Monday, June 6, 2011

Are Congress and the White House in Denial? Recession Vs. Depression


Photo Credit - Flickr Creative

Reading about the dismal economic figures for May and noticing government figures seemingly always being “revised” down after they originally come out, I got to thinking, “Are Congress and the White House in denial?” Is it easier and/or just more advantageous politically to not admit what’s been done in Washington the past 2 ½ years is not working?

Even without this admission, the majority of Americans have been in agreement for a while now that Washington doesn’t seem to know what it is doing with regards to fostering a better economy. It doesn’t seem they are even realistically focusing on the economy half the time.

Did Washington acknowledge for more than a second the May figures reflected the official unemployment rate rose to 9.1%? What is the “real” rate if those whom have stopped receiving benefits and those whom have just given up looking for non-existent employment are figured in – 15%, 18%, 20%?

Have Congress and the White House yet asked themselves how they are contributing to this or what they are doing wrong? Are they waiting for the Great Recession to officially turn into another Great Depression to look in the mirror?

The recession is moving into its third year, and while some touted it as over in June 2009, Americans know better. The prolonged official high unemployment rate has been setting records since 2009 and continues in 2011. And the official unemployment rate is deliberately skewed downward by the crazy, unrealistic way it is calculated.

Did you know the Labor Department’s payroll employment figures counts people as employed if they receive only one hour of pay for the period? Do you consider yourself employed if you worked one hour in a month? Is the Labor Department in denial too?

Washington sure doesn’t seem to understand escalating government intervention in the private sector and continued no-result big stimulus spending, and general business cost policy uncertainty does not, repeat does not, create an environment for private sector growth and job creation.

On June 1, a Forbes article title asks “Where Have All The Small Businesses Gone?” On June 3, The Business Insider ran an article titled “Out Of Nowhere, The NFIB Just Sent Out This Warning: "Job Creation On Main Street Has Collapsed"

On June 5, Forbes ran an article titled “Chinese Entrepreneurs Are Leaving China” in which they note, “China’s rich, primarily driven by a sense of insecurity, are taking money out of their country. Many are actually preparing to move elsewhere. According to a new study, almost 60% of China’s “high net worth individuals,” defined as those possessing more than 10 million yuan in investable assets, are either considering emigration through investment programs or are completing the emigration process.”

Wow, even those new to wealth creating private sector capitalism take their money out of their country and plan to leave when they feel insecure about the direction their government policies leave them uncertain. I thought Washington seemed to believe only American business does this – those selfish, evil capitalist.

American corporations and small business entrepreneurs are in fact sitting on cash right now as Washington decries. It’s because they are insecure with the uncertainty of U.S. government policy direction just like those noted Chinese business people and investors. Could it be business is in fact prudent to maintain capital and not take risk while waiting to see what the risks to investment will actually be?

President Obama has resurrected the “tax the wealthy” hike promise once again inciting class warfare and demonizing business owners. Private insurance costs from ObamaCare are beginning to hit business bottom line as well as individual health insurance premium payers. The effect of the 2010 Dodd-Frank financial reform law is not precisely known yet in the real world. All of these may negatively affect those with capital to invest and jobs to create. These policies are all from a philosophy that realistically does not instill positive economic growth momentum.

The May jobs numbers offered 83,000 private sector jobs had been created. On June 3, a Newsmax article pointed out 60,000 of those job had been created by McDonalds. Didn’t McDonalds receive an ObamaCare waiver recently? Does Washington realize it is easier to create jobs when a company receives a waiver exempting them from higher business costs and over regulation? Is Washington in denial regarding this correlation?

On June 5, the Associated Press reported, “Socialist setback in Portugal polls after bailout” noting voters sought restoration of the nation's fiscal health by giving a win to the center-right Social Democrats and a “strong mandate to enact grinding austerity program.”

Most thought provoking in the Portugal article was, “Though the severe debt-reduction measures are expected to pitch the country into deep recession and bring sharply lower living standards in what already is one of western Europe's poorest countries, parties that support the effort to restore fiscal health collected around 80 percent of the vote.” Is Washington in denial that Americans can handle the truth and are as motivated as the voters in Portugal for restored fiscal health?

Washington is still denial that money taken out of the private sector for government is less money in the economy to affect positive private sector growth. They are in denial that bailouts and stimulus spending transfers private debt to public debt. Who does this really benefit in the long run? Does it benefit overall positive economic growth?

A continued bailout and big spending mindset only delays Washington, some Unions, and some connected corporations from facing their denial that habits and practices enjoyed during boom times must change in lean times.

The problem is the revenue is too low to support the continued wasteful, duplicate, corrupt, and special interest spending in Washington. More revenue via higher tax rates will never fix the problem of spending addicted politicians. Thinking in terms of the Great Depression history and Hayek versus Keynes, Hayek was eventually proven correct.

Washington must get out of the denial of the great policies of FDR bringing the U.S. out of the Great Depression. Taxpayers are owed sound investments not just infrastructure investments to spread the wealth to the favored few or bailouts used by states to insulate the public sector from the recession.

Do the typical over budget and over deadline government run projects, that were not well-thought out to begin with, result in sound taxpayer money investment in the long-run? Wasn’t the $800B+ stimulus sold as for infrastructure spending that was shovel-ready? Your bad Washington.

Washington must get out of denial and get it’s head screwed on straight. American taxpayer monies being used to invest in manufacturing and/or oil production in Mexico, Brazil, China and other countries by the U.S. government, while denying American companies in the same industry the same support, adds even more pressure to U.S. jobs and the economy.

There must be policy certainty to plan expansion within the private sector, reasonable small business credit possibility, and an environment where it is prudent and responsible to risk capital expenditure. It really is that simple in some ways.

Unfortunately, we don't have any of these components with any certainty at this time. We have a deliberate pull-back of global competitiveness in higher tax talk and crushing new regulations for large corporations and several industries that do and can create thousands of U.S. based jobs. The bottom line is we have an “uncertainty effect” on job creation on Main Street for all size business - small, medium, and large companies. I pray Washington gets out of denial soon.

For the record, according to BusinessDictionary.com:

RECESSION:
Period of general economic decline, defined usually as a contraction in the GDP for six months (two consecutive quarters) or longer. Marked by high unemployment, stagnant wages, and fall in retail sales, a recession generally does not last longer than one year and is much milder than a depression. Although recessions are considered a normal part of a capitalist economy, there is no unanimity of economists on its causes.

DEPRESSION:
Lowest point in an economic cycle characterized by (1) reduced purchasing power, (2) mass unemployment, (3) excess of supply over demand, (4) falling prices, or prices rising slower than usual, (5) falling wages, or wages rising slower than usual, and (6) general lack of confidence in the future. Also called a slump, a depression causes a drop in all economic activity. Major depressions may continue for several years, such as the Great Depression (1930-40) that had worldwide impact.

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