Posted by: dstieglitz | December 2, 2010

WASHINGTON THE JOB KILLER

Last month, for the third national election in a row, a party in power (Republican Congress in 2006, Republican President in 2008, and Democratic Congress in 2010) was voted out of office. Despite such a consistent message, our senior political leaders use rhetoric suggesting they still don’t understand that the American people want change:

  • Senate Minority Leader Mitch McConnell (R-KT) says his overriding goal is to: “Deny President Obama a second term;”
  • The Speaker of the House, John Boehner (R-OH), vows to undo health care reform;
  • The House Minority Leader, Nancy Pelosi (D-CA), and Senate Majority Leader, Harry Reid (D-NV), incredulously remain convinced they are leading the country in the right direction; and
  • President Obama says he expects “hand-to-hand combat” in the next two years with Republicans whom he labeled as “enemies.”

I don’t know about you, but these were not what I wanted when I voted last month. Like most people, I want policies and incentives from Washington that give American companies an advantage over foreign competitors, produce millions of jobs, and deliver prosperity for all socio-economic classes. Never before has Washington politics been such a detriment to economic growth.

In-Box From Hell. In just two years, the euphoria we felt during President Obamas inauguration turned into an approval rating below 50%. The failing economy that put Obama in office in 2008 has gotten worse. Most people acknowledge that he inherited the in-box from hell. Unemployment was soaring; banks were drowning; the auto industry was bankrupt; we were fighting two expensive wars; and the housing industry had crumbled. The stimulus bill he signed in early 2009 injected $787 billion into the economy, but Obamas strategy to leave details to others turned out to be a blunder. By outsourcing stimulus, health care reform, and finance reform to the Democratic Congress, he ended up with bills that Republicans could safely vote against because of pork, pro-labor concessions, and onerous small business requirements. In 1994, the last time Republicans controlled Congress while a Democrat was President, Congress and President Clinton cooperated to nurture the dot-com boom and produce budget surpluses. In a perfect world, that will happen again.

Washington – The Job Killer. In the last two years, Washington killed more jobs than it created. The stimulus bill fell far short of its job-creation goal; while health care and financial reform, threats of higher taxes, and burdensome regulations smothered growth. For example, the Labor Department reported the number of self-employed Americans dropped 13% from its 2006 peak. That’s unusual because self-employment normally increases during economic slumps because laid-off workers venture out on their own. Historically, political stalemate helps the economy since it limits intrusive government actions and frees the private sector to allocate resources to promising areas. Today is different because, while businesses and investors have cash reserves, they are afraid to move ahead because of tax and regulatory uncertainty, the lack of a national economic strategy, and the perception that Obama is anti-business. If the President and new Congress want to revive the economy, they must slay the job-killing beast Washington has become and reconnect with the American people and American businesses.

Disconnects With American People. Voters elected President Obama because he promised to change Washington’s priorities and operating methods. However, before last month’s election a Gallup poll asked respondents if they approved of what he had done. The results were approval for only one of his five self-proclaimed “accomplishments:”

  • 61% disapproved of the banking system rescue;
  • 52% disapproved of the stimulus package;
  • 52% disapproved of the auto industry bailout;
  • 56 disapproved of the health reform bill; and
  • 61% approved of the financial reform regulations.

These polling results indicate that the President and Congress have not been responding to the pain of the average American. Obama defends his health care reform as “the right thing to do,” and dismisses the Tea-Party movement and others who oppose him as being mislead or embittered. The silver tongue that charmed us with campaign oratory seems to have become a deaf ear.

Alienating Businesses. More importantly relative to reducing unemployment, Obama has alienated the business community that is the engine of recovery and job creation by labeling them: “greedy fat-cats.” Executives who are invited to the White House leave saying they feel like the President hasn’t really listened – he just put a check in the box. One CEO showed him a chart listing the percentage of Cabinet secretaries with business experience going back to Teddy Roosevelt – the Obama administration had the fewest. In public speeches, Obama gives the impression that business is a second-class profession and capitalism is something he stepped in while walking in the park. Despite all that, by quantitative measures business is thriving. According to the Federal Reserve, corporate profits hit record levels last quarter and the stock market is up over 30% since Obama’s inauguration. So the environment really isn’t as bad as businessmen think.

What Businesses Want. Obama is clueless as to why his administration is perceived as anti-business. Meanwhile, businesses idle in wait-and-see mode relative to expansion and hiring for four reasons:

  1. Uncertainties about Obama’s legislative agenda in international trade, energy, immigration, education, and unionization;
  2. Threats of higher corporate and personal taxes coupled with huge spending cutbacks by federal, state, and local governments because of growing deficits;
  3. Doubts about trade policies including restrictions on oil and mineral extraction that force companies to spend billions overseas to buy raw materials; and
  4. Potential new EPA, OSHA and IRS rules and increased enforcement of existing rules.

Businesses can’t plan when the rules of the game are in limbo and they can’t predict future costs. If Obama wants to be seen as a pro-business President, he must push legislation that reduces uncertainty and broadens opportunity. One thing business owners want, for example, is clear and consistent tax, trade and energy policies. That would provide a certainty they could live with – even if they didn’t like the policies! But when the rules change constantly (like Republicans threatening to reopen the health care can-of-worms), it is exceedingly difficult to plan, which is why corporations and investors are sitting on hordes of cash.

Bush Tax Cuts. The largest uncertainty, of course, is the expiring Bush tax cuts. When we celebrate New Year’s Eve later this month, it’s likely we won’t know whether the tax cuts will expire, be made permanent, or be extended. The lame-duck Congress is struggling to choose between raising taxes by $4 trillion or raising the national debt by $4 trillion over the next 10 years (the new Congress is also likely to wrestle with the issue for months). I personally think the best approach is to extend all of the tax cuts for a year while the country has a vigorous debate about how much government we want, how government can cultivate innovation, and how we will pay for both of those equitably and efficiently.

Bet On Innovation. Many people feel the U.S. has lost its innovative edge in world markets. As evidence they say our educational system is struggling; we don’t produce enough engineers; and foreigners file more U.S. patents than Americans. I see a very different future: in the 21st century the U.S. can produce a hundred times the innovation we produced in the 20th century in the form of mind-boggling breakthroughs in smart devices, materials, robotics, synthetic life forms, cloud computing, and other fields that don’t even exist today. For example, analysts predict that sales of iPad applications will exceed $1 billion in 2011 – just a few years ago there was no such thing as an iPad app! Also, consider how much the Internet has changed our lives in the last 20 years. Smart devices, bioengineering, and robotics easily could precipitate as much change in the next ten years! Such innovations could create thousands of new businesses and tens of millions of new jobs. To convert these possibilities into reality, the new Congress must reverse years of policy paralysis to pass pro-growth taxes, immigration policies, trade agreements, job training programs, energy policies, infrastructure investments, R&D credits, and educational supports. Hopefully they will be thinking that way when they pass the 2011 federal budget (which is already two months late) and decide the future of the Bush tax cuts.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: