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Is it a bump or a cliff?

June 16, 2011|By GEORGE MICHAEL

What is the truth about the economy? Have we hit a "bump in the road" or are we about to "fall off a cliff?" We certainly hear a lot of trite catch phrases about it, but this issue is far too critical to rely on platitudes.

Economic news in recent weeks has been grim. Housing starts are anemic and housing prices have hit a "double dip" with values at a low reached two years ago. Unemployment was up for May. Job growth remains anemic. The stock market has endured six consecutive weeks of declines. And to top it off, consumer confidence was down significantly in the last survey. Otherwise, everything is just fine.

What happened to the big stimulus program President Obama initiated early in his administration? Wasn't it going to ensure that, if enacted, unemployment would not go above 8 percent?  Two years later, we are over 9 percent.

Meanwhile, Obama tries to put a positive spin on it all. He maintains that "we did not get into this problem overnight and it will take us time to get out of it." Apparently, blaming President Bush for the current situation still plays well in some circles.  This excuse is wearing thin.

The fiscal mess in Washington is another huge predicament.  The projected budget deficit this fiscal year of $1.4 billion dollars is spooking the financial markets. Will Democrats and Republicans come up with some reasonable spending cuts in order to raise the $14.3 trillion dollar debt ceiling we have already exceeded before the official Aug. 2 deadline? It does not look promising.

And then last week, Obama suggested that America would help Greece with its economic troubles. What is he thinking?  Help with a bailout for Greece? Greece and Portugal could be posterboys for how to wreck an economy. Greece is now at the point where America will be if we do not get our own spending and fiscal house in order. This would be like the blind leading the blind into the ditch.

The Obama administration sees government as the key component of our society. It views government as responsible for directing the economy, responsible for creating jobs and for determining the level of economic activity in the nation. With continuing high unemployment, the administration has been frustrated at producing a better economic outcome. The reason for their lack of success is indicative of the fact that they misunderstand the relationship of the government to the economy.

It appears that when Obama discusses jobs, he is talking primarily about spending federal dollars to create these jobs.  That was the focus of his original stimulus plan. But where does the money come from to pay for them?  

A job the government creates must be paid for by a taxpayer.  In this transfer, a large portion of the capital is lost in the exchange due to government bureaucracy. While it gives a bureaucrat a nice, cushy job, it costs a job in the real economy.

The clear focus for our political leaders should be to create jobs in the private sector. These are the real jobs that produce goods and services people actually want. They are the jobs that add to the wealth of the nation and raise standards of living. And they are the jobs that actually pay the revenues needed to run the government.

Businesses are sitting on cash right now and so are banks.  But they are afraid of what is in store for them. They recognize the bias of the current administration against free enterprise and are reluctant to commit to larger expansions. Unknowns, like the actual costs of the new Obamacare health plan and its impact on what they might have to contribute to this scheme, are hurting their incentive to invest. A recent survey indicated that 30 percent of all businesses plan to dump their current health care plan when the new government plan takes effect in three years. The massive, pervasive nature of this new program is an albatross to the economy.

On the one hand, Obama denigrates banks and businesses in his speeches and suggests their greed is standing in the way of progress. But he is not above going to fundraisers and taking the maximum political donation of $35,800 from these business leaders to finance his billion dollar re-election campaign. I guess that is called "covering your bases." Or maybe it is "playing both sides of the fence."  

We have too many slogans and not enough action. Actually, a little less action by the government with some encouragement for the builders of America would be a worthy goal. That way, we could jump over the bump, avoid the cliff and get on the road to recovery.  

George Michael, who lives in Williamsport, is a former principal of Grace Academy. His email address is

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