Economic Ignorance Will Kill America (Part 1 of 2)

A recent CNN Money online article entitled, ‘Dear Mr. President’ asked a sampling of successful businesspeople to advise President Obama what to do in order to help the economy.

Their answers illustrate what is both wrong and right about the American people, particularly business owners.

Dr. Hurd inserts his comments following each answer.

‘Make more credit available.’
— Matt Lewis, co-owner of a bakery in Brooklyn, NY.

‘Credit’ refers to money, specifically money taken from people who have lots of capital and loaned to people who lack it. Government does not ‘make’ credit any more than it
‘makes’ wealth, money or value.

Government, at present, does control our currency through the Federal Reserve System. (We can see how well that system has worked out.) But controlling is not the same as creating. If there were no earned wealth in the American economy in the first place, there would be no government to take it over in the alleged ‘best interest’ of the system.

If people did not create products and services in the private sector, there would be no

trade. If there were no trade, there would be no currency for the Federal Reserve to control.

You can favor the existence of a Federal Reserve if you like, including government manipulation of credit, but you cannot disregard the fact that credit is irrelevant without the private capitalists who earn and have that money in the first place.

Why was there such a panic when the mortgage industry collapsed in 2008? Because everyone realized that if the giant banks ran out of capital, there would be no credit. If credit could be ‘made available’ as easily as Matt Lewis, the baker in Brooklyn, thinks the government could make it, then there would have been no crisis in 2008. The President and Federal Reserve Chief simply would have said, ‘Not a problem. Citibank and Bank of America going under? We’ll just give capital to anyone who needs it.’

An economy does not work that way, Mr. Lewis. A laissez-faire capitalist economy does not work that way, and a government-regulated economy with a centralized Federal Reserve Chief does not work that way, either. Neither money — nor credit — comes out of thin air.

‘Cut health care costs.’
— Anton Semprivivo, GM of a Honda dealership in Toms River, NJ.

Government can only cut health care costs in government programs, i.e., Medicare or Medicaid. Neither Republicans nor Democrats will allow this. Even some members of the fiscally hawkish ‘Tea Party’ want Medicare preserved. Is cutting Medicare what Mr. Semprivivo is proposing? I doubt it.

What Mr. Semprivivo is most likely proposing is that the government ‘make health care cheaper.’ But how does a product, service, or commodity become cheaper? You would expect the GM of an automobile dealership to know this, but it’s obvious that economic ignorance is rampant. (How else could we have ended up with a President Obama?) The only way for health care to become cheaper is for demand to go down, supply to go up,
or both. There’s no other way.

Health care demand can only keep going up. As Medicaid eligibility expands (thanks to Obama ‘Care’ now taking effect), more people will be clamoring for health services. However, annual studies repeatedly reveal that the number of doctors is not increasing. In fact, studies suggest that there’s a growing shortage of primary care doctors. Plus, as the population ages, still more people will be eligible for Medicare. The demand for health care is rising as the supply — the number of doctors and hospitals available to provide it — is declining. This will only make health care more expensive.

Of course, there is one way to make health care costs go down. That’s simply for the government to put caps on reimbursement, or to lower reimbursement to doctors
and hospitals. Obama ‘Care’ does precisely this, particularly with Medicare. What this means is that the declining numbers of doctors will be paid less to provide life-saving
medical services and procedures to a body of consumers whose numbers are growing. Is this the ‘care’ about which Obama preaches?

The government can (and probably will) evade the problem by simply continuing to pay doctors the same as before, at least until the next election. But it’s obvious that the government is going bankrupt by doing this. That’s one reason why, for the first time in American history, the credit rating of the American government declined. It’s also one reason why the private sector is growing at a snail’s pace, if at all—and only for now, before the worst of Obama’s economic policies start to kick in.

You see, Mr. Semprivivo, government cannot create supply. By providing something for ‘free,’ it can inflate demand, but never supply.

In plain English this means that the government cannot give us quality health care, or even health care at all.

And nothing in life is truly free, as Fed Chief Ben Bernanke and President Barack Obama are finally starting to realize.

‘Give us a tax credit.’
— Mike Bisceglia, a jeweler in Burnsville, MN

Tax credits are temporary and targeted. To most politicians, this is a good thing, because they don’t have to make these tax advantages permanent, and they can favor tax cuts only to groups that they like. Business as usual.

Tax credits are good political policies that serve the personal and professional interests of career politicians who wish to stay in power. However, they do the general economy no favors, and they are profoundly unfair. People who produce can be denied tax credits,
while people who are ‘in’ with their particular Representatives or Senators can get tax credits regardless of how productive they are. This is neither economic nor fair.

The only alternative to tax credits is tax cuts. And the higher, the better. And the more across-the-board the tax cuts, the fairer. Unfortunately, even the Tea Party is not proposing tax cuts at this time. Mitt Romney is talking about lower tax rates, but nothing whatsoever in his political career suggests he can possibly mean it. The best you can hope for from Republicans is preserving the tax rates we have now, while Democrats endlessly seek to raise taxes and add new taxes (such as a national sales tax) on top of it (as they will, even in the unlikely event Obama loses reelection. Sooner or later, they’ll be back in charge since Republicans are clueless.)

‘Fix the economy.’
— Mohan ‘Mike’ Ramchandani, Founder of Mohan’s Custom Tailors in New York City

Now there’s an ingenious plan!

Few people are as hard on Barack Obama as I am. Yet even I must admit that if he could unilaterally fix the economy, he would. Of course, in the process he’s not willing to sacrifice any of his socialist principles, but it still stands to reason that he would love to have better economic numbers than the ones we’re seeing; if for no other reason to ensure his reelection and his ‘place in history.’

No president can single-handedly fix the economy. The way things are going, it might even be too late to do it at all. The widespread naivetand ignorance in the population, including comments such as ‘fix the economy,’ lead me to feel less than hopeful. How can we expect even the better politicians to correct our course if the vast majority of the voting ‘us’ have no remote clue what’s required?

The most that a President (with the cooperation of a friendly Congress) can do is to ensure that the government gets the hell out of the way. This will enable the best and brightest in the business world, motivated by self-interest and profit (YES, self-interest and profit!), to do their thing. After all, the ‘economy’ is really nothing more than that. But it can only happen if they can be assured that government will not block their efforts.

This last point is important. In the last several decades, government has been so overreaching that the private sector has less incentive to operate in a rational way. Why? Because any money that might be made in the private sector could be taxed or regulated away in another year or two. That’s why proposals like these ‘payroll tax vacations’ are so futile.

What good does it do a business to make a profit today if 50 or 75 percent of that profit will eventually be erased by a Medicare or Social Security payroll tax?

Concluded in tomorrow’s column.