With the defeat in Massachusetts last Tuesday President Obama and the Democrats shifted their focus from trying to force bad legislation through Congress to "putting Americans back to work." Good idea, but then so is reformation of aspects of our healthcare industries.
As a quick recap, in February 2009 with Obama in office less than a month Congress passed the American Recovery and Reinvestment Act of 2009. Quickly signed by the President, ARRA, known at "the Stimulus" had a price tag of $787 billion. The purpose of the Act was to create and preserve jobs and, according to the White House, prevent U.S. unemployment from reaching 8%. Money was going to go to communities across the country for "shovel ready" projects to promote infrastructure development and create local jobs.
As I wrote last January, the Congressional Budget Office in analyzing the bill stated it would have little impact on the recession or creating jobs before the current recession ends. Almost all of the spending in the bill would occur in the months leading up to the 2012 election cycle. Almost all of the funds went not to private sector companies and projects, but rather to state and local bureaucracies. The CBO analysis appears to have been correct, the ARRA would have no impact during the fiscal year it was passed. Unemployment has crested 10%. Because of red tape and inherent government inefficiencies communities across the country have nice signs that say "This work project funded by the American Recovery and Reinvestment Act of 2009" that sit on corners or streets for months with no visible work being done. Chalk ARRA up as the first misstep, or failure, of the Obama Administration and his Congressional allies who at the time needed not one Republican vote to pass any legislation--and none in Congress voted for ARRA.
In the past year private sector unemployment has been shrinking month after month. This past week another 485,000 filed for first time unemployment claims. The number of Americans on unemployment roles has stayed somewhat constant because the number of Americans falling off the unemployment roles has about equalled the number going on. Stretched out because part of the ARRA funds went to states to extend unemployment benefits--a jobs stimulus bill that paid states to pay those not working longer, an oxymoron only government cannot understand--the true, or real, unemployment number in the United States is in excess of 10%.
Almost all of the jobs lost in the current economic cycle are from the private sector. Amazingly while Americans working for private companies have seen lay-offs, business closings, salary and bonus cuts, and other economic hardship, government employees have been mostly untouched--especially Federal employees. In California the economic reality of a broke state and many municipalities has caused many workers to share the pain of the private sector with furlough days, but overall employment in the sector has not shrunk, especially compared to their private sector neighbors.
Nationally, the number one industry for job security and growth has been working for the government. While the number of Americans paying taxes has shrunk, the number of Americans benefiting from tax revenues in the form of salary and benefits has increased. And incredibly many are making more today than they did in 2008. This past week it was announced that for the first time in history the number of Americans in public employee unions exceeds the number of those in private sector employee unions (while government owned I believe the GM members of UAW are counted as private sector).
So in the past year Congress and Obama dedicated $787 billion for job growth and protection. Millions of Americans have lost their jobs in the private sector, millions more have seen cuts in salary and benefits. Those collecting paychecks and benefits for working in government jobs have seen increases in their paychecks and an increase in co-workers on the job as government payrolls have grown not only in salary but in numbers of checks issued.
Now as Obama talks about focusing on jobs Americans need to hold on to their pocket books because we know more spending is on the way. Blessed with the inability to acknowledge mistakes, missteps and the people, Obama, Speaker Nancy Pelosi and Senate Majority Leader Harry Reid do not see ARRA as the rush-to-spend that it was, but rather a success. Their myopia, as seen with their reactions to Massachusetts, leads them on a collision course with more bad legislation and policies that will not increase jobs in our country, but more likely add to the dissonance in the private sector preventing investment and growth.
Step one of the next misstep is Obama attacking banks. Trying to rally the mob, Obama attacked the bonuses and salaries of bank executives, bemoaning their paying themselves but not lending and extending credit to start and aid economic recovery. He stated he was going to reform the banking system and establish new rules for them. Ignoring, or ignorant of, the incredible Federal oversight currently going on of U.S. banks, Obama has promised more oversight and accountability.
But banks are not lending money because they have no idea what the repercussions of lending to small and medium businesses will be. Under attack since the TARP funds were put into the system, whether some banks wanted them or not, banks have been very tight on credit. Seeing the PR damage to their industry and to the executives who make the decisions, banks are not going to stick out their necks making small business loans. Risky loans invite federal scrutiny. Federal scrutiny leads to federal takeover. Better to not make risky loans and instead invest in more secure investments like Treasury bills and overnights to major corporations.
Jobs are created by entrepreneurs and those with vision. In a bad economic environment most business owners hunker down. They cut expenses, the number one expense almost always being payroll. They hoard cash and do not expand or invest. Advertising gets cut. Marketing gets cut. A little bit lower grade of supplies are used. This behavior maintains or worsens a recession. To reverse the process risk takers are needed.
Small and medium businesses are the number one employers in America. Towns and cities across the nation are dependent on these companies for economic health and growth. For growth they need capital. For capital they need banks to loan them money. For banks to loan them money they need some room from regulators to be able to extend some risky loans to those willing to expand in a shrinking economy.
Until the rules are set for banks. Until banks are secure in knowing they can extend credit with some risk attached. Until banks are not governed to a zero-loan loss expectation. Until a small business owner with a plan and an idea that needs ten, twenty, fifty thousand dollars to implement is provided the capital. Until these happen our economy will be stuck on unemployed.
Obama's Administrations says they are focused on jobs in America. Great. Connect the dots. Jobs need employers. Employers need capital. Capital needs banks. Banks need firm and set rules.
Quit the rhetoric and playing to the fawning press. Rhetoric is killing the markets and investments in America. Let the banks lend and see what happens. Quit trying to legislate to prevent failure and instead allow for some risk to enable growth.