Economic Growth

As we all know, this supposed "Recovery Summer" is any thing but and this should come as no surprise. What is a surprised is that the Democrats actually believe their economic plans would actually stimulate the economy. Lets review what their plans entailed. Firstly was the 800 billion dollars stimulus package. Common sense would say that government spending is always wasteful and inefficient and that any such money that does make it to projects will only be short lived and at best, maintain employment as is rather than grow it. Once the government fund dries up, so would the activities associated cease and those employed for the project be at risk for being cut.

The second plan the Democrats enacted was Obamacare. The argument goes that if the cost of health care was reduced, the cost savings would go toward economic growth and increased hiring. The first fallacy here is that nothing in Obamacare actually goes toward decreasing the cost of health care, it just spread the cost around differently. Then there is the second fallacy is that if it the healthcare cost of hiring is reduced, more people will be hired. Things just simply do not work that way. Employers do not hire because they can afford to hire, they hire only because they have work that needs to be done, work that will help them generate a profit. In addition, Obamacare also increases the administrative cost for the employer so that while it may be cheaper upfront to hire, it will be more costly to administer the hiring.

The third plan the Democrats enacted was regulating the financial market. By financial market I mean Wall Street and the banks, not the home purchase lending policies that led to the housing bubble burst that led to the economic collapse 2-3 years ago. While more rigid standards and oversight may make for a more stable financial environment, a more stable financial environment in itself does not stimulate economic growth, especially in the short term as firms have to spend administrative costs to stay in compliance.

Lets look at things from a different perspective, what it does take to generate economic growth.
Firstly, there has to be a perceived opportunity for profit. By painting the economic environment as impending depression rather than a transitory recession to correct for the housing bubble burst. The Democrats intentionally fear mongered to get justification to enact their economic plans (faulty plans at that) without sufficient regards for the national perception. They then made it worse by predicting an over optimistic scenario that never came. Never came because their policies and plans are just wrong. The Democrats then made a second mistake in criticizing capitalism and the drive for profit. The opportunity well for profit was deliberately poisoned.

Secondly, there has to be available credit to finance project to take opportunity for profit. This was the main reason for the bail-outs but the bail-outs was resented by most Americans. The bail-outs was also directed at a few large firm whereas the majority of economic activities in the nation were with small and medium firms. These small and medium firms also suffered disproportionately from the housing bubble defaults. Thus the bail out did not and could not stimulate growth. In addition, the low interest rate as determined by the Federal Reserves was not in any meaningful way different from the interest rates before the economy soured. And since it cannot really go lower even when the economic environment is worse, there wasn't any growth to be derived.

Thirdly, there has to be an economic infrastructure facilitative for profit. Stability of the financial market is facilitative but not stimulative; it is the minimum necessary. When the financial market is unstable, economic growth is unlikely. When the the financial market is stable, economic growth is not a result. What is more important regarding economic infrastructure is the administrative cost or barrier to profit. There are two aspects here, the actual administrative cost to remain in legal compliance. The greater the cost, the more onerous the process, the less likely the risk to make a profit will be taken. This administration has sought to increased regulations of business. When you add on increased taxation on profits, even just the threat of increased taxation on profit, will dampen any enthusiasm for growth. Note, the other aspect of economic infrastructure that impedes economic growth is the amount corruption. I have no doubt that a significant amount of the economic stimulus was spent with a political component.

These same factors also explain why centralized economies do not produce the same economic growth as free capitalism.

Bottom line is that this administration has done everything possible to impede economic growth. It has demonized profit. It has increased the cost to make a profit. It threatened taxation on profit.

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