Economic Malpractice; President's Policy Has a Long History of Failure

The Washington Times (Washington, DC), September 8, 2010 | Go to article overview

Economic Malpractice; President's Policy Has a Long History of Failure


Byline: Richard W. Rahn, SPECIAL TO THE WASHINGTON TIMES

If a medical doctor prescribed a treatment for a patient that only worked in theory, and the patient did not get better, the doctor could rightly be sued for medical malpractice if tried-and-true cures were known. When members of Congress and a president engage in economic malpractice, the patient's (i.e., the American public's) only recourse is to vote them out of office.

The Obama administration claimed that the unemployment rate would not go above 8 percent and that both the economy and job growth would be strong by this time if Congress passed the stimulus bill. Instead, the economy is barely growing, and the unemployment rate is rising.

How did they get it so wrong? It is because they have an economic theory, which did not and does not work in practice. If Team Obama had known American economic history, it would have known there was no case where a big increase in government spending - correctly measured as a percentage of gross domestic product - led to both higher private consumption and significant job growth (including World War II, when private consumption by necessity was severely restricted).

There are almost no key members of Team Obama who have ever started or run a real business. If they had, they would understand that a prudent person responds to tax and regulatory uncertainty by taking fewer risks, such as expanding the business rapidly or hiring new people. The Obama administration and Congress have spent two years dithering about what tax rates will be for both individuals and businesses in a mere four months from now, so it is only prudent to assume the worst. Higher tax rates mean less money to hire new workers or buy new equipment. This is not rocket science but, as simple as it is, Team Obama doesn't get it.

The Obama administration, while recognizing that small business creates most of the new jobs, argues that most small-business people make less than $200,000 per year. But these are not the small-business people who create most of the jobs; many are just one person part-time or even full-time businesses run out of homes. The big job creators are a small subset of all businesses that are innovative in creating new goods or services or doing it better than their competitors - i.e., the most successful small businesses.

People making less than $200,000 do not have the income to create many new jobs. Team Obama's tax-increase proposals are not aimed at the mega-wealthy like Sen. John Kerry, Massachusetts Democrat, who have inherited or married into major money and create few jobs, but instead are aimed at the entrepreneurial class who creates most of the wealth and jobs. Punishing these people with higher taxes is nothing more than economic masochism - and malpractice.

The administration is now proposing that businesses be allowed to deduct the cost of new investment made in one year (but for only one year) rather than depreciate it over time. …

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Economic Malpractice; President's Policy Has a Long History of Failure
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