A Lasting Footprint on the Middle Class?
David Axelrod nailed it when he told Meet The Press, “Every economist from left to right agrees that we have to do something big in terms of job creation…” Methods to create these jobs will be driven largely by political philosophy. If this conversation were occurring later in Obama’s presidency or if the Democrats did not hold such a strong majority in Congress, this would be the focus of healthy debate. Unfortunately, due to the honeymoon effect and a suffocating Democrat majority, it is unlikely there will be any serious debate. The Democrat proposal will glide through Congress with little or no opposition. Any possible opposition will be harshly crushed under the dictatorial leadership of Harry Reid and Nancy Pelosi.
Bottom up economic growth
If you don’t already know what President-elect Obama desires you probably weren’t able to hear that part of his message due to the excitement-induced blood rushing through your ears during the campaign. Or you may also be one of those that get their news and opinions from late night comedians. During the campaign Obama played upon class envy and promised to significantly raise taxes on a variably defined “rich” class while cutting taxes for the equally nebulous middle class, (no mention of the poor because they don’t pay income tax and thus he had a lock on that voting block.) Once the economy went over the falls, as it were, and Obama selected seasoned economic advisers, I was hopeful the rhetoric would slip quietly into the background while sound economic principles were applied to very serious problems.
It has become apparent that the President-elect wants to reassure his base that he has not abandoned their founding ideals of class envy/hate and he is committed to striking a blow against the bourgeoisie. As a solid member in good-standing in the American middle class, I should be thrilled and looking forward to the promised tax cuts Obama has reaffirmed he will be sending my way. Like any American I want a tax cut and I usually vote for the candidate promising not to raise my taxes or better yet, to cut them. I have reservations with this tax cut promise, it seems a bit like the fox promising the hens he’ll only eat the roosters. Boy, am I glad I’m a hen and not a rooster. BUT, how long can the hens live without the roosters? (I assume you get that.)
Capitalism works under the assumption that people are motivated by the opportunity for gain. Capitalism works when people with means use those means to create personal wealth and success. Successful people require help in achieving their goals. Rarely does someone achieve a high degree of success all by themselves. No, they must hire employees, use suppliers, buy things, and use third party service providers. In the process of creating personal wealth, entrepreneurs create wealth for others and that creates and sustains the middle class. Ambitious people in the middle class are in turn, motivated by the possibility of wealth to become entrepreneurs. The incoming Obama administration is promising to remove the incentive for wealth creation from the American economy.
I think understand that the premise Obama is operating under. His plan is based on the same principle George W. Bush used in his 2002 stimulus package, put money in the hands of the people and they will spend it. That spending stimulates economic growth through the multiplier effect. But his plan ignores the business side of the equation when it includes raising taxes on business. Unfortunately, this comes from the underlying political philosophy. Democrats fundamentally hate business. Democrats see business as a means to generate tax revenues. They do not view commercial enterprise as a beneficial economic engine that provides the means to sustain the American lifestyle. There is a disconnect, they view business as evil and employees as constituents that should vote Democrat. I suppose they figure attacking management endears them to the employee. If people would think it through, it wouldn’t work. Unfortunately, public schools don’t teach thinking anymore. (There’s a future blog in that.)
The problem is that the footprint will be deeply imprinted on the backs of the middle class.
When discussing stimulating the economy, David Axelrod said they want to, “do it in a way that will leave a lasting footprint.” I would respond to Mr. Axelrod by saying, disincentivizing wealth, and by association, job creation, you are certain to leave a lasting footprint. The problem is that the footprint will be deeply imprinted on the backs of the middle class. The Obama campaign rhetoric went like this, “we’ve got [to pursue] bottom-up economic growth instead of the kind of tired, worn-out, trickle-down ideologies we’ve been seeing for so many years.” Can someone explain the economic theory that this was build upon? I just don’t get it. Do people at the bottom create jobs?
First I would like to know where the middle class ends and the upper class begins. On November 16, 2007, Obama seemed to think families making over $97,500 were rich. Then we all recall during the presidential debates he insisted that line had moved to $250,000. But in other interviews he defined rich differently. So he has created a moving target on this and the herd is likely to accept any definition the administration decides to impose as long as the majority falls below the line. So what does it mean to the economy?
If the Obama administration follows through with its promise to raise taxes on job creators and lower taxes on the middle class the results are predictable. If the past 15 years of globalization has demonstrated anything, its that when a firm faces increased costs it relocates somewhere where those costs are lower, it decreases the cost of its largest obligation, employee salaries, or it shutters. Any of these choices result in middle class employees losing their jobs and the nation as a whole suffering increased unemployment. Increasing revenues becomes an increasingly difficult solution. Companies are better able to effectively control costs than they are to increase revenues. It is a virtual no-brainer to guess which most businesses will choose.
When Mr. Axelrod predicted “a package from $675 billion to $775 billion,” I was left wondering if he factored in the unemployment bailout that will absolutely be required as states will not be able to meet the increased demand. Do we expect current unemployment insurance to absorb this load? When we combine his tax policy with his environmental policy and his aggressive pro-union position, one must wonder how high unemployment could be pushed. Someone recently predicted a depression that could dwarf the Great Depression. I must admit I scoffed when I first heard this because I trusted Obama would protect American interests as President. But Sunday’s reaffirmation of a class warfare tax structure makes me question where we are truly heading. Increasing taxes on those who employ people, imposing draconian emission limits, and forcing unionization characterize a strong anti-business attitude. This is hardly the attitude we need at this time.
The Chicago Tribune wrote yesterday that businesses were warming to Obama. The premise seemed based on the notion that Obama would postpone his tax increases on business, however, Axelrod erased this hope, (apparently the story was written this prior to Meet The Press.) The most alarming thing I read in this report, though, was a comment by former Clinton Labor Secretary Robert Reich. Reich cast himself as a Marxist at best and a Communist at worst when he concludes, “All the old free-market ideologies are crumbling under the weight of this terrible economy.” The opposite of a free-market is a command market. A command market or command economy is what economists call the economies of communist China and the former Soviet Union. Reich has come out of the closet, so to speak, in suggesting he holds preferential views toward communism. Let’s all hope he, and people like him, are not in positions of real influence as we venture into the future. Unfortunately Reich is one in a chorus of historically ignorant voices declaring capitalism dead and beckoning America to follow that “successful” economic model abandoned by the likes of India, USSR, and currently transitioning China. Historically, command economies stagnate, suffer corruption, produce shortages, and an unmotivated workforce.
Is the lasting footprint Axelrod wants to produce, the transformation of the American economy from a market to a command economy? I certainly hope not, but if unemployment should reach 25% as it did during the Great Depression, a very terrified public may demand it without realization or concern for the consequences. In the end, I would wonder if the Obama administration pursues these policies and it produces a command economy, was this result intended or simply an accidental consequence?