President Barack Obama appears to lack a businessman’s sense of the importance of economic incentives, writes financial journalist Rich Karlgaard.
“Take (the recent) dust-up with bankers. It is the duty of bankers to lend to small businesses, Obama said. That's very interesting,” writes Karlgaard in Forbes magazine.
“Because small businesses have little incentive to borrow and banks have little incentive to lend under Obama's policies.”
Karlgaard notes that small businesses that are still healthy and credit worthy are busy right now trying to: get as lean and efficient as possible; and build fortress balance sheets.
“Coming down the pike, they know, are higher taxes and a whole slew of regulations that will drive up costs, particularly around employees,” writes Karlgaard.
“Banks have little incentive to make money the old-fashioned way -- by lending — if they can lazily tap the Federal Reserve for free money and then buy long-term U.S. Treasurys yielding 3.5 percent. You might not like banks. What you can't do is blame banks for responding to incentives set in place by the government.”
A real recovery, like the 7 percent annual rate of growth in 1983-84 following the 1981-82 recession, is “not in the cards this time,” writes Karlgaard.
Simply put, the incentives for private economy investment and growth are being distorted by the U.S. government.
“That's why the U.S. will likely see a muted recovery and will be fortunate if it dodges a second leg down,” writes Karlgaard.
“There's always hope. Scrooge saw the light. Maybe someone could slip under the Obama Christmas tree a copy of Gary Becker's The Economics of Life.”
The only economic incentive that the current administration openly embraces at this time, however, is tax incentives for weatherizing one’s home, which the Los Angeles Times is calling “cash for caulkers.”
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