Monday, February 1, 2010

Who else sees the confusion in these economic intervention policies?

In a year and a handful of days, we have seen an interesting disparity in the current administration’s approach to meddling with the U.S. economy.

The American Recovery and Reinvestment Act (a.k.a. the stimulus bill) included in it programs that started some jobs but at the same time carried with them spending at such a rate that Washington shelled-out over $200,000 per “job created.” When you consider that the salary or wages for jobs in the U.S. average out to roughly $40,000 per year and only a handful of them will be permanent positions, that’s what most businesspeople would call a poor return on your investment.

President Barack Obama calls this successful.

Now, in his newest proposal he believes giving small business owners – as a reward for every new hire – a $5,000 tax credit will be the cure-all for our ailing economy.

In case the discrepancy between the two policies wasn’t obvious, can you imagine what kind of a boost to the economy we would have enjoyed if the White House and Congress would have simply allotted a $200,000 tax break to every small/independent business owner in the first place last year? Now that would have “created or saved” several million jobs.

Had that been the original approach businesses in every part of America would have seen a massive influx of cash. And, it would have been accomplished without having to print additional currency at a pace that threatens to devalue the dollar in a manner reminiscent of Zimbabwe and the Weimar Republic.

With that plan, independent businesses that had been struggling to stay afloat would have been better able to stay on top of financial obligations. This would carry with it a series of positive consequences: helping businesses with healthy credit ratings maintain them as a result; the ability to make payments to creditors would in turn help the various banks and other lenders maintain more solid financial standing; that would have led to enabling more lending and credit extensions as confidence rises in the financial sector; and all this would spur greater flow of money which would have actually led to some amount of recovery from the recession (“some” would amount to much more than what we’ve seen so far).

And Obama’s supporters can’t understand why his critics insist he is out of touch.

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