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.