This is a guest post by Tony Parker, an outspoken business owner and investor, looking at the intersection of politics and money. While I don’t agree with all his views (see my rebuttal in the comments section) I do think he makes some valid points worth discussing. Please share your views and thoughts via leaving a comment below.
Around the water cooler – when we talk politics – one item comes up often: Is President Obama pulling a “Jimmy” – as in Jimmy Carter. Most rational people believe that Carter, a “one term-er”, was our worst modern day president in terms of effectiveness (not counting Nixon’s criminal activity). I believe one of his major faults was his inability to create the right environment for a robust economy. Guess what? Obama is heading down the same path despite (or perhaps in spite of) signing health care and financial reform bills.
I am cognizant of the fact that President’s get too much credit when times are good and too much blame when they are bad, but the “bully pulpit”, great leadership and the right framework can have a significant impact on the economic environment. Here is my brief three-point plan to get the economy back:
Cut taxes. I don’t want to sound like a hard-core republican, which I am not, but cutting taxes does stimulate the economy. I don’t recommend across the board tax cuts, like the bush tax cuts, but rather targeted tax cuts that provide incentive for people to spend and invest.
When you are ready to buy your first house and you calculate the potential mortgage vs. your current rent, you always take into consideration the mortgage interest deduction. That deduction is a major incentive for you to take on the “burden” of home ownership. This logic is also what made the home buyer and new car tax breaks so successful, because they were targeted and resulted in a direct incentive/stimulus.
Why does the government subsidize housing? Because we believe that home owners are more stable parents, take better care of their property, are more involved in the community, and they provide real economic stimulus when they purchase stuff for their new house (furniture, lawn motors, appliances, etc.). These costs are ongoing and is a major reason why consumer spending drives over 70% of our economic growth.
Therefore, providing targeted tax cuts for individuals and business that will influence their decision-making can be a very powerful weapon. Example: If you owned a medium sized business and the government offered you a healthy tax break for building a new factory/shop – would you not seriously consider it? After all, you want to expand your business, but you want to be sure the numbers work. The benefit: new construction jobs, new employees to run the factory, new employees paying taxes, and new employees spending their paychecks at local establishments. Now picture several companies doing a similar investment…BOOM…a thriving economic environment. That is why Obama should extend existing business credits and employment programs, because these provide the biggest bang for the buck.
While cutting taxes or even extending the existing bush tax cuts will add to our federal deficit, I believe that the more immediate danger of a double dip recession outweighs the longer term debt issue (which does need to be addressed as well and is a topic for another post!)
Don’t Re-regulate, enforce the current regulations.Nothing, and I mean NOTHING scares business more than regulation, or more specifically, the uncertainty of coming regulation. Nobody likes it when the rules are changed in the middle of the game. In most cases, we have plenty of regulation on the books, but because of the government bureaucracy, enforcement is spotty and ineffective (Examples: SEC – Madoff; MMS – BP oil spill; Mine Safety and Health Admin (MSHA) – WV coal mine disaster). Hire the right people to run these agencies and pay them the big bonuses when they find corruption, fraud, etc. Then you will have a much safer and secure business environment, where catching the bad guys is actually rewarding – as opposed to our current regulators who get in bed with the groups they are regulating so that they can land cushy and high paying jobs after their government tenure.
I can guarantee one thing, until Obama stops threatening new regulation, business will sit on their hands until the “coast is clear” and the future is more certain. This means no new real job creation and the continuation of a spluttering economy.
Stop bailing out industries and failing entities. Last time I checked, we lived in a capitalist society. Is this type of democracy fair to all individuals? NO! Does capitalism reward the rich more than others? YES! But does capitalism allocate resources in a reasonably efficient manner? YES! And most important of all, does it promote prosperity? YES!!!!!
Capitalism comes with creative destruction. Some business MUST fail in order for the more efficient ones to succeed. It hurts…its painful for employees, but it ensures that the best grow and the worst die. Otherwise you have the government subsidizing and bailing out companies forever because they cannot stand on their own (Examples: GM, Amtrack, Post Office, Citigroup, Fannie Mae). I, for one, am sick of my tax dollars going to poorly run, inefficient, and corrupt organizations.
So President Obama, if you don’t get the economy back on track you will indeed pull a “Jimmy” and become a major disappointment to the millions who voted for you (including myself). As the saying goes, “Once Fooled, Twice Shy.”
Other posts by Tony Parker (that maybe just as controversial)