Team Obama has clearly picked up on the ‘we-heart-small-businesses’ meme, which has already gotten some traction on the right. But Obama’s new proposal, while it could succeed in buying back lost votes, will likely hurt the very segment it is purported to help.
Here’s the plan as reported by Mark Trumbull in the Christian Science Monitor:
There are a couple of potential problems here. First, what is the substantive difference between encouraging banks to loan to people who would default on mortgages and encouraging banks to loan to small businesses that may be less-than–entirely-solvent? The tighter credit restrictions, if not a part of regulatory policy established by this Administration, are an artifact of banks being more cautious with their lending (you know, to avoid future financial crises). Artificially cheapening credit, or distorting the credit market with such incentives, will likely lead to more of the same bubblenomics. While we may understand the Administration’s desire to throw around funny money to anyone else but companies perceived as being “Wall Street,” moral hazard is moral hazard, whether on Main Street or Wall Street.
According to Trumbull, others parts of Obama’s plan include (my concerns are interspersed):
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Proposing $33 billion to provide $5,000 tax credits for each new worker that businesses add to their payrolls this year.
(Why not just lower the minimum wage to lower the cost of hiring employees? And how many businesses will hire employees they may not need?) -
Expanding the loan guarantees provided by the Small Business Administration, as well as eliminating the SBA fees for those small-business loans.
(Is this an attempt to capture, or be captured by, a special interest group — i.e. more corporatism? If it looks like a duck,…) -
Cutting capital-gains taxes for investments in small businesses to zero.
(Why not capital gains, period, and do it permanently? A job created is a job, whether it’s from a corporation or a small business. This looks like policy to complement Obama’s recent populist rhetoric.) - Propping up demand in the economy by investing in infrastructure projects and clean energy and by providing a new round of assistance to cash-strapped states.
(Notice “propping up” and “investing.” Both are misleading terms. Propping up demand didn’t work in the first stimulus and it won’t work this time. Why? Because government largess is not “investing,” but rather a diversion of resources from real investment and capital to less productive uses. If green energy was such a good “investment,” for example, people would already be investing in it. I’ll pass over the malinvestment of state stimuli.)
This looks more to me like a shameless attempt to repeat the mistakes of 2009 in order to curry the favor of a different sector: small business owners and constituent groups hostile to Wall Street. Whether this is Obama’s atonement for Obama’s bailout sins, a calculated means of buying votes, or a genuine means of helping the ‘little guy’ — it’s not likely to resuscitate the economy.
Everyone has fetishized “job creation” when what we need to do is return to creating wealth. Without genuine wealth creation, job creation is meaningless. Simply creating jobs can be achieved by paying people to dig ditches with spoons and fill them up again. The Soviet Union had full employment (in theory) prior to its collapse. But such policies kill productivity and in the end destroy wealth. And so likely will Obama’s latest scheme.
Finally, here’s the worst part of it all:
So instead of paying back the taxpayers and reducing the record-setting deficit, Obama proposing to use repaid TARP dollars as a slush fund for purchasing the allegiance of small businesses. Oh my.
