Monday, August 17, 2009

The Worst is Ahead of Us

The news that the jobless rate in this country has gone from 9.5 percent in June to 9.4 percent last month has led President Obama to declare that his policies have “saved the U.S. economy from catastrophe” and have led to another rally in the stock market. While I wish I could agree with the President – I really do wish that – I cannot do so, and I must say, “Not so fast, Mr. Obama.”

In fact, not only have Obama’s policies made this downturn worse, the policies have not yet begun to run their full course, and that means we have further to go before we hit bottom. I do not say this in any partisan spirit; indeed, I believe that the Obama policies pretty much are what John McCain would have done had he been elected.

No, the problem is not partisan politics; the problem is bad economic policy. Really bad economic policy.

Why am I saying this, given that it contradicts what many professional economists are claiming? For example, Joe Davis, chief economist at Vanguard in Valley Forge, Pennsylvania, says:

It [the drop in the jobless rate] suggests the recession will be ending before the end of the year. There isn’t any part of the economy that hasn’t shown some slowing in deterioration.

I respectfully disagree, although I realize that people are not willing to pay me the large bucks that Davis earns for his prognostications. My reasoning is simple but forthright: The Obama administration continues to subsidize the weak sectors of the economy and punish the healthy sectors to pay for this largess. It is an unsustainable pattern. Furthermore, many of the worst aspects of his policies have not yet kicked in, and when they do, the damage will be severe.

First, we have to realize that the trends of mass layoffs had to end, albeit temporarily. Bankrupt Wall Street firms and General Motors already have shed huge numbers of workers and are having a lull, as the government bailout cash has stabilized these outfits – for the time being. There still are healthy firms out there, but they won’t be healthy for long, as the government is going to punish any company that is profitable with higher taxes, more onerous regulations, and other wealth-stunting.

Second, the effects of the environmental policies such as “cap and trade” and other new regulations have not yet been fully felt by U.S. employers. Don’t kid yourselves about how onerous these new laws and regulations are going to be. They will put many companies out of business, drive other business overseas, and add to our unemployed.

Don’t be fooled by the “millions of new green jobs” rhetoric coming from Congress and the New York Times. For every “green” job created by building windmills or other horse-and-buggy technology items, many regular jobs will be eliminated. If ever there were a Frédéric Bastiat “broken window” moment, it is found in the “green jobs” nonsense.

Third, increases in the minimum wage will take their toll on lower-wage workers, while other new labor and “workplace safety” policies are going to make it more costly to run a business. That will translate into layoffs soon enough.

Last, whether or not Obama’s health plan will pass Congress intact is irrelevant. The government is going to make medical care more costly, less available, and a greater financial burden on employers and employees. That is a given, and it also translates into higher rates of unemployment.

At best, the “stimulus” has created a lull in the downturn, an eye in the economic hurricane. There is nothing – I repeat, nothing – that the government has done in the past few years to alter the course of a real tragedy. From its expensive wars abroad to its multitrillion-dollar borrowing to the continued criminalization of routine business practices, the government has sent a message to private enterprise that it is the enemy. The rest of us will feel the blunt edge of government policy as we watch the economy implode.

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