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Campaign 2008: What the candidates’ plans tell about their grasp of economics

Today's Financial News - Posted March 12, 2008

by J. Christoph Amberger

Baltimore — (TFN): Since my sons became Boy Scouts, being prepared has taken on new meaning for me. Turns out preparedness is as much a function of one’s ability to think ahead, as it is an indication of your ability to identify a problem.

The economic "Jump-start" plans of the Democratic candidates provide a compelling view of how they perceive economic problems and solutions:

Click here to view the video! 

Obama offers a $250 tax cut for working families and a $250 handout to Social Security recipients. He wants to create a $10 billion fund helping people stave off foreclosure… and another $10 billion for state and local governments that have been hard hit by the housing crisis. And extend unemployment benefits.

Hillary Clinton wants to subsidize bad real estate purchase decisions with $30 billion, impose a 3-month moratorium on foreclosures, and interfere with lending rates. Spend another $25 billion in heating assistance… and $5 billion on alternative energy "investments". And let’s not forget another $10 billion in extended unemployment insurance.

Which is an interesting approach to a looming recession

Combating unemployment with extended unemployment benefits is a noble gesture. It certainly will appeal to all those voters who fear losing their jobs in the near future. According to press reports, that is quite a lot.

But you see, over the past couple of decades, the United States had a magic formula in dealing with unemployment. It was called a pro-business environment. It was so successful that when American liberals bewailed 6% unemployment rates as a national calamity after 2001, their European colleagues were rolling their eyes at the self-indulgence: After all, the European welfare state had created chronic unemployment rates in the double digits.

Since then, things have changed. Europe has finally entered the 21st century. Implemented the main economic points of the Bush Administration. Business taxes are now lower in Europe, Russia, China, and other assorted Asian and Arab countries than in the United States.

In fact, some of these countries are actually courting American companies to relocate into their tax jurisdictions. They figure these companies will create jobs, increase tax receipts, grow GDP… and eliminate what unemployment remains in the process. Just like they had in America.

Hope and Change are poor substitute for economics 

US Democrats, by comparison, appear to have missed the connection between business and job creation altogether. In fact, they seem to be set to make life as hard and unattractive for American business as possible.

Hillary threatens that businesses that do not provide insurance to their employees would be assessed a fee based on a percentage of their payroll. Obama wants to eliminate the ceiling on social security taxes, which currently stands at a little below $98,000 — sticking companies with the additional 6% on the higher salaries. Both have promised to increase tax rates on businesses and punish those who seek to lower cost by outsourcing jobs to other countries.

It’s like locking up the fire hydrants at the beginning of a wildfire, but promising potential burn victims free ointment and an extended band-aid supply.

In a global economy, businesses gravitate to countries that offer the best options to make profits that exceed the return on a Treasury bill. Costs include labor, taxes, and the opportunity cost that comes with the bureaucratic hoops they are forced to jump through.

The better the business climate, the more jobs are created.

Conversely, businesses can move their headquarters — and hence, their taxable profits and labor demand, for less than it costs to buy a new dishwasher. That’s bad news for employees of those companies who still operate in the United States. Because the accounting spreadsheets of these companies will sooner or later prove black on white that a relocation to a business-friendly environment serves the company’s purpose better.

The good news: We’ll always have Dubai.

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Next Article: Renewable Energy: The Fed says no, but stocks say yes

Posted by J. Christoph Amberger · Filed Under Politics 

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