Tuesday, November 29, 2011

It's DEMAND, Stupid!

“Mitt Romney will act swiftly to tear down the vast edifice of regulations the Obama Administration has imposed on the economy…”
~Romney campaign

I understand that 95% of the people in this country aren’t political nerds like those of us on this blog. The Republican Party understands that as well. That’s why over the past year, you’ve heard so much about Obama and his “job killing regulations,” and “the uncertainty of health care.” The Republicans are excellent at selling the message, regardless of how false it may be. I did a Google search for the phrase “job killing regulations”; it returned over 10 million hits. Most of the hits came from right leaning medium regurgitating rightwing talking points. The rest were left leaning efforts to debunk those same talking points.

The issue at the center of this entire debate is the economy: what’s wrong with it and how do we get it working again? The Republicans – illustrated by their presidential candidates – have planted their flag on blaming Obama and his "job killing regulations" as the primary reason for our economic woes claiming they hurt small businesses. In addition to regulations, the Republicans are also blaming Health Care Reform claiming that small businesses are scared and "uncertain" on how the law will affect their business.  This uncertainty is said to be the reason for our high unemployment.  However, this isn't true, at least not according to small businesses and economists.  It appears that regulations and uncertainty are NOT the main reason as to why small business aren’t hiring; the real reason is demand. Put simply, the public is not spending enough money.

“In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay. The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time.”
This past summer, the National Federation of Independent Business (NFIB) conducted a survey that showed “poor sales” – in other words, demand – as the number one problem facing small business owners. [Editor’s Note: Most folks have legitimate issues with surveys conducted by organizations for fear of bias and slant. To that point, I find it important to say that the NFIB is NOT a liberal group. In Fact, for perspective, they lobbied against Obama’s Health Care Reform.]

"There is no exuberance in spending, as consumers ‘make do’ rather than spend their increased savings in upgrades or new purchases. It’s that extra spending that would provide small business owners a reason to hire and order more inventory, the best stimulus we could have. But confidence is the key and right now there isn’t much."
                                                                           ~NFIP Chief Economist, Bill Dunkelberg

In a separate effort, the Wall Street Journal, a subsidiary of News Corp – neither of which can be confused in ANYWAY as being liberal – reported similar findings after surveying several economists. Of those questioned, 65% stated, “the lack of demand that is keeping hiring down.” Only twenty-seven percent stated that the uncertainty over government policy was the reason.

Understand, I’m not one to say that there is zero need to take a look at current regulations and get rid of the ones that are obsolete or truly counterproductive.  I am, however, not one to say that all regulations are bad. I am definitely not one to advocate a blanket reduction in regulations that protect consumers for the sole purpose of increasing a company’s bottom line.

This is also the main reason I support the efforts of many democrats who are trying to boost hiring by putting money directly into the hands of the general public and NOT into the hands of the rich 1%. The current debate on The Hill is over whether or not the government should tax the rich (those making over $1 million per year) in order to continue the middle class payroll tax cut. The cut would come from the Medicare taxes, which, without another way to pay for it, would further hurt Medicare in the long run.  Of course, this is yet another thing that the two parties can't/won't agree on.  One thing is certain, if nothing gets done, come January 2012, the taxes on those in the middle goes up as a result of the "tax holiday" expiring.

I’ve always been an advocate for a direct infusion of money into the middle/lower class to help boost the economy. It has always seemed counterproductive to me to keep giving more money to those who are currently sitting on a vast supply of money anyway. The rich have money and choose not to spend it; however, it is the middle class and the poor who don’t even have it to spend. As we can see from the WSJ and NFIB, the spending that the middle and lower class is what is sorely needed to build the confidence of business. In the end, it really doesn’t matter how many regulations you have. If you have a public that is clearing the shelves, you will need folks to make sure the supply is there. Put the money directly into their hands and let them spend it.  At the end of the day, you can remove all the regulations you please, if no one is buying your product, you won't be hiring anyone.

Republicans always bash the democrats and the government for overreaching and “knowing better than you” on how to run your lives; however, this reeks of it… how can you say it is regulations that are killing small business when small business are TELLING you exactly what the problem is. It appears to me that they spend more time ignoring the citizens instead of helping them.

What are you thoughts?  If the number one issue is demand why isn't either party saying this?
Do you think congress should extend the payroll tax cuts?
Should they tax the rich to cover the difference in Medicare?
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