Does
Stimulus Help Or Harm Job Prospects
by
Ed
Dedelow
The job stimulus plans of the
Obama Administration and those of state
and local governments will hurt job prospects,
productivity and lead to more dependence
on government. There are four reasons
why.
First, stimulus plans involve
an exchange of free choice for government
choice. This means the government decides
what projects are to be done, rather than
letting the free market decide which projects
are worthwhile. This is essentially socialism.
The government has determined that the
people are not intelligent enough to determine
where their money is best spent to improve
the economy and the government will now
make these choices for them.
Second, nearly all government
schemes involve a new tax or new fees
on individuals and businesses. Income
taxes, social security and other "taxes"
already take up 1/4 to ½ of each consumer
dollar. New taxes will mean consumers
have less cash, and they will cut their
market basket purchases accordingly. Businesses
also have to factor in future taxes and
regulation costs when analyzing investments
and with new costs and a smaller consumer
market basket, investments, with previously
good prospects, can turn into poor choices.
Taxes and regulation also force businesses
to cut expenses and to assimilate the
new costs before expansion can be considered.
High taxes or regulation
make it difficult for businesses to earn
profits and forces them to make job or
wage cuts. Here is what happens: First,
when government raises taxes to spend
on stimulus, the new tax further diminishes
the after tax dollar the consumer has
to spend. Second, the stimulus dollar
does not come back to the local economy
as a whole dollar. Companies and employees
receiving the money will pay income taxes,
social security taxes and other taxes
amounting to as much as 30%. Third, insurance
monies spent on stimulus projects (for
workers comp and other things) will mostly
go into reserves in a recession economy
that is already flush with cash. Lastly,
rich businesses that depend on government
work will receive big profits that often
will not go back into the economy for
years. After all of this is taken out,
locals may receive as little as 20 cents
back from each dollar they pay in new
taxes. So besides being wasteful, the
multiplier impact that politicians think
exists is a fantasy.
Higher government costs
always mean wage/benefit cuts. Many small
businesses, which are only marginally
profitable, will go out of business. Likewise,
large corporations, to remain profitable,
will shut down, sell operations and/or
make internal adjustments to reduce labor
costs. Reducing labor costs means cutting
wages, cutting jobs and exporting jobs.
This multiplier does not
account for these reductions, totally
ignoring lost consumer and business spending.
A recent example is a rail project to
be paid for with tax money that is projected
to produce 8,000 jobs. It is a 2.5 billion
dollar project or $312,500 per job. Obviously,
little of that amount will flow to the
average worker or be spent in the local
economy. But, the taxes to pay the cost
will come out of the local economy. This
displays the bogus component of the "multiplier
factor".
Taxes and regulation also
affect businesses' investment decisions.
Taxes and regulation eat into profits
a business earns for current operations
and for future expansion. Businesses can
often find investors or borrow money up
to 5 or 10 times their annual profit.
In other words, a dollar less tax on a
business could mean 5 or 10 times that
much in business investments. The money
invested by businesses creates jobs that
increase production of goods consumers
want. On the other hand, government "created"
jobs usually have little or no value.
So, a dollar is less than a dollar when
government spends it on something people
can do without. The affect on a business
is a double whammy: Future investments
must have a higher pre-tax net profit
margin to be viable and that results in
fewer credible investments. Taxes on existing
income limits borrowing and the capital
investments for which a business would
otherwise be eligible.
The worst possible scenario
is the one being played out by the Obama
Administration and the Democratic Congress.
Businesses, whether large or small, do
not have any idea of what taxes or regulations
are to be imposed, if any. The health
care bill has a major impact on taxation
of individuals while the pending carbon
tax would significantly impact business
taxation and product pricing. This lack
of knowledge is especially perplexing
since some taxes and regulations may begin
in 2010. Businesses cannot make investment
plans when they have no idea of the future
impact. Ergo, the result is disastrous
confusion.
Third, nearly all schemes
devised by government are ordinarily too
late to have any affect on whatever current
crises they mean to fix. Furthermore,
they are often no more than pork barrel
payouts. Congress can take a year or more
to respond to a recession, and the bureaucrats
handling the money will slow it down even
more. By the time monies are spent, the
economy could be in recovery with a resulting
inflationary impact.
Lastly, government stimulus
plans focus spending on products or services
that are too expensive, have limited consumer
value and benefit only a few at an exorbitant
cost. Government may accomplish little
more than creating expensive, temporary
and low paying jobs in the private sector
that will make someone rich. While the
jobs created within government, where
the pay ranges are twice that in the private
sector, are a harbinger for a future economic
downturn as government's demands on the
fruits of productive labor create demands
for yet even higher taxes.
Much of the blame can be
placed on the method devised by economists
for calculating the increases or declines
in Gross Domestic Product (GDP). These
changes are seen as ups and downs in economic
growth. According to the method currently
used, government spending adds to our
GDP.
The Obama Administration
can make the economy look better by borrowing
money and giving raises to government
workers. Here is an example of what economists
characterize as economic growth. Let us
suppose that government employees are
all given raises (as they recently were).
Per the economists, GDP increases and
shows up as an improvement in the economy.
These employees do not need to actually
spend the money. As a matter of fact,
if, after deducting federal withholding
taxes, employees purchased US treasuries,
all the money would [close up extra space]
go back to government. Not a single job
has been created and no product is sold.
Thus, nothing has been added, in reality,
to the GDP. As a side note, given that
government employees are the best paid
and most secure workers in the country,
they would, on average, be least in need.
As such, in a bad economy, they are more
likely to save than spend. This is gimmickry
and an example of outdated, deficient
and unscientific economic rationale.
______________________________________
Politicians believe the
gimmick the economists created.
And as you can see,
GOVERNMENT DOES NOT CREATE
JOBS, GOVERNMENT CREATES RESPONSIBILITIES.
Think about it.
Think outside the box.
Scientific Capitalist
http://moderneconomies.com/
