Obamanomics

Although no one would accuse President Obama of intentionally sabotaging the U.S. economy, it is hard to imagine a more counter-productive path than the one that the President and his fellow Democrats have laid out for us. 

By extending unemployment benefits to 99 weeks, Obama has expanded the safety net into a hammock.  Extensions to unemployment are always popular when they pass because Americans rightfully feel sorry for those who are out of work.  While a case can be made for some minimal support, the massive extension of benefits changes the market incentives.  As John Stossel reports, when Denmark extended their unemployment benefits to 4 years, the average length of unemployment was 4 years.  When extended to 5 years, many people found employment only after 5 years. 

Speaker Pelosi defends the unemployment benefits by saying they are one of the biggest job creating initiatives and that they are the most useful of all stimulus spending.



Of course, every spending bill is defended by the administration as stimulus but no economist (with the unfortunate exception of Paul Krugman) would argue that unemployment creates jobs.  The data clearly shows the complete opposite. 

On the other side of unemployment are the businesses who do not hire.  Obama recently called out businesses for sitting on 1.8 trillion dollars that they could be using for hiring new employees.  But Congress has done little to spur private sector growth by leaving lingering uncertainty about tax rates.  Congress adjourned without voting on whether to extend the Bush tax cuts, leaving small businesses and S-class corporations especially vulnerable.  Reason reports that according to the National Federation of Independent Business, the largest small business association in the country, two-thirds of small businesses report their business income through the personal income tax system.  Business owners who claim over $250,000 on their tax return but use most of that money to pay employees or fixed costs will find themselves hit with the millionaire's tax (leave it to government to start the "millionaire's tax" at a quarter of a million dollars).  If you owned a small business and knew this possibility was looming, would you hire new employees? 

To spur private employment and increase total revenue to the government, we already have a great example of what should be done.  Tax rates should be cut, incentives should be aligned toward employment and government should get out of the way.  Reagan taught us this.  Unfortunately I don't have much faith that this administration will ever get the message because of something else Reagan taught us, "The trouble with our liberal friends is not that they are ignorant, but that they know so much that isn't so."