May 29, 2022

Obama Jobs Plan Bad Joke For Both Employed and Unemployed

The long awaited and hugely hyped Obama “Jobs Solution Speech”, hastily crafted between rounds of golf on the Vineyard, is unlikely to help either the employed or  unemployed.

Obama’s calls his new proposals the “American Jobs Act” but it strongly resembles the $825 billion stimulus spending program of 2009 which was ineffective and failed to stimulate the economy or create new jobs.   Taxpayers will likely fail to see the logic of a $447 billion stimulus program working any better than a $825 billion stimulus program.

The latest proposals out of the White House appear to be another desperate Keynesian attempt to keep the economy on life support long enough to boost Obama’s chances in the presidential election race.  Expecting voters to buy into Obama’s new program pushes the bounds of credibility.  Why would a relatively small $447 billion program work any better than the $4 trillion in deficit financed spending since Obama came into office?

Telling voters that the new half trillion dollar program will be paid for from future mythical budget cuts isn’t likely to fly either after seeing the results of the latest fiasco on deficit reduction talks that lead to a downgrade of the US credit rating.

Half of $447 billion “Jobs Act” program consists of payroll tax cuts for both employers and employees.  While probably adding to aggregate spending, the tax cuts do not address the fundamental problems of unemployment and income stagnation over the past decade.

Why Payroll Tax Cuts Won’t Work

What business bases hiring decisions on a 2% drop in the social security (FICA) tax?  Any business man stupid enough to decide to hire new employees simply because his share of the FICA tax will be slightly lower is already out of business.  New employees are added by businesses when there is added demand for their products and when they are confident that a lasting economic recovery is underway.  Today, there is subdued demand and no confidence – a cut in the FICA tax does nothing to change this situation.

Regarding the payroll tax cut for employees, here’s how one Connecticut resident assessed the situation.

“I am currently making $80,600 per year.   The recent reduction of 2% in the FICA tax resulted in an increase of $31 per week to my paycheck.  Meanwhile, the State of Connecticut just passed the largest tax increase in history, retroactive to the first of the year, which results in paying $17 more per week.  My weekly deduction for medical insurance increased by $12 per week since last year and our employer has suspended pay increases.

My net benefit from the FICA tax reduction is $2 a week.  Meanwhile, the cost of gasoline, home heating, insurance and groceries has risen at least 6% over the past year.  Even if the FICA tax cut was made permanent, an extra $2 per week is certainly not going to motivate me to spend more.

My savings goals for college funding and retirement have been destroyed by a collapsing stock market and zero interest rates on savings.  I  have to cut current spending in order to meet my savings goals and any extra income would be saved, not spent.”

Did Obama talk to any “real people” outside of the group of Washington elites and millionaire celebrity pals he hangs around with?  I think not.

Did Obama talk to any “real businessmen” before coming out with his warmed over and effective stimulus plan?  I think not.

Did Obama talk to “Helicopter Bernanke” about how to spread out the $447 billion of borrowed money?  The government could simply spend the $447 billion by sending every household in America a check for $3,886 attached with a note telling the recipients to thank their grandchildren whose future has been mortgaged.

Voters are rightfully disgusted by the rapid decline in their standard of living, the debasement of the US currency and the self serving dealings of the ruling Washington elites.  To pull out an old campaign slogan, “It’s time for a change”.

There are no easy answers to pulling a debt laden economy out of depression, but increasing transfer payments, small tax cuts, massively increased regulatory burdens, trillions in stimulus spending and zero interest rates have not worked.  Maybe the Washington elites should simply step aside, stop micro managing the $14 trillion dollar US economy and allow the creative forces of capitalism to work

Obama Pledges Fiscal Discipline – Huh, What Was That?

As reported on by the Wall Street Journal,

President-elect Barack Obama on Tuesday emphasized his commitment to fiscal responsibility, promising that his team would strip the federal budget of all unnecessary spending to help offset large outlays expected for his planned stimulus package.

But Mr. Obama didn’t provide many specifics, and he gave little sense of how he would tackle entitlement programs like Medicare and Social Security. Few experts believe the budget deficit can be brought under control without trimming spending on these programs.

These words sound to me like the obligatory hat tip to the concept of fiscal discipline and budgetary restraint by the government.  Except for a few years under the Clinton administration, the country has seen ever more massive deficit spending at every level of government, especially since the early 1980’s.  John Q Public has not been bashful about borrowing every dime that he could as well, encouraged by government agencies and banks all too eager to make every citizen a homeowner regardless of his credit rating or ability to service the debt taken on.  For good measure, the purveyors of credit cards and second mortgages did their best to extend credit lines in massive amounts so that John Q Public could live the life style he was entitled to.

Many good minds have argued with persuasive logic and statistics that the over extension of credit has in no small part contributed to the financial debacle that is now impoverishing us all as a nation.  Regardless of whether or not one decided to participate in the credit bubble, we are now all paying a very dear price.  Our children and their children will pay a heavy price as well since we have already spent their future, leaving them little but IOU’s in return.

Some of the many obstacles blocking President-elect Obama’s road to fiscal discipline include the following:

– calls for a $700 billion stimulus package (will probably wind up being more)

-the coming bailout of GM and Ford which will be open ended

-the country’s inability to deal with or even discuss the unfunded liabilities of $90 trillion for medicare and social security (the country’s entire wealth is estimated at $56 trillion but dwindling rapidly)

-a bailout of various state and local governments; starting tab at least $100 billion

– continued bailout of our insolvent banking system; final cost indeterminable

-upcoming bailout of the insurance industry will make the $150 billion “investment” in AIG look small

-calls for energy independence have virtually disappeared, coinciding with the drop in oil prices.  To truly implement energy independence will cost trillions today; to ignore the situation risks our future economic fate

– reducing unnecessary government spending is seriously doubtful; reducing any government program means taking on the entrenched political and economic interests of the recipients of such spending.

The above list of bailout needs/new programs will no doubt grow considerably larger and this list does not include the $7 trillion (to date) in guarantees and bailouts by the Fed and Treasury.  I would expect next years budget deficit to be approaching the $3 trillion dollar range and it will be exceptional to observe how it will be funded.  “Quantitative easing” by the Fed will grow by ever larger amounts.

My best wishes to the President-elect on his commitment to fiscal responsibility but I am not fooled by such talk.   Since many observers have compared Mr Obama to President Lincoln, I am reminded of one of Lincoln’s more memorable lines; “You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.”