The Massive Shift Towards Government Dependence

How much would the income of US households have dropped without being propped up by government benefits, welfare, and tax cuts last year? According to Patrice Hill of the Washington Times, it would have been a breathtaking $723 billion. This amount is more than five times the record $167 billion drop reported last month by the Commerce Department.

Most of the dependence is linked to the huge number of job losses in the last year. A major priority of government should be to eliminate the barriers between people and jobs. This should be done, not only in order to improve the situation of those who are unemployed, but to help provide relief for a government that finds itself supporting such people. The impact of unemployment is devastating in a way not found by other economic problems. The economists are claiming that we are in a recovery, but explain that to the close to ten percent of the population that has yet to find a job.

Hill cites the reports of economic analysts who find that:

• While wages and other job-related income fell by a record $206 billion last year to $7.84 trillion, government transfer payments (such as unemployment checks and Social Security) grew by $231 billion to $2.1 trillion.
• Wages have plunged at unprecedented levels, down to $256 billion in private wages, which was more than forty times larger than the last wage drop, during the recession of 2001.
• Unemployment not only means more money going from the government to individuals, but a significant drop of income going to the government (this seems obvious, but many policy makers do not seem to understand it). As a result, the amount of taxes paid by individuals dropped by $325 billion to $2.1 trillion due to middle-class tax cuts (which have none of the revenue generating effects of a supply-side tax cut across all income groups) and the fact that there are 6 million people who lost their jobs and are no longer paying payroll taxes.
  

Many in the Obama Administration believed that there would be a revival in consumer spending in the latter part of 2009. This would have led to more tax revenues and job growth, we were told. Instead, virtually all new spending was done by government and dollars that went to consumers were used to pay off debt, rather than jump start the economy.

The prospects do not look good in the immediate future, because virtually all opportunities for new spending appear to be on the government, rather than on the consumer, side. Such government funding cannot be sustained without continually raising taxes and will, at best, only produce temporary and expensive jobs.

If the administration is serious about reducing unemployment, it will have to be aggressive in its approach. Steps should include a dramatic reduction in capital gains and business taxes, making the minimum wage a state (rather than federal) issue so they can set such according to the unemployment situations in their particular areas, and curtailing ambitious programs (such as cap and trade, health care reform, and other major initiatives) that create an unpredictable environment for jobs to be created.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is also host of the Price of Business (M-F at 11 AM on CNN 650). Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

New Bank of America Logo, Sign of the Times

I often wonder what goes into the decision making of some of America's companies. The American people have felt as though they have been mugged by the federal government as it confiscates their income in an attempt to bailout Wall Street's fiscally irresponsible financial institutions. One of the biggest beneficiaries of that bailout, and a company that has just this week gone back for more, is Bank of America (requesting and going to receive an additional $20 billion, adding to the billions it received and making the bank the biggest beneficiary of the bailout at $45 billion).

In the last couple of days I was driving home and I noticed something different about the Bank of America branch just a few blocks from my home. It was entirely trimmed in red! The blue "Bank of America" words are now floating in what looks like a red ocean. It is actually a very ominous sign of the times.

For the millions of Americans who are offended by mega corporations receiving bailouts, this seems like a very odd memorial to the debt ("in the red") we are all in. The Bank of America seems to be celebrating this financial blood bath. It is the Bank of America's way of thanking us taxpayers for the tens of billions it has received in a bailout.

That leads to another issue. So the Bank of America has hit hard times. They line up like all the other financial institutions, car companies, porn executives, and other white collar free loaders at Capital Hill, and actually receive billions of dollars. Among the first thing they do is change their signs? I would think that would be expensive for the many branches. Following this expenditure they turn around and ask for more? You have to give them credit for their audacity! But the person who was behind this new sign decision should really be looking for another job.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

The Year of the Bailout

I consider myself the perennial optimist. I always try to view things from a "half full" versus "half empty" perspective. But 2008 was a challenging year. It is a year where it appears that we made a paradigm shift when it comes to the role of government in the economy.

I believe that future history books will call 2009 the year the United States became the "bailout nation." We saw more of such today with GMAC Finance receiving $6 billion from the federal government. Democrats defied the image of being for "the little guy" that they worked so hard to maintain by leading the effort for bailout for major banks and corporations. There was far more reluctance by Republicans to bailout these fat cats, but in the end, I am sure the media will find these bailouts the complete fault of the GOP if they fail and will be seen as an act of courage by Democrats if they are interpreted as successful. The reality is, we already know they have "failed" because we had to abandon the ideas of limited Constitutional government to make them happen and the hangover effect of them may not be felt for years.

What is almost as negative as the Constitutional and policy implications of these bailouts is the view they project of what is important to us a country. In the United States we have a safety net for the poor, we bailout the super rich, and we obliterate the engine that creates more than 80 percent of the jobs in the country through excessive taxation, regulation, and licensure law. The highest income groups are not nearly as influential as those rising up the economic ladder in creating jobs, yet we sacrifice the entrepreneur at the altar of the mega corporation.

Those who have eaten at the trough of bailout are extremely vulnerable in the future. The government never "gives" without demanding more. Many of the task masters in government that have fed these companies, have advocated the nationalizations of industries. The hubris to think they will not be vulnerable is unbelievable.

The United States has been successful because of its long term commitment to economic freedom. This freedom includes the right to succeed and fail. Moral hazard is an important element in economic freedom. There has to be consequences to failure in order to avoid those mistakes in the future. The government is replacing this system with one that will eventually force the failure of many entrepreneurs and create a new welfare class of the mega wealthy. Let's hope 2009 sees a reversal of such a trend.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

The Squeeze on Entrepreneurs

Over 80 percent of all businesses in this country are created by small business and over 90 percent of all jobs are created by such entrepreneurs, according to the Small Business Administration. It seems that this important engine of economic growth is under a constant state of siege by the government that continually taxes these companies without limits in order to subsidize those in poverty on the one end extreme and to bailout some of America's wealthiest businesses on the other. I cannot recall a time in this nation's recent history where small businesses have been under such pressure and yet have also been more important to the economy's future.

How important are small businesses? According to the SBA, entrepreneurs:

• Represent 99.7 percent of all employer firms.


• Employ about half of all private sector employees.
  
• Pay nearly 45 percent of total U.S. private payroll.
  
• Have generated 60 to 80 percent of net new jobs annually
  over the last decade.


• Create more than half of non farm private gross domestic
  product (GDP).


• Hire 40 percent of high tech workers (such as scientists,
  engineers, and computer workers).


• Are 52 percent home-based and 2 percent franchises.


• Made up 97.3 percent of all identified exporters and produced 28.9 percent of the known export value in FY 2006.


• Produce 13 times more patents per employee than large
  patenting firms; these patents are twice as likely as large
  firm patents to be among the one percent most cited.

The logic behind bailing out failed auto companies and financial institutions is because these type of companies individually employ large numbers of people. If a Ford or a GM go under, tens of thousands (or even hundreds of thousands) will be instantly unemployed and the ripple effect will be more like a tidal wave. However, if the local movie rental place, the convenience store, and sandwich restaurant go under, that only translates into a dozen or so positions. However, thousands of these small businesses going down, on the other hand, paints a much different picture.

The lessons we are learning from government is that obsolescence and a lack of competitiveness are only a problem if your business is small. The larger a company is, the more resistant it can afford to be to necessary change, the less important it is too make tough decisions, and the more likely that company will receive a free pass for poor performance. What type of companies are we going to have if they are not allowed to fail? Companies that are destined to fail at a huge cost to taxpayers who keep them up for years. The biggest victims will be the huge entrepreneurial class who more than carries its own in job creation, but also has among the biggest tax burden.

The government control, subsidy, and even ownership of large businesses has historically been known as fascism. We don't like the term because we think of our enemies during World War II. Unfortunately, if the shoe fits, we are destined to wear it. What is most striking is that this desire to accommodate the most massive of businesses at the expense of small ones seems to transcends party lines. Both McCain and Obama joined George Bush in propping up many big businesses begging to fail. I wonder, at what point, will these small businesses that have a big impact will simply declare "enough!"

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Are Democrats Declaring Capitalism Dead?

This is one of those posts that are very hard to write. It is the kind of thing that I would prefer to "rant" about rather than approach with calm, because the situation really is quite upsetting. Things that is so important to our culture, our history, and our affluence is being declared dead by members of the Democratic Party. Free enterprise, limited government, and private property are being treated like old and dead ideas. Democrats see them as concepts that didn't work and should be swept away.

In the early 1990s I traveled several times to Eastern Europe and the former Soviet Union conducting seminars on how to convert their economies to free markets while I was a Fellow with the American Economic Foundation. Today, all of the economies in the countries I addressed with the exception of Belarus have lower tax rates than the United States today. It appears our universities and political leaders need similar seminars in our country.

Governor David Paterson of New York told Fox News today that it is time to begin the public works programs similar to what we had under Franklin Roosevelt. He joins numerous Congressional Democrats making similar proclamations. In a candid encounter with a man on the streets, Presidential candidate Barack Obama said that he believes that "spreading the wealth" is a "good thing."

Historically, the purpose for taxes is to pay for those programs that were designed to be beneficial to all and provided special privileges for none. During the Great Depression, the idea of helping those due to extraordinary circumstances came into practice after early attempts by the Supreme Court to stop such policies, failed (Roosevelt out lived enough members of the Court and appointed those with a similar worldview to take their place and the majority). This was soon followed in the 1960s by a "War on Poverty" that became more like an assault on the poor that led to an increase of economic despair annually until the policies began to be reversed in the 1990s (which has led to a reduction in poverty). We are right back at the point of going back to the government creating a paternal relationship with its citizens. Are we like sheep? You bet!

Irresponsible organizations like ACORN fund individuals that include Sen. Barack Obama, who in turn "organized" his "community" to pressure local banks to back loans that lead to our subprime crisis. As a result of the efforts of people like Obama, the unaccountable banks gave more money to his campaigns than any member in the history of the Senate with the exception of the Banking Committee Chairman, Chris Dodd. Obama leads the effort to undermine the fundamentals of our financial system and he will be rewarded with the highest office in the land. People are "entitled" to home loans we are told, let the standards that keep banks operating healthy be disregarded. Now we are being told to bailout the banks that have taken such a route.

This massive push towards socialism isn't entirely the Democrats fault. In fact, John McCain has done an excellent Democrat impersonation by saying he wants some of the $800 billion to go directly to home builders who are struggling so they can pay off their loans. Let's reward those who bit off more than they can chew, he argues, but there will be no benefit to those who had adjustable rate mortgages and figured out how to maintain their obligations. Talk about moral hazard!

Republicans aren't losing the election today because voters have denounced free enterprise, it is because they can't find a serious candidate that is promoting such. Republicans have done a terrible job of defending economic freedom since Ronald Reagan and voters are lost as to where they can find those who will support economic liberties. I have said for a long time that if Republicans are going to act like Democrats, you might as well vote for the genuine article. Republicans need to get prepared for that probability as we approach the election.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

The High Cost of Socialized Banking

I am no fan of welfare. In fact, I take every opportunity to take shots at systems designed to reward laziness, inefficiency, and the subsidizing of poverty. Although there seems to be far more opportunities to write about welfare for the poor, I have even greater disdain for the subsidizing of the rich. So when the stories of banks "on the ropes" and the pending government bailouts hit the news, I was disgusted.

The federal government has announced it was willing to shore up Fannie Mae and Freddie Mac by purchasing its stock if it proved "necessary." Libertarians and liberals were quick to call this "fascism." Strong word, but since fascism entails government "partnership with" and subsidy to business, the shoe fits. That is exactly what the Bush administration appears to be advocating. I can't stomach an administration that, on the one hand, decries welfare for the poor but is willing to dig deep into the government's coffers for big business.

How deep? According to Forbes, "It's going to be a mind-popping $25 billion over fiscal 2009 and 2010, according to the Congressional Budget Office (CBO), which released its estimate of the rescue plan Tuesday morning. Let's put that in perspective: $25 billion for two financial institutions compared with $125 billion for the entire S&L industry in 1989-1991? Ouch." By the way, the S&L crisis was another example of government fascism in support of the rich.

There is another concept in economics that irresponsible banks need to learn. Moral hazard. Moral hazard is the possibility or probability that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Who knows, the current banking crisis may be linked to the S&L crisis of the 1980s and 1990s. If we allowed S&Ls to face the full brunt of their decisions, who knows, financial institutions may have thought twice before diving so quickly into the sub prime loans they are suffering from today. Lesson NOT learned, since government is strongly entertaining bailing financial institutions again.

Welfare is usually dangerous and harmful. When it is done to benefit big business, it is the adding of insult to injury.

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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.