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By: Wayne Brown
President Obama has now announced yet another spending proposal which he chides as a potential solution for getting America back to work while significantly improving the infrastructure of America. Certainly, improvement in the country’s infrastructure is a noble cause and one which no one really wants to argue against. But, the question still lingers, ‘can America really afford it, especially at this time’.
There is a good reason that America has not already launched a program to do a general rebuild of the infrastructure of the country to include our highway systems and the commercial airport runways across the country. The primary reason is simple…we have not been able to afford it especially on such a grand scale. Suffice to say that our country’s ability to afford additional expense has not moved in a positive direction in the last two years due in great part to the massive spending of the federal government on other projects. Latest projections indicate that expansion is spending has grown by a factor of almost 20%.
As much as we might think that improving the infrastructure will increase the opportunities for employment and business expansion, the actual impact may fall far short of the government’s expectation. Beyond the construction and materials industries, the impact will be primarily trickle down and looked upon by most industries as short-lived. In the end, this becomes yet another effort on the part of the government to spend money with the focus on creating jobs. Once again, the government is electing to ignore the premise that jobs are not created by actions of the government but rather by instilling confidence in the private sector. On that basis, the Obama Administration is basically electing to spend an additional $50 billion dollars in the name of economic stimulus.
Of course the traditional method of paying for infrastructure is to tax the public sector through highway taxes and various transportation taxes associated with public conveyances such as the airlines. This means that taxes increase on gasoline in the name of highway improvements. This project will likely push the average per gallon price of gasoline at the pump over $3.00 per gallon on a national basis. Highway taxes will increase on the commercial trucking sector further increasing the costs of goods and services moved. Additional taxes will be assessed on airline ticket and other forms of public transportation. All in all, the consumer will pay the burden of these improvements through higher prices which in effect are driven by higher taxes imposed by the current government.
While this additional $50 billion dollars in stimulus spending moves forward further increasing the national debt load, the Obama Administration continues to basically ignore the impact of the small business sector and its importance in creating jobs and expanding the economy. At this juncture, the administration would rather let the tax cuts previously in place expire thus increasing taxes on a large portion of the small business segment of America and further stifling economic recovery in the private sector.
Certainly there is talk in Washington of offering loans to small business along with some tax credits in trade for investment in business expansion. In doing so, the government ignores the Holy Grail of small business…cash flow. In the business world, cash flow is king. A business without a reasonable cash flow can rapidly be doomed to failure. In the present economy, most small businesses are strapped for cash flow and have very limited resources to pad them through these periods. While the offering of loans as a bridge is a nice gesture, most of these businesses do not see a viable way to repay those loans out of their existing cash flow and tend to shy away from taking on the debt regardless of the attractive interest rates or tax credits. The fact of the matter is the current status of the job market and the lagging economy is having a direct impact on cash flow for small business. Until that economy can turn the corner and begin creating more jobs, consumer spending will tend to lag the cash flow needs of the private business sector.
Given that analogy, it seems logical that the Obama Administration is not going to pull the country out of this slump in the short term with their methods and approach to the market. Small business is spooked by the recent healthcare legislation which is still filled with unknowns with regard to what the law will require. Businesses are afraid to expand with the overhanging fears of the healthcare requirements and potential for increased taxes in the coming year. These factors coupled with poor cash flow leave the majority of these small businesses in limbo with very limited resources to carry them through. Many will fail if the economy does not move upward soon. This can only result in more job loss and a deepening of the economic slump. Thus far the methods employed by the Obama Administration have simply been the agent of a self-fulfilling prophecy.
The federal government must awake from this bad dream and come to the realization that the answer to improving the situation lies in the private sector. The President and the Congress needs to realize that continued spending is doing little or nothing except making the government an entity that needs money worse than the private sector. Eventually the governments need for cash flow will destroy the value of money and set off inflationary trends that can only complicate the recovery of the economy. The single most effective thing that can be done from the government sector at this time is to get the brakes on spending and impose some strong controls to keep it in place. At the same time, there needs to be an all out effort to reduce the size of government and the associated costs.
In the private sector, consumer confidence must be regained. To do this, private sector business need to hear a loud and clear message regarding taxes and the implementation of healthcare legislation. Once the correct messages are sent, businesses will be more willing to plan their future, expand their investments, and hire additional workers thereby growing the job market sector. As more jobs are created, consumer confidence improves, and cash flow to the business sector gets better. The bottom line is more money is moving in the private sector which generally leads to a rapid recovery.
The retail business sector is coming into what is normally the strongest portion of the retail selling year….the Christmas holiday season. Many businesses take in the majority of their annual sales during this short period of the year that runs the last quarter of the year. If these businesses cannot expect reasonably strong sales in this short period, they have little hope of recovering that revenue until the next yearly cycle if they can indeed hold on that long. The time to act on the part of the government is long since past and it is very doubtful that anything policy offered up at this point will have time for impact before the holiday season arrives.
The business cycle and environment in America is not a big mystery. Businesses survive by producing good reliable products and services and in turn using those to gain the necessary revenue they need to keep their doors open. The government has a primary responsibility to create and maintain a highly positive business environment that will allow this cycle to take place. Government does not create business, but it can easily destroy it. This is what those who serve us in Washington must grasp if the economic engine of this country is to survive and recover.
Our elected officials are out of touch with the American economy. Those who do possess business savvy have given up and fallen silent in their attempts to remove government interference from the private sector business function. Government has adopted an attitude of tax and spend seemingly only interested in the expansion of social programs, the growth of the government entity, and the taxation of the private sector to carry out these desires. The time for change has come…real change. It’s time to stop our tumble down the path of socialism and return to the capitalist principles that have made this country great for well over 200 years. Changes will need to be made to do that. November sounds like a good time to start.
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