- The Washington Times - Thursday, March 19, 2009

ANALYSIS/OPINION:

In case you have not noticed, the private sector of the economy is on strike. Consumers are refusing to spend unnecessarily. The Census Bureau has announced that retail sales for the three months ending in January 2009 are down 9.5 percent from the same period last year. Consumers are panicking over their immediate economic prospects. The Conference Board’s Consumer Confidence Index plummeted to a historically low level of 25.0 in February from 37.4 in January.

Businesses are contracting at a rate not seen in decades. The Chicago Purchasing Managers’ Index declined to a near record low of 34.2 in February 2009 from 51.5 in January 2008. (An index reading below 50 indicates a contracting economy.) Businesses are laying off employees in alarming numbers. The unemployment rate jumped to 8.1 percent in February from 7.6 percent in January.

Investors have all but abandoned the capital markets. At its early-March lows, the stock market had fallen 20 percent since Inauguration Day and 31 percent since Election Day . Fox News reported that “the Dow Jones Industrial Average has fallen faster under President Obama than under any new president in at least 90 years.”

Until the private sector ends this strike, there will be no recovery from the recession. The private sector wants Mr. Obama to reconsider the administration’s unfriendly policies in a rational and conciliatory manner. However, early indications are not promising, and it even appears that the administration plans to stonewall opponents of its liberal policies.

Consumers, businesses and investors will continue to refrain from active participation in the economy unless they have confidence in the future. Let us examine how certain proposed government policies have sapped the confidence of the private sector in the future of the economy.

First, investors realize that their after-tax returns will be reduced by increased taxation of capital in 2010. The taxes on both dividends and capital gains will increase from 15 percent to 20 percent. Why bother to risk your capital only to have your after-tax return reduced?

Second, financially successful people and small businesses will see their income-tax rate increase from 35 percent to 39.6 percent in 2010. Why work hard in a risky economic climate when your after-tax income will be reduced if you are financially successful?

Third, if the union card-check provision becomes law, unions will become the unwanted intermediaries between many businesses and their employees. Why would businesses expand only to have to negotiate with a union that wants to tell them how to run themselves? Why would an employee want to share some of his hard-earned wages through union dues with a union that will cause his employer to rethink whether he wants to expand his business in a union-plant location?

Fourth, the U.S. government is on the verge of a disastrous trade war with its closest trading partners because of “buy American” provisions in the stimulus bill and proposed violations of NAFTA. On Monday, the Wall Street Journal reported that Mexico plans to put tariffs on 90 U.S. industrial and agricultural products as retaliation for canceling a program to allow Mexican trucks to transport cargo in the U.S. China’s official news agency has stated that these “buy American” protectionist measures could trigger trade disputes. Brazil has even threatened retaliation because of the provisions.

If your business depends on imported components, will your profits be reduced because you will be required to use more expensive American-made components? If a consumer buys goods containing imported components, will he have to pay a higher price? As a taxpayer, your tax dollars will not go nearly as far in the infrastructure portion of the stimulus package because expensive American-made products must be used. If your employer sells products to Mexico, perhaps you should start looking for a new job.

Fifth, Congress is telling certain financial executives how much compensation they should receive. If you are a successful financial executive, are you going to work as hard when your base salary and bonus compensation are capped? Indeed, would you continue to work for an organization where your earnings are capped when other alternatives are available?

Sixth, the mortgage-bailout plan gives government-subsidized mortgage payments to certain distressed homeowners through refinancing by Fannie Mae and Freddie Mac. If you are a responsible homeowner who is current on your mortgage, do you want to subsidize your overstretched, possibly irresponsible neighbor? Perhaps you will decide to partake in the government’s largess by having your spouse quit his or her job so you, too, can meet the income test.

Seventh, the conservatively projected $1.75 trillion deficit in 2009 and the huge projected deficits over the next few years will cause the federal debt to skyrocket.

On Friday, Chinese Prime Minister Wen Jiabao expressed concern about the amount of U.S. debt his country was purchasing, saying, “Of course we are concerned about the safety of our assets.” If foreigners no longer purchase U.S. debt, then it must be financed domestically, thus crowding out capital needs in the private sector and the federal debt will eventually have to be financed by the Fed’s printing presses. This will cause explosive inflation. Why would an investor purchase debt that will be eroded by inflation over the next few years?

Eighth, the proposed cap-and-trade system for carbon emissions is likely to cause major disruption in certain businesses and in certain states. Coal currently fuels more than 50 percent of America’s electric power. Is a power-short electric utility going to build a “shovel-ready” coal plant when cap-and-trade adds to the costs? Should low-seniority coal miners begin looking for another job?

These are just a few of many proposals being made by the Obama administration seen as unfriendly to the private sector in general and businesses in particular. This commentary is not intended to analyze the merits of these policies. It is merely pointing out that many people in the private sector have a serious problem with them.

The president needs to realize that the private sector and the business community should be his allies in the fight against the recession. The real losers in a recession are the working people of America and those who want to work. The president needs to reorganize his priorities so the business community fights by his side to restore prosperity.

Private enterprise is the golden goose in the American economy; it would be a shame for the president to kill the golden goose because he does not like the way she lays eggs.

• Logan D. Delany Jr. is president of Delany Capital Management Corp.

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