June 23, 2011

Re-Post: Is Obama Dividing the Nation?

Filed under: Politics and The Economy — DoNP @ 3:30 pm

I was asked by a commentor to this blog why I felt Obama was dividing the country.  The commentor’s point was that things are grim but not that grim…that foreign investors can’t foreclose on America’s debt and that debt as a percent of GDP is no worse than it was coming out of World War II  Here’s my response:

I’d say it’s a little disingenuous to compare the immediate post-World War America with today’s situation. We aren’t funding a world war (although you could argue that $900 billion in Iraq is a whole lot of cheddar) and we won’t have the lurches in technology, innovation and productivity that came in the 50 years that followed WWII. Because today more than 50 percent of America’s debt is in the hands of foreign investors, dumping say a couple of $100B of our treasuries could result in lowering our bond ratings and causing our debt service to go up, while it’s already 10 percent of all government expenditures. That was not the case in 1950. We bought savings bonds and funded our government debt with investments by Americans, not communists. We have 10 percent unemployment, which is why even the most conservative estimates of near-term economic growth fall flat. Without that revenue base, the growth won’t come.

Small business creates 60 percent of all new jobs. Yet, businesses that can’t float commercial paper or sell bonds or stock, can’t raise money. Bank regulators have put the clamps on community and regional banks, raising the hurdles for small business borrowing. With companies like CIT out of the equipment lending business, small business has to rely on general assets and long-term historical performance to persuade banks to lend to them. The abysmal lack of consumer confidence, and the turmoil of the past 3 years, has had a deleterious affect on small business balance sheets. This presents a hurdle for banks or even private equity. Banks and leasing companies want 3 year operating histories with positive EBITDA’s. Only profitable firms can attract private equity.

Something has to break the cycle and our people and our government seem divided on how to do that. Obama has the role of bridging the divide. Leaders take on that responsibility. No one expects Obama to pull a “Kirk Gibson” but we expect him to try. If Gibson had gone down watching a third strike go by no one would remember that day. Fans would have pilloried Lasorda for putting a hobbled Gibson in to pinch hit. Although I did not vote for Obama he is our president. At a time when our country is mired in bipartisan politics, exacerbating the unrest of a confused and divided electorate, he stands at the plate watching the pitches go by. He may not be dividing the country put he is surely failing to bring it together.

Here are just a few things I believe Obama could take a swing at although he would have to accept the risk that comes with leadership:

  1. He could propose to extend the FICA withholding tax to include all income on the employee contribution rather than capping it at it’s current $106K. Cap the employer contribution, uncap the employee portion. This taxes the highest paid people who won’t miss the 6.2 percent.
  2. He can propose to raise the eligibility age for Medicare to 70 for anyone with an income of $100K or more or assets of $3 million or more.
  3. He can propose to raise the early retirement age for SS to 65 from 62 and raise complete eligibility to 68.5 or 70 from 66.5. When SS was conceived, the life expectancy of men and women was about 8-10 years less than it is now.
  4. He could expand the SBA micro-loan program to businesses with at least 1 year of operating history so long as the borrower has sufficient collateral.
  5. Half of all NIH funding should be redirected from pure research to the development of actual products. RIght now, almost all funds are going to projects within research universities where it funds interns and graduate researchers. Higher education tuition has increased some 60 percent in just the past 5 years while incomes have actually declined. We’ve killed the space program that produced things like the transistor and the integrated circuit. What is governments’ role in research anyway? Celera did with $300M what NIH couldn’t do with $3B.

President’s are remembered for their leadership, not for their politics. How will Obama be remembered?


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