Endless Stimulus

Last week, Washington released the employment news, and it was bad. Nearly all the jobs added in May were from temporary government hires. While unemployment went down by a fraction, it was due to hundreds of thousands of people giving up on finding work. Without the effects of the Census hires, the economy nearly went backward. Naturally, the statists in Washington are promising more stimuli. Washington wants more stimuli on top of Stimulus 1, Stimulus 2 (the jobs bill), TARP, free money for banks, and the union bailout bill. Surely nobody in Washington thinks even more will help.

In reality, stimulus, or deficit spending, is the lifeblood of Washington politics. Overspending is how statists gain and expand their power, and a lingering recession is simply today’s excuse for Washington’s perennial waste and corruption. When times were good, progressives like Pres. Bush (43) passed a socialized prescription medicine law. Rain or shine, Washington is always a growth industry.

With trillions in stimulus, why is the economy not adding jobs? How could stimulus be such a failure? This blog argued that stimulus actually retards growth and job creation by artificially directing resources to unproductive projects. Stimulus is not the only tool Washington uses to retard economic growth. When it comes to ruining the American dream, Pres. Obama has a few more tricks up his sleeve.

Pres. Obama, barring some miracle, will by inaction enact the largest tax increase in human history on January 1, 2011. Capital gains and dividend taxes will nearly double. Income taxes will go up by about five percentage points. With huge new tax bills coming due for small businesses that pay according to the personal tax schedule, money that could go to growing their business will go to Washington. Further, consumers know that their taxes explode next year – a major disincentive to spend or invest.

Obama and Interior Secretary Salazar are putting the squeeze on energy. New domestic offshore oil will have to wait until a new administration writes stronger safety regulations. Meanwhile Brazil will benefit from the jobs and investment that come from oil exploration that could be done in the US. Salazar has not confined his assault on domestic energy production to offshore oil. He has also killed thousands of jobs in the West by denying natural gas and shale oil exploration. Of course drilling in a tiny remote portion of ANWR was always off the table. Regulation and kowtowing to environmental lobbies did not prevent the Gulf spill, but it has needlessly exported jobs and investment.

In the housing sector, Obama has simultaneously paid the middle class up to $8,000 to buy a new house, while telling bankers that if they make a loan they may be powerless to enforce their contractual right to foreclose. While an $8,000 incentive was nice, the main obstacle to home ownership remains the lack of a functioning market in financing. Obama has trotted out numerous plans that essentially prevent banks from foreclosing on unpaid notes. Banks already have powerful incentives to not foreclose, but they must have foreclosure as a last resort or else they cannot clear bad assets and eventually make new loans. Obama is replicating the Japanese ‘lost decade’ of bank malaise by trying to save what sometimes cannot be saved. In normal economies, construction activity accounts for 10% of the US economy, but Obama, Rep. Frank and Sen. Dodd, are killing this sector’s recovery with their meddling.

Perhaps Obama’s greatest blow to job creation has been his unpopular socialized medicine law. Not even experts have a clue how the 2,600 pages of Obamacare will be implemented. While everyone knows it will be expensive, no reasonable projection yet exists. Will private sector healthcare costs rise to the level of union or government plans? Will the cost effective HSA based plans be effectively outlawed, doubling or tripling their sponsor’s costs? Quite probably healthcare costs will be unrecognizably higher when Obamacare fully takes effect. With unknowable mandates being forced onto even small employers, job creation will be clouded for years to come. While Obama, Speaker Pelosi, and Majority Leader Reid used vagueness and obfuscation to pass socialized medicine, that very tactic is killing job creation.

The lingering jobs recession is a creation of Washington. Without multiple stimuli, heavy anti-industrial regulation, and expanded socialism, the jobs market would have long ago corrected itself. How many years of economic stagnation and European levels of unemployment will it take to prove that Washington is solely to blame for the US’s jobs problem? The best medicine is no stimulus, less regulation, and especially the repeal of Obamacare. Another stimulus at this point means more pain for Americans who would like to work but cannot.