Fantasy Economics -- 2

After my post this morning about the difference between president Obama's economic outlook and that of Mitt Romney, I received an e-mail that claimed that I had stacked the deck in the discussion. How could I speak only about a business that was just limping along; I ignored all those prosperous companies that are bringing in enormous profits. The e-mail continued by claiming that when the entire economy was considered, Obama's economic plans were surely better. So let's take a look at this claim.

First of all, we cannot ignore the many businesses that are not doing that well. They employ millions and millions of people across America. As I discussed in the prior post, businesses like these will hit a brick wall under the Obama policies. Those same obama policies put millions of jobs at risk.

Second, we have many other companies that are highly profitable. A great many of these firms make products that compete in the world market. What this means is that the costs incurred by these firms have to stay lower than those of the foreign competitors if they are to be assured continued success. Since these firms have high profits, the tax increases proposed by Obama will take a chunk of the capital otherwise available to these firms and transfer it to the government. Similarly, the implementation of Obamacare will take another chunk of the assets of these firms and use it to meet healthcare costs. Another way to look at this is that the higher healthcare costs for employees will drive the costs up for each product made by the firms. If these firms decide to borrow to expand their operations, loans from community banks or even mid-size banks will be much harder to obtain due to the restrictions put in place by Obama in the Dodd-Frank law. New EPA regulations will also affect the costs incurred by these prosperous firms and their unit costs will rise. We also cannot forget the higher energy prices that these firms will have to pay due to the Obama program to discourage drilling for oil on federal land or offshore, the Obama threats to limit the use of hydrofracking, the Obama plan to drive up the cost of coal and to drive down its usage, the Obama plan to force people to use energy from high cost renewable sources, and the like. High energy costs will mean high unit costs for the products.

Putting all this together, we can see that the businesses that are currently prosperous will be less prosperous under the Obama regime. There are a whole series of additional costs imposed on these firms, and the profits that they still earn will be reduced further by higher taxes. In other words, some of these prosperous firms will be transformed into companies that are just getting by. We all know what the next step after that is: all those Obama obstacles will eventually drive the firm under.

Let's add one more item to the list. If one considers all those folks who no longer have jobs as a result of shaky companies going under, there will be a big chunk of the country that will move from having a reasonable income to living off of food stamps, unemployment, welfare and other government programs. These government subsidies are enough to provide most of the necessities of life. They are not, however, enough for the recipients to spend on "extras". These folks cannot afford to go to a restaurant, to the movies, to the theater, to a baseball game, to the bowling alley, or even to buy something that is not a necessity like jewelry. This means that all of these industries will lose a large number of customers. If 7% of the folks who go to restaurants stop going, there will be a large number of places that will go under. The ripple effect from the job losses will just continue and grow. In other words, even when one considers financially stronger companies, the result is the same: the Obama policies seriously hurt the private sector.

So let's make the assumption that the goal is to get everyone who wants to work a job. Clearly, Obama's plans not only fail to achieve that goal, but they also move the economy further away from creating the needed jobs.