Written by Tad DeHaven, a budget analyst at the Cato Institute. Posted with permission from Cato @ Liberty.
When it comes to reporting on the Small Business Administration, it seems to me that most journalists simply assume that if a government agency exists to “help” small businesses then it must be good. So I was pleased to read a weekend piece from two investigative journalists with the Dayton Daily News that challenges the conventional wisdom on the SBA.
As the reporters explain, the SBA’s main job is to back loans issued by private lenders to small businesses that couldn’t get financing on market terms. The result is that taxpayers end up holding the bag when these naturally riskier loans go bad.
And quite a few go bad as this Cato essay on the Small Business Administration explains.
Lenders have little skin in the game so for them it’s heads they win, tails they win. Thus it was shocking – absolutely shocking – that a representative from the SBA and the head of the Ohio Bankers Association provided the reporters with the most favorable quotes.
The entire piece is worth reading, but the authors did a particularly good job of turning the spotlight on the racket that exists between the SBA, lenders, and national franchisors:
The American Dream—the idea that any American has the ability to pull themselves up by the bootstraps, work hard, make good decisions, and lift themselves from even abject poverty to extreme wealth—is what has always made America different from any other nation on earth. Only in the United States’ free market capitalist economic system has this level of economic mobility been possible, which is why people from around the world have flocked to the United States throughout its history. But is the American Dream still possible?
According to a recent Rasmussen Reports survey, 59 percent of Americans believe that it is impossible for any individual American to work hard and get rich, the highest level ever. Not only that, only 48% believe that it is possible for anyone to work their way out of poverty, while 39% disagree. Rasmussen also shows that pessimism is at an all-time high, with only 25% of Americans believing that the economy will be better a year from now than it is today. Given the sorry state of the American economy, that’s a very sad statement.
The renewed debate over immigration reform has led to some very strong opinions, but one particular issue that has been lost in the mix is the need for more high-skilled workers in the United States.
The visa system for high-skilled workers — known as H-1B visas or STEM visas — is in dire need of modernization. This system allows businesses to temorarily employ foreign workers who have college degrees in various fields, including science, technology, engineering, and mathematics.
The system, however, limits the number of workers who can obtain these visas to 65,000 per year, meaning that many high-skilled workers see employment in other countries instead of waiting to come to the United States.
Along with a number of his colleagues from both sides of the aisle, Sen. Orrin Hatch (R-UT) recently introduced legislation — the Immigration Innovation Act (also known as the I-Squared Act) — that would bring a much needed overhaul to the H-1B visa system and more economic benefit to the United States.
The Immigration Innovation Act would increase the annual cap on high-skilled workers who can obtain H-1B visas from 65,000 to 115,000 and also provide a manner of flexibility that would allow the cap to be raised even higher to meet labor demand inside the United States. The legislation would also remove the cap for high-skilled workers with advanced degrees, which is currently limited to 20,000 per year.
A coalition of freedom-minded groups — including the American Conservative Union, Americans for Tax Reform, and the Competitive Enterprise Institute — have endorsed the plan.
“Congress should be cutting spending, reducing the regulatory burdens that are crushing the economy — freedom works, and it is time we put it back to work.” — Rep. Tom McClintock (R-CA)
Just a couple of days after President Barack Obama laid out his agenda for the next year in his State of the Union address, I sat down with Rep. Tom McClintock, a Republican who represents California’s Fourth Congressional District, to get his thoughts on the proposals being pushed by the White House, the Senate’s refusal to pass a budget, ObamaCare, and a few other issues.
On the State of the Union, Rep. McClintock, who has been among the staunchest defenders of economic freedom and the Constitution in Congress, was dismissive of President Obama’s agenda. “[W]e heard this song before,” he noted. “I think that his words have to be measured against the last four years of his deeds.”
He rhetorically asked, “What have been his policies? Higher taxes, much higher spending, out of control deficits, crushing business regulations. And what have those policies produced? Family take home pay has declined over these past four years, the unemployment rate is higher than when we started — it would be much higher except for the millions of Americans who have given up even looking for work.”
“What did he propose? More of the same,” Rep. McClintock stated. “Taking bad policy and doubling down on it doesn’t make it good policy.”
Written by Daniel J. Mitchell, a senior fellow at the Cato Institute. Posted with permission from Cato @ Liberty.
Economists may not agree on much, but we all agree that economic output is a function of capital and labor. Ask a Keynesian, a Marxist, an Austrian, a monetarist, or any economist, and they’ll all agree that living standards are determined by the quality and quantity of these two factors of production.
So it should be very worrisome that there has been a big drop in the share of the population that is employed. Here’s a chart produced from Bureau of Labor Statistics data, showing labor force participation during the 21st Century.
There was a big drop during the recession. That’s the usual pattern, and it definitely isn’t something that can be blamed on President Obama since the downturn began before he took office.
Over the last few months I’ve read many posts and arguments about why libertarians should vote for Mitt Romney. None of them really spoke to the core libertarian beliefs of libertarians, which is the advancement of individual sovereignty and free markets. Of course, my conservative friends making these arguments never really spoke to how a Romney/Ryan ticket would advance those beliefs. The argument was almost exclusively along the lines of how badly Barack Obama has been as president.
Based on the numbers from David Kirby at the Cato Institute, Romney will take some 70% of libertarian-minded voters. Many of my libertarian friends are casting their ballots for Romney. Though I may disagree with them, I understand why and respect them.
Look, I don’t disagree that President Obama has been bad for the country. The national debt has skyrockted by more than $5.5 trillion, passed a terrible health care law, and he has expanded executive power. Nearly every step Obama has taken to “help” the economy and create jobs has hampered businesses. Moreover, the tax hikes that he wants to pass, which would marginally lower the deficit over the long-term, are among the things keeping employers from investing or hiring. Passing these tax hikes in the phony notion of “fairness” would almost certainly lead to another economic downturn.
The damage to the economy during Obama’s presidency are points that we’ve been over countless times. But there are other parts of his first-term agenda that need to attention.
Like a broken record, Obama claims to need four more years to fix the economy because he inherited from George W. Bush the worst economy since the Great Depression. He tells us when he took office he found it was worse than he thought, but that rings hollow. After all, if he thought it was the worst since the Great Depression, how much worse could it have been? Regardless, we need to revisit the claim that this is the worst economy since the Great Depression. Is it really? I think Ronald Reagan would argue differently were he with us today.
According to historical data of the Federal Reserve Bank, when Obama took office, the Fed’s prime interest rate was only 3.25%. By contrast, just one month before Reagan took office from President Jimmy Carter, the prime rate hit an all-time high of 21.5%, dropping to “only” 20.5% the day he took office. The inflation rate Obama inherited was zero, whereas Reagan inherited an inflation rate of 13.5%. The economy under Jimmy Carter was so bad that a new term, “Misery Index”, was created (an economic measure derived by adding the inflation rate to the unemployment rate). The price of gold, a bellwether reflecting economic stability, hit an all-time high in the last year of Carter’s presidency, reaching $2328/ounce in 2011-inflation adjusted dollars. We could go on and on, but the point is that Ronald Reagan would have gladly traded the economy he inherited for the one Obama inherited. Granted, the economy Obama inherited was bad, but not the worst, and he asked us for it.
President Barack Obama and Mitt Romney squared off last night in Denver for the first of three debates before next month’s election — this debate primarily focusing on domestic policy. By most accounts I’ve read, Romney did really well, while President Obama struggled (I missed the debate because I was flying back to Atlanta from Washington, DC). The Washington Post has a good overview of the first debate, highlighting the contrast between Obama and Romney:
Romney came into the 90-minute exchange after several difficult weeks but appeared rejuvenated by the opportunity to take his case directly to Obama and the American people. He was well prepared and aggressive as he hammered the president. The contrast with Obama was striking, as the president appeared less energetic even as he rebutted some of Romney’s toughest attacks.
The debate is likely to give Romney what he needed most, which is a fresh look from voters — at least those who are undecided or open to changing their minds — and will change the conversation about the campaign, which for the past two weeks has been tilted in the president’s favor. Romney now faces the challenge of trying to build on his performance and keep the president on the defensive in the days ahead.
The good news about our economy is that it hasn’t been struck down by some mysterious act of God. Acts of Government plague our nation – and acts of Government are entirely within our power to change.
Today I will not recite the dismal statistics behind the failed economic policies of this administration, nor the reasons why these policies have failed. The current Presidential campaign has plenty of that, and the fact is that every single American already knows the answer to Ronald Reagan’s simple question: “Are you better off today than you were four years ago.”
Today, I would instead like to look ahead to what the 113th Congress and the 45th President of the United States must do if we are to restore prosperity to this country.
I’d like to outline seven measures that I believe are absolutely essential to repair our economy and restore America as the most prosperous and productive nation in the world.
FIRST AND FOREMOST – IT’S THE SPENDING, STUPID.
Unless and until we dramatically reduce federal spending and the accompanying tax and debt burden, government will continue crowding out private capital and destroying job creation.
Three numbers tell the story very nicely: 39, 32 and 82. Thirty-nine percent is the rate of inflation and population growth combined over the last ten years between 2002 and 2012. Thirty-two percent is the growth rate of revenue in the same period – despite the tax cuts and the recession. Not quite keeping up with inflation and population growth, but pretty close. Eighty-two percent is the figure that’s killing us. Eighty-two percent is the growth of federal spending.
But I also think the flat tax will boost the economy’s performance, largely because lower tax rates are the key to good tax policy.
There are four basic reasons that I cite when explaining why lower rates improve growth.
- They lower the price of work and production compared to leisure.
- They lower the price of saving and investment relative to consumption.
- They increase the incentive to use resources efficiently rather than seek out loopholes.
- They attract jobs and investment from other nations.
As you can see, there’s nothing surprising or unusual on my list. Just basic microeconomic analysis.