Skip to comments.Uncertainty
Posted on 07/14/2012 4:28:42 AM PDT by Kaslin
Did you know that public uncertainty about federal economic policy is at a 30-year high? Economists at Stanford University and the University of Chicago have actually discovered a way of measuring how uncertain people are. They find that their measure of uncertainty correlates with such economic activities as deciding to invest, deciding how much to produce and deciding whether to hire more workers.
One source of uncertainty is what will happen next January when American taxpayers will be hit with a large tax increase (mainly the expiration of the Bush tax cuts) and a major decrease in government spending (the result of last year's budget deal). Will President Obama and the Congress agree to put off the tax increases? Will they agree to delay the spending cuts? Not knowing the answers to those questions appears to have more impact on the decisions of businesses and consumers than if everyone simply agreed to go ahead and let the bad things happen.
Some causes of uncertainty (such as the crisis with in the Eurozone) are not under President Obama's control. But in other areas, he is directly responsible for creating anxiety for the business community and the public. Three policies jump out: Dodd-Frank financial regulation, an unhealthy desire to tax capital, and ObamaCare.
Overall, the economists calculate public policy uncertainty is the apparent cause of a 3.2% drop in real gross domestic product, a 16% decline in private investment and the loss of 2.3 million jobs over the past five years.
Uncertainty is one of the reasons employers are not hiring like they have at the end of past recessions. When an employer hires a full-time worker, the employer thinks of the relationship as long term. During an initial training and learning period, the employer probably pays out more in wages and benefits than the company gets back in production. But over a longer period, the hope is to turn that around and make a profit.
When employers hire new employees, they are making a gamble. They are betting that, over time, the economics of the relationship will pan out.
The problem in the current economy is that hiring new workers and committing to new production has become risky. An employer who hires workers today has no way of knowing the company's future labor costs; its building and facility costs; its cost of capital; or its taxes.
Take the cost of ObamaCare. The Congressional Budget Office (CBO) estimates the average annual cost of a minimum benefit package at $4,500 to $5,000 for individuals and $12,000 to $12,500 for families in 2016. That translates into a minimum health benefit of $2.28 an hour for individual coverage and $5.89 an hour for family coverage.
In another year and a half, the minimum cost of labor will be a $7.25 cash minimum wage and a $5.89 health minimum wage (family), for a total of $13.14 an hour or about $27,331 a year. You can see already that few firms are going to want to hire low-wage workers with families.
Employers could decide to drop their health insurance altogether; and if they do so they must pay a fine of $2,000 per employee per year. Yet if a lot of employers do this (and apparently a lot of them are thinking about it), it is likely the federal government will respond by making the fine a lot higher.
The jobs numbers tell two different stories. In terms of hours worked, the labor market has recovered. But in terms of the actual number of people working, we haven't even started to recover. People with jobs are working just as many hours as they did before the recession began. This is consistent with the incentives under ObamaCare: Nothing happens to the employers' health care costs if people work additional hours. However, there is a substantial increase in health care costs, if the employer hires one more worker. This may be the reason for the jobless recovery.
I testified this week at a House Oversight and Government Reform Committee hearing on this subject of economic uncertainty and the role ObamaCare plays. In addition, my new book, Priceless , explains how to dismantle and replace ObamaCare.
I everyone stuck to his own knitting, they wouldn’t all have to fit under one blanket.
The unfair rich only fear the Guillotine...let’s be honest...the French did at least have the guts to take down the bankers...and feed the dogs with blood.
Entrepreneurs act on the belief that a
positive rate of return can be expected
for a given activity
If, as is currently true,
they believe a negative ROI is to be expected,
they sit on their hands
Multiply by 10’s of millions of individual decisions
by individual entrepreneurs
The economies stop, and all H.LL breaks out
Damning charts. Thanks.
A personal project
Change in GDP vs Change in Domestic Debt
Year over Year Smoothed
The Global Capital Multiplier
Has been persistently below 1 for 3 years
Indicating a Negative ROI on the Utilization of Injected Capital
It is the Engine of Capitalism Crashing
How many Ounces of Gold does it take
to buy the Average U.S. House?
Average U.S. real estate price divided by gold
Thursday, July 12, 2012
Confidence in the stability of the U.S. banking system has fallen to its lowest level in over a year of monthly tracking.
A new Rasmussen Reports national telephone survey finds that 43% of American Adults are at least somewhat confident in the stability of the U.S. banking industry today. Thats down from 46% last month and from a recent high of 50% in May. By comparison, however, in July 2008 just before the Wall Street meltdown, 68% were confident in the banking system.
Their solution was freedom for individuals and limits on government manipulation, planning, and attempts at control, under a written Constitution which would "establish Justice" under a system assuring equality before the law, once which would inspire confidence.
An example of such wisdom is James Madison's June 20, 1788, advice on a problem of the day related to debtors:
"If this system should have the effect of establishing universal justice, and accelerating it throughout America, it will be one of the most fortunate circumstances that could happen for those men. With respect to that class of citizens, compassion is their due. To those, however, who are involved in such encumbrances, relief cannot be granted. Industry and economy are the only resources. It is vain to wait for money, or temporize. The great desiderata are public and private confidence.
No country in the world can do without them. Let the influx of money be ever so great, if there be no confidence, property will sink in value, and there will be no inducement or emulation to industry. The circulation of confidence is better than the circulation of money. Compare the situation of nations in Europe, where justice is administered with celerity, to that of those where it is refused, or administered tardily. Confidence produces the best effects in the former. The establishment of confidence will raise the value of property, and relieve those who are so unhappy as to be involved in debts. If this be maturely considered, I think it will be found that, as far as it will establish uniformity of justice, it will be of real advantage to such persons. I will not enter into those considerations which the honorable gentleman added. I hope some other gentleman will undertake to answer."
Freedom for individuals and limits on government manipulation, etc would indeed inspire confidence