Business stagnation is directly proportional to the increase in its government spending
as a percentage of that Country’s Gross Domestic Product (GDP).
The higher the spending to GDP ratio, the more downward pressure there is on GDP growth. Europe’s economic woes are well documented and being driven by the fact that 14 out of the 27 members of the EU had public debt exceeding 60% of their GDP. Further, the ratio of government debt to GDP across all 27 member states increased from 74.4% in 2009 to 80.0% in 2010. The US debt is predicted to exceed 100% of its GDP in 2011 with no real end in sight to the continued excessive spending by our government.
Government Growth = Business Stagnation, Why?:
The percentage increase is merely an indicator of the growth of government versus a growth in business which translates directly into government interference in business either through taxation, regulation, outright nationalization of businesses or functions, or through the creation of competing Government Sponsored Enterprises (GSEs). Think of a nation’s spending like the teeter-totter/seesaw you played on as a child. The heavier of the two kids causes the teeter-totter to go down on the weightier end. The lighter end then is perched high above the ground. Government/Private sector spending works much the same way. Whichever participant spends the most, that participant weighs down the teeter-totter and raises the lesser spender higher in the air.
The irony is that much of the growth in government is due to market problems caused by the government itself! Government creates the problem, then rushes in with money and resources to fix the problem. Need some examples?
- 1973 Oil Embargo: In the 1960’s and 70’s, US energy policy made it harder and harder and more expensive to explore and exact domestic oil. This caused oil producers to just buy the oil from other oil exporting nations making the US more and more dependent upon foreign oil. 1973, the Organization of Arab Petroleum Exporting Countries proclaimed an Oil Embargo against the US in response to our support of Israel into re-supplying the Israeli military during the Yom Kippur war. So, our government created a domestic oil shortage thus leaving us vulnerable to a foreign oil embargo.
- Department of Energy Creation in 1977: Following the 1973 Oil Embargo, the US faced one Oil Crisis after another until Carter seized the moment to create the Department of Energy. Basically this new agency, which has now grown to a $27 Billion giant, and who also received an additional $38B from Obama’s stimulus fiasco, was formed to make us less dependent upon foreign oil and coordinate the development and oversight of our nuclear energy development. This agency has turned into a green house gas emission watchdog and bandleader for “renewable energy” development. So, instead of helping to make the US less dependent on foreign oil, this agency is the anti-Christ to the oil industry and makes sure that nuclear power development has been non-existent. So, instead of fixing our oil problem, the government exacerbated our dependence on foreign oil and created another business unfriendly bureaucracy.
- Affordable Housing: During the 1990’s and 2000’s, our governments have made affordable home ownership a high priority. “During the 1990′s and 2000′s, our governments had made affordable home ownership a high priority. The government allowed, what would become two behemoth GSE’s, Freddie Mac and Fannie Mae, to go unchecked in their quest to achieve their affordable housing goals. Under the direction of its CEOs, first James Johnson then Franklin Raines, Fannie Mae, created a scheme whereby banks had the liquidity to pump out massive amounts of loans to recipients who would never be able to afford the mortgage payments.” Rather than create affordable housing for those who could not previously have qualified for a loan, much less make the mortgage payments, the government created a huge home mortgage bubble that crashed down on all of us in 2007. The result was not only to bankrupt those unfortunate home buyers who were given subprime loans (loans that could not qualify for industry standard safely collateralized loans), but wiped out 50% of the home market valuation bankrupting many long time home homeowners who qualified for prime loans. The domino effect was to virtually bankrupt banks and Wall Street firms by the hundreds. The government’s good intentions to make housing affordable has created a depression like economy that we are still fighting to survive.
Final Push for Big Government: Ironically, Obama’s response to the 2007 recession was not to reduce the size of government and reduce the amount of burdens on business growth, instead he doubled down on growing the size government which has led to an exponential growth in regulations and regulatory agencies such as the EPA, Department of Energy, Department of Health and Human services, Department of Interior and more… On top of those increases Obamacare is creating a mega bureaucracy at Health and Human Services plus saddling businesses and individuals with rising healthcare costs. As a result of these events, investment in business growth by the private sector has dried up in the US and is being shifted overseas leaving the US with a much larger government consuming $$$’s and raising our Debt to GDP ratio to 100%. Obama also made sure that Big Government growth was not hindered by making sure that Congress made the Stimulus Program, of $850 Billion a Year, an ongoing year to year program…
Other Anti-Business Government Induced Factors:
- Unabridged Law Suits: The government has failed to deal with Tort reform that would limit liability on R&D, products or any other business activity required to do business in the US. Billion dollar awards have forced US manufacturers to seek friendlier nations where they can at least predict their potential liabilities. You may not feel sorry for drug companies but they are almost at a point where they will not create, test, or even market high risk drugs in the US. Why? There is no limit to their liability if a segment of the population reacts adversely to the medicine. This even include VACCINES that are mostly produced outside of the US. The government oversees the development and testing of every single drug; then certifies the testing and the product before it can be released. Then after it is released, if someone gets sick of dies, the drug company gets sued? Why not the FDA?
- Labor Laws: The government has imposed numerous regulations on businesses that have drastically increased the cost of hiring and litigation if termination proceedings have to take place. Extended maternity leave for both spouses, minimum wages, working conditions, overtime provisions and much more have caused business to go abroad and seek a more friendly employment environment. Now, with the Labor Relations Board demanding that Boeing produce aircraft only in its Washington UNION plant, businesses are being pushed out to other countries to produce or face extinction by their foreign competitors who are not subject to such government tyranny.
- EPA Regulations: Obama has increased the size of the EPA exponentially since taking office. Now armed with the mission of taking on greenhouse gas emissions, this regulatory agency will create an even more hostile business environment. The EPA has already shut down 3 large coal facilities that produce a large percentage of the electricity for the East Coast. This increases the cost of the remaining electricity that is available and drives up production costs. Other emission regulations, effluent regulations etc have all but stopped companies from building or expanding in the US. The costs are merely too high.
- Department of Interior: You don’t think about this agency as much but it regulates oil and gas exploration as well as surface and sub surface water sources. This agency has ignored two court orders demanding that they life the oil exploration moratorium following the Gulf Oil Spill. This agency has choked California agriculture by limiting the amount of water available to produce crops in the most fertile valleys on this earth.
- Taxes: The US has the highest Corporate Tax Rates in the industrialized world, Period… Why would you start a business inside of the US when you could go across the border and pay 10% less tax on the same profits. Remember, taxes are viewed as an operating expense like any other. If taxes are high, then the cost of doing business his higher. Corporate and small business taxes have to be reduced drastically.
So, when you hear this President, or any other President, stand up and question why business is dying in the US, then blame the business owners, ask him or her about some of the things discussed above. The media won’t! Businesses wants to invest where their customers are if possible. They don’t want to have to produce the product somewhere else then ship it in. It is better business to produce the product locally where they are known rather than have to hope you don’t see the “Made in China” label on the back!
Businesses are just like you are at home with your family. They want to be productive and supportive of their employees and their customers. But, when they face one regulation after another, they will have to go elsewhere to produce their product or go out of business. Business is not innately good or bad. It will perform in what it feels is in its best interest as defined by YOU THEIR STOCKHOLDER! If you own stock in companies then you have a responsibility that its board act responsibly. The business has to adhere to the dictates of its stockholders and its board. Good business is a shared responsibility and one that is more effective without undue government regulation.
Remember one point if you remember no other, “When you add one government employee to a regulatory agency, that new employee will create a new regulation eventually”. That is what you hired them for. Unfortunately, they won’t just sit around and do nothing.
It is time to stop blaming business for the economy and all of our woes. Washington DC and the State’s capitals must be made to cut spending, regulations, and taxes before we can even begin to turn this Titanic around and avoid missing the iceberg that we are heading into. Time is not on our side…