Transcript:
Mike Siegel: Folks welcome back in to the BOSS Business Hour here at KDON. This is Mike Siegel with you. It's good to have you with us as we get right back to it.
As you know, the senate has passed the so-called small business aid bill. It is House resolution 5297. As you know, all money bills emanate from the United States House and then go to the Senate. Well, in fact, there was a version passed by the House. This is a different version passed by the Senate. It is going to go back to the Houses and the belief is that this will pass in the house as-is. This may well wind up being the bill that goes to the desk of the president for signature. This Bill involves 30 billion for small community banks to get money which they will then lend to small businesses and 12 billion in tax credits for small business itself. Is this a big deal? Well, we will talk about.
Ted Dehaven is a budget analyst at the CATO Institute. Mr. Dehaven, thanks for being with us. How are you today:
Ted: Sure Mike. Good to be with you.
Siegel: Well, we had an 862 billion dollar stimulus package. I don't want to dampen this fire with water, but it does not seem like it is that big of a deal in terms of everything that has come down in the two years that we have had this down turn in the economy. What do you make of this bill?
Ted: Well, I guess, unfortunately, we are at the point where 30 billion dollars does sound like chump change compared to everything else they are doing. I guess, I view this as the latest attempt to demonstrate that they are ”doing something. Now, I put doing something in quotes because in the midst of an economic downturn, people look for solutions, they are hurting, businesses are struggling, and they turn to politicians. I think w e forget that the folks in Washington had a pretty big hand in this economic downturn to begin with and the surveys I have seen of small businesses, in particular small business owners that I have spoken with myself, I keep hearing the same thing over and over again. Credit is not the issue. I am not saying that it is not an issue for some, but it is not the biggest issue. The big issue is a weak economy, therefore, weak sales, but it is taxes and regulation, more specifically the concern/the uncertainty that is being generated in Washington because a lot of entrepreneurs and business owners are reluctant to hire, they are reluctant to invest, because they do not know what Washington is going to do next. When you look a t the health care mandates and the taxes and regulations that come with that, the possibility of capping trade, the pro-union bills, the potential for higher taxes particularly on job and wealth creators, folks are reluctant. So, I don't think this addresses anything other than t he latest attempt by some folks that are in trouble heading into November to demonstrate that they are doing something.
Siegel: I was going to bring that point to you, and that is the political aspect of this. It is kind of interesting. It is happening between pretty much the primary season and the general election, and the primary season that devastated democratic policies. So something, I think, they felt had to be done about small business. But the republicans are saying, basically, that t he 30 billion that is going to go to the lending fund, interestingly, will be administered by the treasury department and is apparently going to go to, allegedly going to go to, banks that are community banks who are willing to extend new loans to small businesses. Now, we know that that has been a problem across the country. Senator Hatch makes the point that it is a mini-tarp. That it really does not help small business, which is why he voted against it. In other words, is this papering over the problem. I mean, after all, I realize, as you pointed out, 30 billion today is considered sort of a drop in the bucket compared to other programs – 700 billion in tarp, 862 billion on a stimulus package, but will it really do anything? I mean, it seems to me, 30 billion across the country, spread out as it is going to be, isn't very much in terms of having an actual impact on what is happening across the country with small business.
Ted: No, I think that what you have is a continuation and extension of the moral hazard that the federal government fostered in the business community before the economic downturn. I look at areas like housing, with all the distortions and subsidies and pop-down directions and economic manipulations, which was a big reason why we had the boom and bust and the pain that we are going through now. I am just amazed. I think sometimes when people are down, in their desperation to have things fixed, I think that they forget that the folks in Washington… how many of them have actually run a business? Quite frankly, how many of them have actually worked in the private sector? You look at the president and the vice president, they have spent their entire lives basically in politics. So, why do we trust these folks to play with our money. Banks will issue loans on the basis of risk and credit and all those other things. When the federal government comes in and backstops that money, what you have is banks issue loans that they might not otherwise have made. We saw this specifically with mortgage credit and look at the result. You have a lot of people that got houses that probably should not have and those decisions have ramifications for the economy at large.
Siegel: One of the really, in my view, deceptive and misleading statements comes from Senate Majority Leader, Harry Reid, who comes right from this state of Nevada, and Reid says that the legislation is the most significant legislative effort to aid the economy since the 800 billion dollar stimulus package in February of 2009. Well, quite frankly, he had another so-called jobs package of 15 billion that even the congressional black caucus and the blue dog democrats opposed, both of those groups being on pretty much opposite sides of the aisle, even though they are in the same party ideologically, and they you have the 26 billion that they signed, and both of those are simply union pay backs. They had nothing to do with the private sector. So, there you have 41 billion in total that he talks about as being part of the public union and pay back issue and now you have this 30 billion going to the private sector. I mean, even if you believe in this idea of the government doing this, it is a smattering compared to these other bills. I think it is fraudulent to say that it is significant, as he describes. Would you agree or disagree?
Ted: Well, they have been moving piecemeal because they basically bet the farm on the 800 billion dollar stimulus package and it was a failure. So, they know that they cannot come back and ask for stimulus technically 3. So, they have. They have been going piecemeal coming up with 30 or 50 billion dollar packages for unemployment bailouts and now we have a small business lending initiative, and it generates press releases and promises. I would ask listeners to consider, who do you want making economic decisions? Should you be making them yourself? Should entrepreneurs and investors and the folks that are on the ground and actually creating jobs? Do you want to trust a career politician like Harry Reid who, no offense to the majority leader, but I question his knowledge and capability he possesses sitting in that bubble in Washington to direct economic activity. I think it is a classic example of the fatal conceit that these men and women in Washington know what is best for the economy and what is the best for 300 million people. I think it is lunacy, personally.
Siegel: Well, that is really the point. The other thing is that he is claiming that you can create as many as 700,000 new jobs out of this. Now, there are economists and others that are saying, that is bologna, because this does not cure the central problem, that prevents many small businesses from hiring and expanding, and that is a very simple point. It is two words, consumer demand. If you do not have that, you don't have revenue coming in. If you are a retail store and you don't have customers coming in with demand, you are not going to need employees behind the counter. You are not going to need new inventory that is going to be manufactured maybe in an American manufacturing plant. There is a domino effect here. To just have money at the surface level…. And again, if you spread it around the 50 states, you are averaging 600,000 million a state out of 30 billion, if you could divide the money equally to all the states, and realize that won't happen, but is that really going to change anything is my question. Do you see this changing anything?
Ted: No. I don't see it changing anything, and I bet if you hooked them up to a lie detector test, they would probably admit the same thing. We are talking about people that really don't understand anything about economics or businesses. I mean, they literally, and I am not trying to be unkind here, but they are politicians. Their job is to take people's money and spend it and get re-elected, and I think that is what and how we should view this latest effort, just another last ditch effort to save their hides in November. You know, if we want economic growth, government redistributes money, it does not create wealth. Wealth creation and job creation comes from the private sector. At the same time they are talking about increasing lending to small businesses, they want to raise taxes on small businesses. Now, what sense does that make. So, that shows the redistribution is nature of it all. Let's increase taxes so we have more money to send to Washington, so we can send out to favored businesses and banks and such and get credit. It is not only just a zero sum game, but I would same it is a negative sum game, because governments are very bad at allocating capital.
Siegel: Well, that is very true, because that tax situation with the Bush tax cuts, if they limit it to 250,000 and over that you pay tax, the fact is that many small businesses will show more than 250,000, but because they have other expenses and other issues to do deal with in the small business, it is really not a fair number. So, they are going to get stuck paying taxes while on the other side of the coin maybe they will get some of this funding. It is a shell game is what it is, is it not?
Ted: It is a shell game. It is very inefficient. It is very ineffective. I think it is, again, important to remember that the folks in Washington, they don't make decisions on the basis of economics and markets. They make decisions on the basis of politics. This is not just with small businesses. It is with energy, with housing, with transportation, on and on and on. I mean, this is a demonstrated failure that this topped on approach to economic growth is the solution to our problems. The way I look at it is, these guys got us into it and asking them to fix it is like asking the arsonist to come put the fire out.
Siegel: That is a great point to wrap up on. I thank you for that. Ted Dehaven of the CATO Institute, budget analyst. I appreciate it very much, you being with us this morning. Thanks for your input.
Tad: Sure Mike. Thank you.
Siegel: Mike Siegel here at the BOSS Business Hour at KDWN. We have got lots more coming up, much more right after this, so don't you dare go away.