Saturday, February 28, 2009

Stimulus Disincentives
  Economics piece by Thomas E. Brewton

Family farms are losers in the stimulus pork barrel.

Bob Utterback writes a regular column called Outlook.  It appears in the Farm Journal, the largest national circulation publication focusing upon family-owned farms.

Mr. Utterback travels continually among farming communities across the nation to gauge market conditions and farmers’ market sentiment.  His February 14 column suggests that President Obama’s stimulus bill will be, on balance, a series of disincentives for family farms to run the risks of aggressive farming, because the stimulus bill unfavorably raises the risk / reward ratio.

Family farms have to contend with high levels of weather risks and volatile prices for seed, feed, and fertilizer, along with volatile sale prices for crops.  In addition, such farms are quintessential small businesses, ones which nonetheless require large, long-term investments in land, storage facilities, and equipment.

Farmers, more than average worker-consumers, understand the essentiality of maximizing saving and minimizing consumption expenditures.  They know that eating their seed corn will leave the fields bare for the next season.  Moreover, farm families work long, hard hours all year long to build and to preserve their farms for future generations of their families.  Reinstatement of punitive death taxes, as proposed in the President’s budget, is a meaningful disincentive to all that hard work.

Mr. Utterback’s interpretation of the stimulus bill, in the quote below, is that its primary effect is to transfer money from small businesses entrepreneurs to workers.

Though he doesn’t make the latter explicit, the main worker beneficiaries will be labor unions, which can demand higher wages and make them stick in future economic downturns, thereby intensifying their impact upon the national economy (e.g., the many thousands of laid-off UAW members who get full pay and benefits from General Motors, without having to work a single day).  Democrat/Socialists, of course, aim to give labor unions new, special privileges to enhance their power to extort uneconomic labor contracts, which non-union workers, the vast bulk of the nation’s labor force, will pay for with lower wages, higher prices, higher taxes, and crushing inflation to offset labor union extortion.

Because of the speed of the global contraction, many countries are quickly putting together financial stimulus packages to help stabilize and encourage their respective economies. As a result, the potential level of debt that’s going to be assumed by governments around the world this year is staggering!

The big question. Does government involvement in creating jobs help or just delay the eventual decline that must occur when an economic system becomes overheated, as we saw from 2006 through 2008? As I’ve been saying at many of my meetings, it will help arrest the decline in the economy and even produce a quick bounce, but will it have any long-term legs?

My concern continues to grow that current policy objectives are focused on taking away from one sector of the economy and giving to another. What incentive does this give for the individual businessperson to take a risk? I would argue that most take a risk only with the objective of making profit. The greater the uncertainty, as we are experiencing now, the greater the profit has to be. It’s not the objective of businesspeople to create jobs for jobs’ sake.

I know this sounds cruel, but businesses exist for the sake of the stockholder, not for the worker. I think this assumption is going to be attacked both domestically and internationally throughout the coming years because the political base is weighted to the worker, rather than the job creator (the businessperson). If the current administration’s stated objective is to increase taxes for those who make money, why take the risk of making money?

Also as a result of the current financial meltdown, I believe we’re going to see an increase in the amount of regulation and red tape that businesses have to deal with when hiring and maintaining employees.

In the end, the economic engine that drives our economy, the small businessperson, is going to simply decide to coast and hold onto what he or she has, rather than take any risks. This attitude must be the true focus of the new administration if they really want a growing economy that is viable enough to last long term.

We have to give consumers the confidence that the future is going to be better than the past and that he or she will be able to secure a job that will provide for his or her family. You’re not going to get this lasting stability with the government creating short-term jobs. I truly believe that only the private sector can do that, based on the long-term economic need.

Thomas E. Brewton

Posted by Thomas E. Brewton on 2/28/09

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