and the influence of special interests in Washington over decades.

Beware when any politician advocates for "common sense" anything. Rarely does common sense enter into the equation, but the phrase sells. The Clean Air Act has become a nightmare that demonstrates exactly the wrong way to handle environmental issues.

Still, the thought that someone will be trying to cut down on job-killing regulation is comforting, if true. At least he recognizes the need. It seems unlikely to succeed in this administration with its proven anti-business orientation and appointees. I do not see Mr. Obama or his appointees as having the track record or mindset to understand what regulation is truly needed and what is not (especially the latter). For me, I will believe in success of the announced initiative only when I see it.

Liberals' Tax Policies Explained