Remedial Economics 002

Greetings from the Left Coast, where we here at Left Coast Blues do the heavy thinking for those who just can’t be bothered.

That knocking sound you heard Sunday morning was the sound of me pounding my forehead on the kitchen table after reading about how, after pushing the projected 2009 budget deficit to 12% of GDP – fully twice the old record set back in 1983 – President Obama is now announcing his plan to cut the annual deficit in half by the end of his first term.

Now how, boys and girls, would you expect the candidate of Hope and Change to do that? Yes? A gold star to that cynical lad in the back row who guessed that he would fall back on the same old liberal Democrat positions we’ve heard over and over again: he’s going to raise taxes on the wealthy, increase the capital gains tax, “target corporate loopholes,” and, yes, allow those Bush tax cuts to expire. In fact, tax collections under the plan are expected to rise from 16% of GDP to 19% of GDP by 2013. As Iago the parrot says in Disney’s Alladin, “Oh there’s a big surprise…I think I’m gonna have a heart attack and die of not-surprise!”

White House advisor David Axelrod opined that “This is consistent with what the president talked about throughout the campaign,” and “restores some balance to the tax code in a way that protects the middle class…Most Americans will come out very well here.” Ah, yes, the old class warfare card – another Democrat standby. Unfortunately, it tends to work all too well…partly because only 5% of households make more than roughly $157,000, and that 5% already pays 58% of all Income Tax collected. Doesn’t sound very balanced to me, but there’s not much they can do when the other 95% of the population decides to gang up on them. Heck, 41% of all Americans paid no federal Income Tax in 2006! It’s not too tough to convince them that other people should pay even higher taxes.

But here’s where it all falls down: jobs are created by business growth, and business growth is fueled by investment. Boosting the capital gains tax by a third, which is what Obama wants to do, makes investing less attractive. That means we will have less of it, and that means that fewer jobs will be created than otherwise would be. Raising taxes on the wealthy means that the people who have the most money to invest will now have less money to invest. Therefore there will be less investment, therefore fewer jobs will be created. Raising taxes on those nasty corporations means they will have less money to pay employees. You guessed it – fewer jobs.

The problem is that, like many Washington politicians, Barak Obama has never run a business in the private sector or created a single private sector job. Neither has Barney Frank, the chair of the House Financial Services Committee. Neither has Chris Dodd, the chair of the Senate Banking Committee. They’ve never lain awake at night wondering whether they could meet their next payroll and still make their own mortgage payment. They’ve never worried whether they were going to miss the performance indicators required by their bankers and possibly lose their line of credit. They don’t have a clue about the realities that private sector businesses face day after day just to try to keep their doors open, let alone grow and create more jobs. Yet they’re the ones we’re supposed to trust to lead us out of what we are being told (falsely) is an unprecedented crisis.

Wall Street clearly doesn’t think that Obama knows what he’s doing…as indicated by the fact that the market has lost more value since the election than it did in September and October. It seems that every time he or one of his advisors opens his mouth about the stimulus plan or the next bailout the market loses another few hundred points. The frightening reality is that the market is probably right. That’s why, after allowing himself to be swept into power on a wave of pure emotion, Obama is now doing everything he possibly can to reduce people’s expectations – which were so high that no mortal man could have possibly met them all under the best of circumstances. I could almost feel sorry for him if it wasn’t for the damage he’s causing to the country’s financial future.

Thanks for listening.