Obamanomics Makes No Sense: Senate to end debate, vote on small-business aid bill | CNN.com


Something doesn’t make sense about this.

To summarize: Obama wants to give ultra-cheap loans to small banks so they can lend it out to small businesses which will create 500,000 jobs.

Hmm. Let’s start at the top. What’s “ultra-cheap?” Well, the Fed discount rate is 0.75%.

That’s pretty darned cheap already. So what Obama is telling us is that he’s going to loan money out at something under 0.75% and somehow banks are going to be encouraged to loan it out to small businesses. But 0.75% is so minuscule as it is, I’m not sure it will make much of a difference. If a small business didn’t take a loan at whatever the already-low-rate is (because it’s not 0.75%; it’s probably more like 3-4%), there’s not much that will get you to take a loan at all, and with so little room between 0.75% and 0.0%, there’s not much room to get much lower.

And here’s the kicker: banks are already trying desperately to give the money away even as I type this. One loan officer said that there are quotas in place to land loans, and those officers’ jobs depend on making those quotas. Did you hear that, Mr. Obama? The banks can’t originate enough loans as it is! And yet you think that a 0.5% rate cut will make the difference…

I doubt it.

Even if… let’s say small businesses do take these loans. How, I wonder, will this create jobs?

Let’s think about it for a minute. If a business hires a new worker, there’s an inherent assumption that that new person can do enough work to generate enough revenue to cover that person’s salary and overhead and generate a profit. Sure, there might be some lag as the person gets up to speed (and a very short-term loan or even… gasp!… savings can help with that), but essentially, if the demand for that person’s output isn’t there, then that person will never cover their own expenses, and hiring them wasn’t a smart move in the first place.

So a loan to hire somebody is, essentially, a waste of money unless the demand for that person’s output already exists, in which case you don’t need the loan to start with: Go hire the person already! Or, if you needed a loan, then you probably already took it because you know the demand is there. The mere availability of a loan isn’t going to make a difference in your hiring because your hiring is based on demand, not your ability to pay, because if that were the case, I’d just borrow a trillion dollars and hire everybody. But then I’d have to change my name to “U.S. Government.”

Sigh. What else might create that job from a loan? You could go out and buy capital equipment, certainly. That would allow you to create more product. And oftentimes, that’s the right way for a business to grow. But, again, you have to have (drumroll, please) demand. Just because I get a loan from Mr. Obama for $1,000,000 (at only 2% APR!) and buy a really nice printing press doesn’t mean that the demand for the output of my printing press is real and will support the press, much less a press operator.

OK, then, what about increasing demand? What do we have to do to increase demand? Why, Timmy, it’s as simple as making sure people have money in their pockets to spend. Sounds simple enough, except that Mr. Obama is dead set on ensuring that the people who can most afford to spend are afraid to spend and won’t.

Some more thought is required to see why this is the case. Well, who spends money at a small business? I racked my brain and thought of the different kinds of small businesses that a typical family might visit and didn’t come up with a whole lot of essential goods and services that people of all income levels might use. There are some notable exceptions, including health professions, repair and maintenance services, maybe home heating oil or propane distribution, that sort of thing. But where does the food come from? The GigantoMart. And the kids’ school supplies? StaplesMaxOfficeSupply. Gas? BP. Clothes? China—certainly not the local tailor’s shop.

Small businesses, on the other hand, seem to service a different clientele—either other small businesses (such as printing firms who make forms for other small businesses) or (wait for it…) people who can afford to buy their “stuff” from somewhere other than WalSuperDiscountTargetMart.

That pool you want put in? Small business-provided. The new home? Sold by a small-business real estate agent. The new car? That auto dealership is a small business. The hand-painted pot from the local pottery shop? Yup, small business again. Pavement for the driveway? Small business. The new wing on the conservatory? Your builder is probably a small business. Even splurging on pizza from Papa T’s Pizza is not an essential good or service… it’s a nice-to-have, though clearly more accessible (and more often accessed) than a new RV.

What am I saying? What I’m saying is that if you want to encourage spending, make sure the people who have disposable income are not afraid to spend it. The way the Obama administration is going about it, though, scares all of us supposed-haves into keeping our money and squirreling it away because we know the government is after it. We’re certain that letting the tax cuts expire is only the first step, that the definition of “rich” (however true or not) at $250,000 will soon become $200,000 and then $150,000 and then $100,000, that 39% will become 40%, that the AMT will hit damned-near all families, that the marriage penalty will become even more severe as Obama recognizes the boon that “domestic partnerships” could be.

No, these days we’re more likely to save than spend, although with the increases in tax rates on capital gains and potential takeover of 401(k)’s and all of that other hooey, even what little incentive to save that we have is going, going… and almost gone.

Which leaves me wondering: Why, as a small business owner, would you want to expand? Your income goes up while the amount you work goes up. (Payroll and insurance and taxes and withholdings and vacations and headaches for one more worker? Is it really worth it?) And yet your taxes go up disproportionately because you get richer… which is the point of expanding in the first place.

In other words, Why bother?

And so, Mr. Obama, that loan that you think you’ll get to me somehow to encourage me to hire more people to make more money? You can just keep that money. Instead, leave the “tax breaks” in place. Buy some more infrastructure. Do something better with it than pretend you’re creating jobs with it.

Or give it to the Chinese. We owe it to them anyway.

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