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Monday, July 27, 2009

Obama's Failing Domestic Agenda = Improving Economy?

If you're a conservative, there probably is no question mark at the end but an exclamation point. Is this correct? Let's examine the situation.

First, there's no doubt that the disintegration of health care reform, in its current form, will be a blessing for our economy. Right now, about 11 million small business owners are facing the prospects of either a new tax or being forced to provide health insurance for their employees. There are roughly 27 million small businesses in this country, any business with 500 and less employees. About 40% of those don't currently provide health insurance to their employees. So, about 11 million small business owners are facing increased costs one way or another from health care reform, in its current form.

On top of this, everyone making $350,000 and more is facing a tax increase to pay for it. Also, any individual that currently doesn't have health insurance will be mandated to get it. If they don't, they will face a penalty. Most of these folks will qualify under Medicaid, but about 11 million won't and currently don't have health insurance. All those folks will face the equivalent of a tax increase. We are now looking at nearly 25 million people that will see their taxes increase as a result of health insurance increases.

Furthermore, while the president claims that health insurance reform will pay for itself, there's never been a government program that has come in at budget. As such, most people expect deficits. Not least of this are the U.S. Treasury bond markets. There's no doubt that the spector of another massive government program is putting upward pressure on Treasury Bond rates. With that spector gone, you can bet that rates will see at least some improvement. With better Treasury bond rates, we'll see all borrowing rates improve: mortgages, commercial paper, car loans, and student loans. Better borrowing terms are of course quite stimulative.

Cap and trade is another contractionary policy. It's unclear just how much, if any, it will add to the deficit but companies having to scramble to figure out new manners in which to create energy will increase business costs, energy costs, and people's energy bills. All of these are contractionary. So, if health care reform gets killed, that will make it almost certain that cap and trade will go the same way.

The most important battle for the economy though is going to be on the budget. It is the bloated budget in particular that is putting the most upward pressure on all interest rates. If the Blue Dogs kill health care reform, they will likely become emboldened and take a hammer to the budget as well. If they show a backbone on the budget, we might see a much smaller budget come fiscal 2010. That would mean that the deficit would be nowhere near the $2 trillion it is estimated. Treasury bonds are both long term and forward thinking. If health care reform is defeated, that bodes well for a much tighter budget. That will mean that Treasury bond rates will likely improve. This, in turn, will reduce borrowing costs across the board since almost all interest rates take their cue from the U.S. Treasury Bond.

The defeat of President Obama's massive health care overhaul will likely lead to a battle within the Democratic Party over the nature of their spending. If the Blue Dogs win on health care, they are much more likely to win on the budget. Then, the country is much more likely to see tighter and leaner budgets. We might even see legislation that outlaws future bailouts though that has significantly less chance of passing.

All of the things I mentioned would be excellent for the economy, but we'd also see a weakened and wounded president. We'd have a president that is unable to do much of anything. He'd essentially be dictated to by the moderate wing of his party and the other party. There are still many dangers ahead. We still have another round of foreclosures starting sometime in the next six months. If, and more likely when, they happen, rather than being able to respond, the president will merely be blamed and his political clout further diminished. So, as our economy goes through another dip, the president will be impotent to do anything. While some may cheer that, it's not a good place to be to have another economic disaster while the president has no political capital to act.

So, while I believe that in the short term, Obama's failed domestic agenda would equal a better economy. In the long term, it might spell disaster. Much better of course would be to have a president who's agenda would help the economy and so we wouldn't have to root for its failure.


Anonymous said...

Personally, I've felt that Republicans tend to use the stock market and "the economy" interchangeably. That would be a mistake in my opinion.

As far as Obama's clout, it is clear that he is pretty heavily dependent on not just a Democratic majority in Congress, but a large one. He already has no clout and no bully pulpit with the Republicans. After all, compared to their base, the Republicans in Congress are practically moderates.

That being said, I feel like this is giving Obama a huge opening in 2010. If what you say is true, and the Blue Dogs are now more closely allied with the Republican agenda than the Democrats, its as if the Republicans have effectively retaken Congress without a single ballot being cast. Perhaps that's why more Americans see the Republicans blocking health care despite the Republicans inability to stop it with their votes.

mike volpe said...

Since you are anonymous, I don't know if you're the same one that continues to claim that Reps are being blamed for this not passing. That's rather amusing since Dems have veto proof majorities in both chambers.

As for the economy, I didn't bring up the stock market, you did. This was about the economy strictly.

Anonymous said...

Well with all due respect, Mike, you *ARE* a banker. Bankers aren't exactly considered the most "in touch" people with the economy right now.

So you'll have to excuse me if I seem to feel like your analysis is founded on the idea that what's good for the stock market is good for the economy.

mike volpe said...

Why is the stock market constantly referenced by you? I never said anything. My profession is irrelelvant. If you think that someone that gets people home loans doesn't have a pulse on what's happening, then that's your problem. What you're trying to do is guilt by association. Mortgage brokers are stupid so Mike must be. Second, you try and impugn what I said by my profession. Forget my profession, just debate what I said.

Anonymous said...

Economists are starting to say that the economy has “turned the corner”. That the recession is coming to an end. That the worst is over. We are not turning the corner. We are headed in the wrong direction

This is the worst thing that could happen! If we can’t show that Obama has failed, it means that everything he has done..from massive government spending, to bank bailouts, to “Cash for Clunkers” is working. This will be used against fiscal conservatives for years to come as proof that government intervention CAN sometimes work.
We cannot allow this to happen.
It’s important that all who believe in free markets keep up the talk that the “economy is getting worse.”
Keep praying that the unemployment rate keeps getting worse. Keep hoping that GM falls flat on it’s face and goes completely out of business. Keep your fingers crossed that the stock market starts to head south again,. We must keep focusing on the failures, rather than the successes.
If people start spending money…that might jumpstart the economy and put America back on the road to recovery.
We cannot allow that to happen!!!

We must Keep talking gloom and doom!!
Our conservative theology demands it

Anonymous said...

We can’t let a little good news grab headlines and detract from efforts to expose Obama’s socialistic programs.
Economist are starting to say things like “the economy is stablilizing” “stocks are rising” “we are no longer in danger of the 2nd great depression”.
This may be good news to some but to me it is distracting from the essential message that needs to hammered home…..”nothing Obama has done will work”
We still need keep our fingers that Obama fails.
If the economy does turn around and next year starts looking up, the liberals are going beat their chests and proclaim “government big spending helped save America”
That can’t be allowed to happen
The unemployment numbers may be our best hope. If we come out of recession this year we can still point to the high unemployment numbers as proof that socialism is a failure.
So far it’s looking good. Economist are predicting double digit unemployment.
That should play to our advantage during the 2010 elections.
Personally I am praying that there is a lot more bad news is ahead. Whenever newcasters report bad economic news a silent cheer gets caught in my throat. Whenever there is good news of any kind I get moody and dispondent. And that’s not me sounding like some kind of Anti-American. That's me and everyone who voted against the socialist in the White HOuse.
Rush Limbaugh said it best
“We’re talking about my country, the United States of America, my nieces, my nephews, your kids, your grandkids. Why in the world do we want to saddle them with more liberalism and socialism? Why would I want to do that? So I can answer it, four words, “I hope he fails.”