Friday, January 9, 2009

Cause and Effect

Earlier today in the feed, I had commented on an item I shared: Unemployment Hits 7.2%, 16-Year High (January 9, 2009).
Back in September and October, as Obama was looking more and more likely of becoming the next president, I was forwarding material about businesses getting cold feet over an Obama administration (contemplating higher taxes, more regulation, etc.), and those business preparing to shed jobs in that scenario.
I hadn't really read more than the title by the point -- my memory was flooded with recollections of a number of articles I'd seen just a few months ago.

Looking back, I see that there were -- unsurprisingly -- earlier articles that were saying the same thing, but there wasn't the sense of urgency until closer to the November election. For example, in Big Mac: The Taxpayer-Friendly Candidate (June 11, 2008), Lawrence Kudlow makes clear the understanding of the candidates as of this past summer:
The McCain-Obama contrast couldn't be more stark. Obama wants to use the tax system to redistribute income and wealth, not to grow the economy. He constantly talks about rewarding work over wealth. This is pure class warfare.

Obama doesn't seem to understand that our nation was founded on the principle of equality of opportunity, and that private enterprise, not government, is the main economic driver. Obama intensely dislikes businesses. He would repeal all the Bush tax cuts and raise the corporate tax.
A similar note is struck in Democrats Drive an Economic Downturn (July 10, 2008):
Remember the grief Dick Cheney received in late 2000, and then President Bush in early 2001, when they were accused of “talking down the economy”?

In summer of 2008, House Speaker Nancy Pelosi, presidential candidate Barack Obama, and Senate majority leader Harry Reid aren’t merely talking the economy down; they’re taking it down.

They have created what I am calling the POR (Pelosi-Obama-Reid) economy.
Businesses and investors are responding to their total lack of seriousness by battening down the hatches and preparing for the worst.

Businesspeople now face ugly realities. Their full ugliness has only come to the fore in the past month or so, as energy prices have reached record highs, and as the clamor for Washington to act has grown.
Fast forward a couple months later -- I was interested in several letters I'd seen. Let's start with this one, Scaling Down (September 29, 2008).
Just thought I’d send some thoughts from small-business America. My husband’s business is a canary in the coalmine. When tax policies are favorable to business, he hires more guys, buys more goods, etc. When he is taxed more heavily, he fires people, doesn’t buy anything new, etc. Well, duh. So, at the mere thought of a President Obama, he has paid off his debt, canceled new spending, and jotted a list of whom to “let go.”

The first of the guys will get the news tomorrow. And these are not minimum-wage earners. These are “rich” guys, making between $200,000 and $250,000 a year.

My husband will make sure that we’re okay, money-wise, but he won’t give himself a paycheck that will just be sent to Washington. He’ll make sure that he’s not in “rich guy” tax territory. So, he will not spend his money, not show a profit, and scale his workforce down to the bare minimum.

Multiply this scenario across the country and you’ll see the Obama effect: unemployment, recession, etc. No business owner will vote for this man, but many a “middle-class worker” will vote himself out of a job. Sad the Republican can’t articulate this.
Or how about Step up, folks! Watch as the Obama hand is quicker than the eye (October 10 2008)?
And now, America, we introduce the Great Obama! The world’s most gifted political magician! A thing of wonder. A thing of awe. Just watch him defy politics, economics, even gravity! (And hold your applause until the end, please.)

To kick off our show tonight, Mr. Obama will give 95% of American working families a tax cut, even though 40% of Americans today don’t pay income taxes! How can our star enact such mathemagic? How can he “cut” zero? Abracadabra! It’s called a “refundable tax credit.” It involves the federal government taking money from those who do pay taxes, and writing checks to those who don’t. Yes, yes, in the real world this is known as “welfare,” but please try not to ruin the show.

For his next trick, the Great Obama will jumpstart the economy, and he’ll do it by raising taxes on the very businesses that are today adrift in a financial tsunami! That will include all those among the top 1% of taxpayers who are in fact small-business owners, and the nation’s biggest employers who currently pay some of the highest corporate tax rates in the developed world. Mr. Obama will, with a flick of his fingers, show them how to create more jobs with less money. It’s simple, really. He has a wand.
Maybe Joe the Plumber and Mark the Trucker (October 16, 2008)?
I always like to read what you write, particularly when you stand for life. Good take on Joe. I am married to Mark the Trucker. He owns a small transportation business (approx 15 employees). He started with one truck in 1978. I'm pretty proud of him. He was also my high school sweetheart and still a hunk.

Anyway, the point I want to make is that small businesses are usually S-Corps or LLCs, and that means what they cannot deduct as business expenses is taxed as personal income. That puts most small business in a higher tax bracket than the one they would qualify for if only their real earnings were taxed. Also, this predicament disqualifies their children from receiving financial aid for college—we are "wealthy" by FAFSA standards.

In the transport industry an owner has to keep sinking-fund, so to speak. Engines blow up, accidents happen, and the price of replacing an 18 wheel tractor or a specialty trailer is very expensive. My husband is taxed a higher rate on income that is really not income. He puts a large percentage of it back into his business, as I know most entrepreneurs do. We live on a modest percentage of what appears "wealth" to Senator Obama.

My husband's employees understand that. They see how we live and they respect their boss because he pays a fair wage and does provide health care and contribute to their 401ks. He's not a Fat Cat or Robber Baron.

They recognize every time they pass through the toll booth and the EZ Pass registers that their boss is being taxed. They see more taxes when they fuel his rigs. They know that Interstate permits are more taxes. He pays Unemployment and Workman's Comp, as well as half of their Social Security taxes. They recognize this.

And Kathryn they all vote Republican.

My gut feeling is that Joe works for a man like my husband, and wants to buy the business. Joe is like my husband and his employees. They work hard and dream bigger. There are a lot of Joes and Marks out here and they all don't own businesses yet, but they dream. They know less government is best government. I sent that Joe clip to my husband as soon as it became available on Youtube. He has passed it around. Thanks for reading this far.
But the next two really start to drive the message home. In a Letter from a small business owner (October 25, 2008), the message is mixed in with a sense of irony.
Dear Fellow Business Owners,

As a business owner who employs 30 people, I have resigned myself to the fact that Barack Obama will be our next president, and that my taxes and fees will go up in a BIG way.

To compensate for these increases, I figure that the Customer will have to see an increase in my fees to them of about 8 to 10%. I will also have to lay off six of my employees. This really bothered me as I believe we are family here and didn't know how to choose who will have to go. So, this is what I did.

I strolled thru the parking lot and found eight Obama bumper stickers on my employees' cars. I have decided these folks will be the first to be laid off.

I can't think of another fair way to approach this problem. If you have a better idea, let me know.

I am sending this letter to all business owners that I know.
New Company Policies (October 26, 2008) may be more tongue-in-cheek, but it echoes the same theme.
As of November 5, 2008, our company will implement a few new policies that are in keeping with new, inspiring themes of change and fairness:
  1. All salespeople will be pooling their sales and bonuses into a common account that will be divided equally between all of you. This will serve to give those of you who are underachieving a "fair shake".

  2. All staff-level workers (non-Manager positions) will be pooling their wages, including overtime, into a common account, dividing it equally amongst you. This will help those who are "too busy for overtime" to reap the rewards from those who have more spare time and can work extra hours.

  3. All top management will now be referred to as "the government." We will not participate in this "pooling" experience because the law doesn't apply to us.

  4. The "government" will give eloquent speeches to all employees every week, encouraging its workers to continue to work hard "for the good of all".

  5. We anticipate that the employees will be thrilled with these new policies because it's "good to spread the wealth around". Those of you who have underachieved will finally get an opportunity; those of you who have worked hard and had success will feel more "patriotic".

  6. The last few people who were hired should clean out their desks. Don't feel bad, though, because there will be free healthcare, free handouts, free oil for heating your home, free food stamps, and you can stay in your home for as long as you want even if you can't pay your mortgage. If you appeal directly to our Democratic Congress, you might even get a free flat screen TV and a coupon for free haircuts.
If for any reason you are not happy with the new policies, please contact your Democratic Congress c/o the Capitol Building, Washington DC. They are well-known for responding to inquiries in a timely fashion.
On a forum I visit, the topic of attributing the economic downturn to Obama had arisen. Some were wondering how Obama could receive any blame if he hadn't even "done" anything yet. (Doing nothing didn't stop him from becoming president. [/aside]) I responded with this:
I was thinking of mentioning Intrade vs Obama earlier; thankfully Doug Ross must have been thinking of the same thing. And his output is likely much nicer and more colorful: Barack Obama and The Wisdom of Crowds.

A followup: A brief postscript to this week's Wisdom of Crowds post.
Now I've decided to do a little graphing of my own:

As it became clear that Obama would be the next president, the market reacted.

I haven't even mentioned the bailouts and all that. Of course this played a significant role -- but electing more Democrats in Congress probably didn't help, as the infamous Burning Down the House video made clear.

So am I surprised that unemployment has risen? Hardly. The American people voted to raise unemployment. And taxes on the middle class. And burden us with more government regulations. And trade some of our freedoms for a sense of security (what's that Ben Franklin quote?). I suppose we'll all just blame Bush.

Update: I happened upon 'Atlas Shrugged': From Fiction to Fact in 52 Years a bit late. Better late than never.

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