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  • The Uncertainty Certainty

    The left just can not come to grips with the fact that their hyper-aggressive policy agenda is a major factor causing unemployment. Witness Mother Jones trying to debunk “The Uncertainty Meme” after reading USC business professor Ayse Imrohoroglu identify uncertainty as a confidence killer.

    On inflation Drum writes:

    Interest rates will remain very low for a very long time. The Fed has made this as clear as any central bank possibly could.

    The Fed certainly intends to keep interest rates, especially long-term interest rates low, but the Fed’s experiment in quantitative easing does not seem to be unfolding the way it expected. Since putting the policy into practice, long-term interest rates have jumped considerably, up from about 2.6 percent to nearly 3 percent in just five days. For interest rate movements, that’s just about the equivalent of light speed. Whether the Fed is right or wrong, the fact remains the future of inflation and interest rates, and the Fed’s impact, are extremely uncertain, making it especially difficult for businesses to make decisions.

    On Obamacare Drum writes:

    PPACA has no impact on small businesses and only a minuscule impact on large businesses. Medium-sized businesses face a modest penalty if their workers use federal subsidies to enroll in private insurance programs via the exchange. In other words, the overall financial impact on the business community is pretty modest. What’s more, there’s really not much uncertainty here. The broad impact of PPACA’s rules is already clear, and they don’t take effect until 2014 anyway. This is not having a significant impact on business investment decisions in 2010.

    It takes a certain amount of audacity to confidently claim that a regulation that is not even written yet will not have any impact on business investment. That said, there are some things we do know about what Obamacare is doing to small business. Obamacare is already causing health care costs to rise thus making it harder for small businesses to afford coverage. Both the Commonwealth Fund and Families USA have produced reports showing Obamacare does next to nothing to mitigate these higher health care costs. And Obamacare disincentivizes small businesses to grow because medium sized-businesses are punished even harder. Specifically, firms with 50–199 workers will have to pay taxes on individual employees receiving premium subsidies in the yet to be established exchanges. And then there is Obamacare’s new 1099 form requirement which force small businesses to report all transactions to the IRS above $600. There have been bi-partisan votes to repeal this part of the law, but its ultimate fate is … uncertain.

    On taxes Drum writes:

    There’s no excuse for Congress leaving tax policy up in the air for as long as it has. But even with that said, the Bush tax cuts affected personal tax rates, not business rates. And despite demagoguing to the contrary, even if the Bush tax cuts expire completely the effect on small businesses would be close to zero.

    The tax hikes set to expire this December 31st include capital gains taxes, dividends taxes, and estate taxes. Does Drum really believe that all of these taxes have no impact on small businesses? And while only 8 percent of small businesses pay the highest two income tax rates, those businesses earn 72 percent of all small business income and pay 82 percent of all income taxes paid by small businesses. Raising personal income taxes, which includes that 72 percent of all small business income, would have a huge effect on how many people small businesses do, or do not, hire.

    On financial regulation Drum writes:

    Financial reform was a fairly modest affair, and in any case its effect is almost entirely restricted to the financial sector. Its effect on the rest of the business community is slight.

    When the financial regulation bill was being passed supporters claimed it was essential to economic recovery. Now all of a sudden its just a “modest affair” that is “almost entirely restricted to the financial sector.” This is just plain false. The 2,319 page financial regulation bill requires 243 new formal rule-makings by 11 different federal agencies that affect almost every commercial transaction you make as a consumer.

    On energy prices Drum writes:

    There is no possibility in the near future of a carbon tax.

    Let’s hope that Sen.  Joe Manchin’s (D-WV) cap and trade shooting campaign ad really has killed any chance that legislation will ever pass. Unfortunately Majority Leader Harry Reid (D-NV) is still pushing renewable energy standard legislation that, like cap and trade, is specifically designed to raise energy prices. And then there is the Environmental Protection Agency which, as President Obama confirmed in his post-election press conference, is planning to raise prices on fossil fuels through Clean Air Act regulations.

    On the debt Drum writes:

    There is no question about the federal government’s long-term ability to meet its debt obligations, and even if there were this would have very little effect on short-term

    Congressional Budget Office Doug Elmendorf has testified before Congress that our national debt is “unsustainable.” President Obama has admitted that our long-term debt load “unsustainable.” If our long term debt is unsustainable, and the left is incapable of cutting spending, then businesses know that that means higher taxes. And that definitely hurts business investment decisions today.

    The only thing certain about inflation, health care costs, energy costs, capital costs, and taxes is that, thanks to President Obama’s policies, the future is very uncertain.

    Posted in Obamacare [slideshow_deploy]

    9 Responses to The Uncertainty Certainty

    1. Michael Fisk, Kalama says:

      Even if Drum's reasoning was absolutely watertight (and, as with practically anything he writes, it's not quite there), that alone wouldn't be enough to discredit the notion of uncertainty in the economy. Why? Simple; the Obama administration seems to be making policy proposals up as they go, and throw them out (and attempt to ram them through) with incredible speed. Even if everything that's been done or proposed so far turns out to be a tempest in a teacup (and that's a gigantic "if"), nobody knows when the other shoe will drop, much less, when it does, whether it'll be a lightweight beach sandal or a steel-toed Doc Marten.

    2. Hogarth says:

      With his unbelievably short planning horizons, one is left wondering if Kevin Drum has managed anything larger than a lemonade stand.

      "they don’t take effect until 2014 anyway."

      Dude, that's practically tomorrow when planning against 5 – 10 year depreciation schedules, resource allocations, and staffing decision.

    3. West says:

      There is one thing that is certaiin.

      Kevin has his head stuck where the sun don't shine.

    4. Mike K California says:

      You have to understand how much wishful, if not magical, thinking pervades leftist ideology. There is no room for unintended consequences in a planned economy or it just might collapse. The best description comes in an essay by Canadian writer David Warren.

      Comparing Gorbachev and Obama:

      [They] do have one major thing in common, and that is the belief that, regardless of what the ruler does, the polity he rules must necessarily continue. This is perhaps the most essential, if seldom acknowledged, insight of the post-modern “liberal” mind: that if you take the pillars away, the roof will continue to hover in the air.

      Gorbachev seemed to assume, right up to the fall of the Berlin Wall and then beyond it, that his Communist Party would recover from any temporary setbacks, and that the long-term effects of his glasnost and perestroika could only be to make it bigger and stronger.

      There is a corollary of this largely unspoken assumption: that no matter what you do to one part of a machine, the rest of the machine will continue to function normally.

      A variant of this is the frequently expressed denial of the law of unintended consequences: the belief that, if the effect you intend is good, the actual effect must be similarly happy.

      Very small children, the mad, and certain extinct primitive tribes, have shared in this belief system, but only the fully college-educated liberal has the vocabulary to make it sound plausible.

    5. Mike Constitution says:

      Stupid is as stupid does and it was liberal social engineering policies that did this to us.

    6. willis says:

      "If our long term debt is unsustainable, and the left is incapable of cutting spending, then businesses know that that means higher taxes. And that definitely hurts business investment decisions today."

      They also know that it means total chaos in the capital markets, runaway costs that they cannot pass on to their customers, loan requirements they cannot meet and pretty much the end of their business. I wonder why Drum thinks everything will be different this time than it was under the previous Marxist, Jimmy Carter?

    7. Pingback: Instapundit » Blog Archive » THE CERTAINTY of uncertainty….

    8. Downie, Japan says:

      I have to agree with Drum regarding "There is no question about the federal government’s long-term ability to meet its debt obligations"

      I do indeed not question that it cannot meet them.

    9. Pingback: Fish Fear Me

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