The Cure is Worse than the Ailment

     As is true of a good many government knee-jerk reactions to a perceived crisis, the consequences of the actions taken and being contemplated in response to the recent recession may, in the long run, prove to be worse than simple effects of the recession.

     In response to the 2008 -2009 recession, the Obama administration passed federal stimulus legislation that was supposed to create jobs to help those who lost their jobs in the recession. Instead, much of the federal stimulus money has gone to creating government jobs that only help to increase the federal deficit. These stimulus-created government jobs have bloated the government bureaucracy and will continue to cost taxpayers for many years to come because these are jobs that are hard to terminate and result in taxpayers paying for the workers’ health care and pensions. But, on the positive side, the Democrats will gain the support of more voters, since government workers tend to heavily vote the Democratic ticket to thank the party for creating their jobs and providing them with the benefits that come with their positions. The federal stimulus plan has failed to create a significant number of private sector jobs and much of the money has not been spent on its intended purpose. Rather than returning the unused stimulus funds to the treasury to help lessen the federal deficit, the Obama administration has looked far and wide for places to spend the money, most of these places having little or nothing to do with the creation of private sector jobs.

     Consider the following:

     “In their zeal to discourage cigarette smoking, state public health officials [in Massachusetts] have decided to punish workaday folks trying to make a living running a corner store in these troubled times.”
     “. . . the Public Health Council is considering a plan that would require Bay State businesses to post graphic new warning posters that feature images of cancer-ridden mouths and tobacco-addled brains next to the cigarettes they sell.
     “Failure to post the signs would draw fines up to $300 . . .”
     “. . . there is a certain irony in the fact that the posters will be financed with federal stimulus tax dollars, which are supposed to create jobs.” [Emphsis mine]
     ”It’s unfair to add another regulatory burden to small businesses . . .” (Ref. 1)

     President Obama’s health care reform is supposed to improve America’s health care system. Instead, it is creating a blizzard of new paperwork for America’s businesses while requiring more government jobs and bureaucracy to oversee the implementation of the reform.

     “This new law [ObamaCare] spans 2,562 tree-killing pages. Far worse, it will force Americans to spend countless hours completing, transmitting, and filing endless reams of federal paperwork.”
     ObamaCare contains a new mandate scheduled to go into force in 2012 that will compel every business to file an IRS form 1099 for every business on which it spends at least $600. Small businesses will suffer most because of their additional accounting costs and loss of business as many people move to streamline by moving their business to large vendors. “Every dollar spent to spew out 1099s is one fewer dollar that could pay new employees, train existing staffers or develop new products, services and markets.”
     “Over 10 years, this measure would extract $17 billion from the jugulars of America’s already anemic small businesses.”
     “ObamaCare will require employers to evaluate their health plans’ affordability by calculating each employee’s household income, not just the individual wages. This likely will involve, at a minimum, collecting income declarations from every staff member.
     “Even more paper will fly as employers investigate whether their employees have oxymoronic adult children between ages 18 and 26.
     “If so, companies must determine whether these ‘kids’ carry their own health insurance or remain on their parents’ plans.” (Ref. 2)

     As usual, the devil is in the details when it comes to what ObamaCare will ultimately cost in terms of money, red tape, still more government, and overall inconvenience and public frustration. One more example of the many snake pits in the plan that are just now coming to light. “Come 2014, ObamaCare requires the creation of 50 American Health Benefit Exchanges, one per state. The exchanges will be government entities . . . “ “This is a massive waste of time and money. Private enterprise already offers this service at no taxpayer cost.
     “The simple Internet address ehealth.com, for instance will link any American to an incredibly useful Web site. This private company claims that its customers actually have secured coverage in just 11 minutes.
     “This site asks just five question: Zip Code, gender birth date, and whether one uses tobacco, or is in college.”

     “So, what does Obama bring to this party? Nothing other than a massive budget, suffocating new rules, and a brand new cadre of government workers.
     “Rather than encourage, and sometimes help, the uninsured {to} buy coverage via eHealth.com and its competitors, ObamaCare mandates 50 copies of this fully functioning private infrastructure, staffs them with government employees, slathers them with stultifying new regulations and finances them with other people’s confiscated money.“ (Ref. 3)

     Significant consequences of the Obama health care reform promise to be: a major increase in the number of federal workers to run the program and to oversee and review the blizzard of forms that businesses are mandated to submit; increased government spending and more federal debt as tax money is used to pay for the increased number of government bureaucrats, their benefits and ultimately their pensions; more useless paperwork for businesses that will reduce their competitiveness in the world marketplace; fewer private sector jobs as American businesses spend their money on filing forms instead of hiring employees; and, fewer small businesses as they find themselves unable to afford the costs of compliance with the new mandates as compared with large companies.

     Federal stimulus money was supposed to create jobs for those left unemployed by the 2008 – 2009 recession. As with many if not most federal aid programs, the objectives and the realities don’t match.

     “One-third of the stimulus money went to state and local governments – i.e., to public employee unions.” (Ref. 4) So much for stimulating the economy by aiding small business which also produces the majority of private sector jobs!

     “About 38,000 individuals in Massachusetts have received a stimulus-funded paycheck since the federal program was first launched in February 2009, the Patrick administration said yesterday.
     “In just the past three months, officials said they’ve been able to save or create the equivalent of about 6,400 full-time jobs in Massachusetts.”
     But only “About 21 percent of the total number of saved and created jobs were in the private sector. The rest were government jobs.” (Ref. 5)

     Funny, how the Democrats are jumping with joy over the “saved” government jobs and are silent about the lost private sector jobs that have not been saved or been replaced. It seems to me that saving or creating government jobs presents a double-whammy. First, money spent on government jobs is money not spent on private sector jobs. Private sector jobs are the backbone of the American economy. They lead to more jobs, to useful products and services, and in many cases to foreign sales that help to reduce our trade deficit. Private sector jobs also result in increased federal revenues through income taxes, corporate taxes, and other taxes paid by profitable companies. Government jobs, on the other hand, are a drag on the economy. In general, they produce no useful products or services; they increase the federal deficit; and they tend to be lifetime positions without regard to the efficiency or effectiveness of the employees. In some cases, federal jobs tend to strangle private companies with a maze of red tape, an increase in unneeded and costly paperwork, and unnecessary delays in obtaining bureaucratic approvals. Government jobs do, however, increase the number of drones beholden to the political party that provides them with their jobs and that supports the public’s funding of their and other government employee’s positions.

     Let’s consider another example of the government providing a so-called cure for a perceived ailment. Here again, the cure is likely worse than the perceived ailment.

     In Boxford, Massachusetts, a small rural community north of Boston, reconstruction of Route 133 has been proposed. In this area, Route 133 is a country road. All local governments in Massachusetts at this time are under considerable financial stress because of the 2008-2009 recession. There are a few sections of this road in need of repair and/or improvement. “The pavement appears in good condition; there are no potholes; the edges are not crumbling.”
     The village could appropriate a small amount of money and fix the problems, probably within a year, possibly two. “. . . unfortunately the perverse incentives of state transportation funding and paternalism complicate things. The state may pay for the road construction if it includes certain 'improvements'. The town must foot the engineering costs which would be about $800,000 plus any land or easement acquisition costs. The town would have to wait its turn as funds are appropriated for road reconstruction. This could take five or six years.”
     “The improvements the state likes to see are bicycle lanes on both sides of the entire road and curbs and sidewalks in the village. . . . This would result in numerous land takings and the loss of trees, fences, etc. in the areas taken.”
     “Sidewalks are a political third rail in Boxford. Sidewalks, street lamps, and other suburban fixtures clash with our rural self image.”
     “The state is willing to rip up miles of perfectly good pavement and spend a large amount of additional taxpayer money, probably millions, [in this, a time of fiscal austerity] to obtain bicycle lanes on a highway. Projects like this in every town contribute to the billions in state deficit spending and trillions in federal deficit spending.” (Ref. 6) Beware of Boy Scouts offering to help you cross the street!

     So, big brother is out there helping to stimulate the economy, create new jobs and lessen the effects of the great recession of 2008-2009. But, does what big brother is doing make any sense? Are his actions helping or worsening the problems? Remember, it’s historically been small businesses that have driven the American ongoing economic growth, created jobs, led to innovation and kept America at the forefront of the world’s economy. Let’s see how big brother has been aiding small business in America.

     “The small Business Administration’s Office of Advocacy reports that 27 million small businesses in the U.S. account for half the of the national product and employ more than half the workforce, [Emphasis mine] and Washington figures the $30 billion in loan support and some tax credits will get things done.” This amounts to a measly $1,100 per small business company!
     In contrast, the government gave $185 billion to one single large company, AIG; as yet unknown amounts to Fannie Mae and Freddie Mac; and additional billions to bail out other large companies, i.e., GMC, Chrysler, Bank of America, and Citigroup. “According to the Congressional Budget Office’s The Budget & Economic Outlook: An Update August 2009, big business has been showered with $10 trillion . . . in funding and commitments.”
     “How is $30 billion for small business supposed to make a difference?”
     “The Obama Administration’s small-business stimulus plan is like dumping a cup of water on a forest fire.”
     But then, let’s remember that the union members that vote are concentrated in large companies, not small businesses; let’s remember that those large political campaign contributions come from large companies and not small businesses; let’s remember that “you never hear about a small-business coalition tipping the balance in an election” and let’s note that “The recent {Supreme} court decision on campaign finance only strengthens the influence of big business.” (Ref. 7)

     Consider another example in which the proposed cure of government intervention has failed to cure the ailment. Stimulus funding which is supposed to help cure the economic downturn by creating jobs and stimulating capital investments and encouraging capital improvements, has instead been used to hire lobbyists. “The big winner of the Department of Energy’s battery funding orgy, A123 Systems, spent about a million dollars on Washington representatives from 2007 through 2009. A partner at New Enterprise Associates suggested last March that at least half of its 25 clean-tech firms had hired lobbyists.”
     “The United States should focus on ensuring the overall economic environment is attractive to entrepreneurs (for example, through low marginal tax rates on long-term capital gains [Emphsis mine])” (Ref. 8)

     “The $787 billion federal stimulus bill was all about funding projects that would jump-start the creation of jobs and by extensions the economy.”
     “That is so not the case with the big fancy {$92 million} re-do of the Internal Revenue Service building in Andover {Massachusetts} – site of 14,000 job reductions since last year.”

     With respect to stimulating the creation of new jobs, “an IRS spokeswoman said it is ‘premature to speculate on what, if any new types of jobs might come to Andover.’”

     “Adding insult to injury, the IRS can’t even say whether the massive rehab of the Andover building . . . will mean that that IRS branch offices in {nearby} Methuen and Lowell – which cost taxpayers more than $5 million per year to lease – can be closed.”

     “This is the worst kind of bureaucratic incompetence, and it’s as if no one collecting a federal paycheck cares.” (Ref. 9) Is the government’s stimulus program curing the economic ailment or making the ailment worse?

     A Cambridge, Massachusetts high-tech company recently lost a bid for federal stimulus money to a company based in Finland. Michael Capuano, who represents their district in the House of Representatives asked, “How the awarding of this contract adheres to the ‘Buy American’ provision of the Recovery Act.”
     “I strongly believe the ARRA funds are intended to put American workers back to work at American companies.” (Ref. 10) So did I and so did most Americans. Apparently, some government bureaucrats haven’t yet got the message! Why, in heaven’s name, would we want to send federal stimulus money abroad to a foreign company to take jobs away from unemployed Americans?

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References:

1. Unhealthy for Mom and Pop, Editorial, The Boston Herald, Page 14, 14 May 2010.
2. ObamaCare’s bad business, Deroy Murdock, The Boston Herald, Page 15, 14 May 2010.
3. Obamacare a gov’t overdose, Deroy Murdock, Boston Herald, Page 13, 31 May 2010.
4. Politics trumps policy, Michael Barone, Boston Herald, Page 13, 1 May 2010.
5. Some 30,000 in Mass. get stimulus jobs, Herald Staff and Wire Services, The Boston Herald, Page 14, 1 May 2010.
6. Bicycling toward bankruptcy, John McCormack, The Valley Patriot, Page 13, May - 2010.
7. You Call That a Stimulus? Give Small Biz Something Real, Chris Carey, Forbes, Page 20, 26 April 2010.
8. Publically Funding Entrepreneurship, John Lerner, Technology Review, Page 12, March/April 2010.
9. ’Stimulating’ tax collection, Editorial, Boston Herald, Page 18, 13 April 2010.
10. Feds’ cash skips Hub, goes abroad, Renee Dudley, Boston Herald, Page 21, 1 June 2010.