I've seen some argument that "stimulus" created jobs help the economy. Really? Why do you think so? Our economy is in a recession because for the last few years prior to 2008, several trillion dollars of debt spending cash was pumped into the economy, causing demand for various commodities and products and services that was unsustainable. For an economy to survive, there must be a fundamental economic condition - that is, more wealth is produced than is consumed.
The debt bubble, mostly real estate borrowing, and some easy consumer borrowing increased demand more than the wealth produced could pay for. So, what happens when the money runs out and the bubble collapses? Well, it's pretty simple. Consumption falls to the level of the wealth being produced - the debt repayment. The debt repayment is EITHER real repayment, or the cost to investors and institutions of debt defaults. One way or another, THE BILL GETS PAID.
Ok, so we have bubble era conditions
Wealth production - 100
RE debt spending - 10
consumer debt - 10
total money flow - 120
Taxes - 26
Where's this leave the nation? at a negative 6. We had a federal deficit.
So, post bubble where are we?
wealth production - 100
RE losses - -4
debt losses - -3
total money flow - 93
Taxes - 28
Where's this leave the nation? At a negative 35.
What's deficit spending do?
Wealth production - 100
RE losses -4
debt losses - -3
stim spending .1
total money flow - 92.9
Taxes - 28
What did it do? Nothing.
But, in the future, taxes will increase by at leas another 1 or 2 to pay for it.
So, in two years:
wealth production - 98 < reduced due to capital shortage
RE losses -3
debt losses 2
total money flow - 93
Taxes - 31
So, where are we? - 38 We're WORSE off.
Couple this with the fact that Obama and Congress intend to dramatically increase taxes AND increase the cost of hiring. Let's see what that does to employment and wealth generation.
You own a business that fixes equipment. You have 15 employees, 12 of which produce billable hours.
15 people being paid 40K a year costs an employer about 720,000 a year. Additionally, you have about 65,000 in equipment per employee you are paying for, which you have to replace every 5 years. And, your main facility has a 600K loan against it. Add about 4000/mo for utilities and another 2000/mo in insurance and miscellaneous costs.
So, let's add it all up.
720,000 wages and taxes.
48000 utilities
24000 insurance and other misc
70000 mortgage service
195000 equipment costs annually
1057000 in fixed costs annually.
Each employee must generate more than 1200 billable hours at $70 per hour each year to just break even. To expand, modernize, and make a profit, each one must make at least 1500 hours billable a year. That's a VERY heavy workload. It means that every productive person has only 25% of "down" time, known as travel, wait, delays, lost time, etc or you lose money and they're unemployed in reality, that's impossible. This kind of service has productivity rates closer to 55%. You COULD raise your rates. But, if you do, you will reduce the amount of work, since more customers will delay or otherwise avoid using your services. So, if you raise your rates 10%, you might benefit by 4-6%. Presumeably, your competition faces the same as you.
So, when you lose the interest deductions on your loans and obamacare costs you 10% more of your wages... You have two choices... something like a 20% increase in rates, or lose one employee that used to man the parts room, sell the equipment you used for him, and then take some vacation and $3000 a year away from their wages just to hold even.
No matter what choices you make, you just learned a real truth. PRODUCTIVITY pays the bills. Your employers have to produce more than ever, and you have to scrimp. Raise the marginal rates for social security, mandate more sick time, and things get squeezed even more.
Since you cannot any longer buy tools on credit, you have to pay cash now due to credit unavailability, which means you have to delay purchases of replacement equipment, hurting productivity, and paying for the new equipment as you finish servicing the debt on the OLD. Ooops, that just doubled your equipment budget.
Alltogether, what did the Stimulus and Obama's 'generosity' about health care and other things do for you? Well, it seriously screwed over your employees, it hurt the people you buy from, by hurting their sales, raised the rates you charge by as much as 20% stay on par, harming the people you provide services to.
Is THIS how you encourage more employment? If you think so, if you think that stimulus spending improves conditions, if you think that Obama declaring lots of generous new benefits, paid for by employers and businesspeople wont' harm you... think again. The stimulus has no real improvement in goods and service demand - it invests ABSOLUTELY NOTHING IN WEALTH CREATION, and yet, the ENTIRE cost, plus interest, must be paid for by the producers, at the same time you've just hampered them by consuming the available capital and raising interest rates.
Recovery from a recession WILL NOT HAPPEN until the producers of wealth regain profitability. Mandates, tax increases, and regulatory cost increases (like cap and tax) will cause NEGATIVE wealth production growth among the current producers. And, it leaves us in big debt. Until the producers of wealth can start making a profit, a profit so they can grow, and add more employees and more productivity, no economic recovery will occur. Every business will have to find ways to squeeze more productivity from the wages they pay. They must DO MORE WITH LESS PEOPLE. This is a recessionary cycle. Layoffs. Reduced demand and reduced sales. This reduces revenues and compounds the need to get more productivity from fewer. But every business has to find MORE productivity gains than revenue losses and do so until profit is made again.
Stimulus spending doesn't fix or even help... any of this. Instead, it diverts what limited capital is available from those who produce wealth, to the non productive spending - like roads, libraries, parks, and other pork barrell garbage. It compounds the recessionary cycle.
