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Obama Hits Economy with Heavy Club (Again)

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The economic news as of late has been dismal. Banking crisis, and debt crisis in Europe. A foreshadowing of the government debt crisis in the US was played out in budget negotiations.

The President’s last promise to us was that he will release a big economic plan after Labor Day.

Skimming various publications around the internet and all the talk is on jobs. I have some news for you, Presidents don’t create any jobs. They do create a climate of confidence, and create an atmosphere where others can create jobs. But Presidents are powerless when it comes to moving the unemployment needle.

I can make an educated guess as to what the President’s jobs plan will be. First, extension of the payroll tax credit. Second, an infrastructure bank. Third, targeted tax breaks for hiring employees.

None of this stuff will work any better than the bailout plans and stimulus schemes.

None of it is imaginative, and it’s more of the same. The logic behind these plans are the same logic that has permeated the Obama Presidency since the beginning. Central planning. The President, i.e. government, knows best.

That’s not how you grow an economy.

Most people point to small business to grow an economy. However,

If small businesses, or more specifically new small businesses, are an engine of job growth in the United States, that particular engine has been getting less powerful. Between March 2009 and March 2010, new establishments generated 1 million fewer jobs than over the period from 2005 to 2007. About 85 percent of that decline was related to a reduction in the number of new establishments. The other 15 percent was attributable to the smaller average size of those new establishments. In contrast, the 1 million fewer jobs per year coming from new establishments between the years 2000 and 2005 were all attributable to a decline in the size of the establishments—the number of new establishments per year actually rose slightly over that period.

All that government spending netted us nothing. Businesses are doing more with less.

Contrast that with Marc Andreessen’s article this week end.

More and more major businesses and industries are being run on software and delivered as online services—from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.

Instead of trying to use the government as a heavy club, why not use jujitsu and allow inertia to transform us economically? Obama has wielded the heavy club since taking control and has nothing to show for it. We are worse off.

How do you use economic jujitsu?

Give up centralized control and incent the masses. They will figure it out. This means lowering taxes for everyone-not just a “targeted” segment. Lowering the bar will inspire entrepreneurs to create new businesses to fill in the small market segments that other businesses cannot reach.

Higher tax rates erect barriers to entry and protect dominant players. It’s one of the reason’s people like Warren Buffett argue for higher taxes. They seek to protect their turf.

Capitalism works best when there is intense competition and creative destruction. Having businesses fail is a healthy development if they are passing away because something new and more productive is overtaking them. Think Amazon versus Borders.

Lowering barriers to entry by reducing tax rates and reducing regulation is going to intensify competition. That means more jobs, not less. Of course, if your economic views adhere to the broken window or ATM economy, there is no way for you to think out of the centrally planned box that we reside in today.

Free the millions of people that reside in the US. Let the citizens figure it out. Today we are imprisoned by an administration that wants us to walk down the road to serfdom. Time to open up the jail and throw away the key.


John Ransom | Create Your Badge

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