While England may be in flames, and Greece, Spain, Italy, Portugal and Ireland stand on the precipice of default, there can be no question of the US’s grave (and worsening) economic state. And if the rest of the world can tell us one thing, it’s that economic laxity is merely a symptom of a larger syndrome.
The US’s own bloated bureaucracy, out of control spending and reliance of Keynesian theory has begun to manifest itself in the S&P’s recent credit downgrade, rising unemployment numbers (as the percentage of Americans working hits a 28-year low) and plunging stock values.
The answer does not lie in more government spending and deficits, as the president seems to believe, but rather incentives for production. As The Heartland Institute’s Peter Ferrara, author of America’s Ticking Bankruptcy Bomb, observes in The American Spectator:
Lower tax rates increase the incentives for production by allowing producers to keep more of what they produce. Deregulation increases incentives for production by reducing the costs of production, increasing the resulting reward. Restrained, anti-inflation monetary policy expands the incentives for investment to increase production because investors know the value of their investment will not be depreciated by inflation and a declining dollar. Reduced government spending and deficits reduce the government drain on private-sector investment funds.
Indeed, as Ferrara explains, the economic principles that allowed for the economic boom of the Reagan years are not restricted to a specific economic or historical context. These policies can and should be applied to the present financial crisis. The sole purpose of Keynesian theory it seems, has been to provide politicians with an excuse to increase spending and deficits in pursuit of re-election.
For small businesses, Obamanomics has taken an especially severe toll. Despite the president’s continual urgings to expand, a recent Gallup poll indicates that small business owners expecting to see increases in revenue fell to 42% in July, down from 49% in April and 54% in January.
Small business owners have been repeatedly told that the recession has “ended” and that the economy is now in a state of recovery; the numbers tell a slightly different story. Recent surveys by the National Federation of Independent Business (NFIB) find that this “recovery” is the weakest in recorded history (the NFIB’s data spans from 1973). The Index of Small Business Optimism continues to drop for the fifth month in a row, currently at 89.9. At this point into the recovery from the 1982 recession, the index was considerably higher at 107.
Additionally, the numbers of small business owners expanding or thinking about expanding remain dismally low. According to the Philadelphia Inquirer,
The percentage of owners reporting spending on capital equipment and expansion is at the lowest level in survey history (50 percent) and only 20 percent plan outlays in the coming months, just a few points above the record low… While 16 percent of owners expect business conditions to be better in six months, 28 percent think conditions will worsen. Six percent view the current period as a good time to expand, 69 percent say it is not. While 33 percent expect their real sales volumes to improve, 26 percent expect a decline. These are a very weak set of statistics, especially for a recovery period.
Business initiatives like the president’s highly publicized “green technology” projects have only contributed to the problem. According to Michigan Capitol Confidential:
In September of 2009, Fisher Coachworks was mentioned in a press release from Gov. Jennifer Granholm as a “green technology” company that was part of the “new energy economy for Michigan.” Two years later, the state says Fisher Coachworks is out of business and the state has to write off $1.6 million it loaned the electric bus manufacturing company.
As James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy rightly observes in the same article,
“Granholm opened the floodgates for any green business to get state money. This is her legacy. I think it is an important piece of the legacy that the businesses you are picking to win and whose business plans you support with state tax money wind up being big losers. That says some of these green energy business plans are likely to be facades held up with state support.”
One doesn’t have to be in Michigan to see the effects of the administration’s economic policies. Main streets across American, once lined with thriving small local businesses have been replaced by empty facades and desolate parking lots.
Though there are many representations of the economic toll of Obamanomics, this visual commentary, featuring dozens of closed and dilapidated storefronts illustrates the grievous state of small businesses in an especially striking manner, drawing similarities between the broken down remnants of once prosperous storefronts and the “Hoovervilles” that riddled the country during the Great Depression.
“Obamavilles” are indeed a growing phenomenon, and will not be abated by Keynesian principles that have failed time and time again. It wasn’t the increased consumption and spending from the Second World War that lifted the country from economic ruin, but reduced investment in civilian infrastructure and government restraints on consumption. Ferrara cites UCLA Professor Richard Rumelt’s recent Journal piece:
Thrift restored personal balance sheets, ultimately setting the stage for the postwar boom…During the 1941-1945 war years, over 22% of disposable income was saved…In fact, when inflation and increased working hours are taken into account, consumption per hour worked actually declined for the bulk of civilians during the war.
Only when massive spending cuts were allowed to occur, only when the deficit was eliminated was the economy able to recover. At the onset of the Great Depression, President Hoover’s so-called “trickle-down” economics was sound in principle, but was not allowed to come to bear by an anxious public. Job creation comes from the wealthy, small businesses, and corporations. The more they are burdened with taxes and other regulations, the fewer jobs they are able to create.
“Obamavilles,” like Reaganomics, are not confined to the pages of history. Today, it’s empty store fronts and small homeless camps beneath freeways, but if government spending is not brought under control and the failure of Keynesian theory not acknowledged by the administration, “Obamavilles” could very well become a permanent fixture in our society.