The Fear-Based Economy
Further tax increases could bring an already frightened, sputtering economy to a standstill.
July 21, 2011 - 12:00 am
Finally, someone has publicly said what everyone has long known.
On Monday, during his company’s second quarter earnings call with investors, Wynn Resorts CEO Stephen Wynn ended the three-year truth embargo over who is holding back the U.S. economy.
In July 2008, yours truly christened the economic conditions America began facing roughly a month earlier as the POR (Pelosi-Obama-Reid) Economy, named after its primary creators: House Speaker Nancy Pelosi, Democratic presidential nominee Barack Obama, and Senate Majority Leader Harry Reid. In a comment at that original post, I noted that the economy’s job and wealth creators were “genuinely frightened by the lack of seriousness and presence of abject irresponsibility in Congress and in Obama.”
This fright went viral long ago but remained whispered in carefully chosen company until Wynn broke the silence. When an earnings call participant asked why his firm hasn’t expanded its meeting space in Las Vegas, Wynn responded:
I’m afraid to do anything in the current political environment in the United States.
… my customers and the companies that provide the vitality for the hospitality and restaurant industry, in the United States of America, they are frightened of this administration. And it makes you slow down and not invest your money.
… this is Obama’s deal, and it’s Obama that’s responsible for this fear in America.
Why shouldn’t the economy’s key players be afraid? In 2-1/2 years, Barack Obama and his administration have shown that they will do anything in their power — even if not in their constitutional power — to further their far-left redistributionist and science-free environmental goals. If it means subverting the rule of law to favor bankrupt union-dominated car companies, so be it. If it means shutting down oil drilling and exploration in the Gulf of Mexico and restoring it in slow motion at a cost of tens of thousands of jobs, well, that’s unfortunate collateral damage. If it means revoking an already-issued permit for coal mining, too bad, so sad.
In Wynn’s case, if it means demonizing convention and tourist spots when the timing fits, well, as far as Team Obama is concerned, his company will just have to deal with it. Why should Wynn even think about adding meeting rooms when at any politically convenient moment, Obama can and has shown at least twice that he will demonize a key travel destination?
More broadly, Wynn was speaking for the economy’s most productive participants: the businesspeople, entrepreneurs, and investors who drive commerce, create wealth, and create jobs. As long as Barack Obama is president and his apparatchiks remain in control of their expanding bureaucracies and unaccountable czardoms, fear and intimidating uncertainty will reign.
Wynn’s stated indisputable truth must be at the core of the current debt ceiling, tax, and spending negotiations taking place in Washington.
It has long been known and accepted, with proof going all the way back to Herbert Hoover’s ill-conceived actions in the early 1930s, that tax increases will at a minimum prevent an economy attempting a recovery from reaching its full potential. At worst, they will send it back into recession. Additional tax increases in the current economy will create an overwhelming danger of another recession and a subsequent malaise which could rival the Great Depression.
Did I say, “additional tax increases”? Well, yes. The Wall Street Journal helpfully reminded us on July 11 that tax hikes associated with ObamaCare amounting to $438 billion over the next 10 years will begin taking effect in 2013. Of course, these impending levies, the legislation’s stifling bureaucracy, and disastrous work disincentives have been hanging over employers’ growth and hiring plans since Pelosi, Reid, and Obama made it law 16 months ago.
As if we needed more problems, make no mistake: The economy, which has failed to grow at the brisk pace required for a genuine recovery in employment since the end of the recession, has shown signs of serious deterioration in the past few months. Here are just a few of the indicators:
- In May and June combined, seasonally adjusted employment grew by only 43,000, while the unemployment rate rose in both months.
- The new-home market has barely budged from its historic lows.
- Consumer confidence is at its lowest level since March 2009, one of the worst months of the recession.
- The director of the widely read Consumer Reports Index stated his belief last week in a radio interview that seeing the unemployment rate hit 9.6% in the next few months “is not out of the question.”
- In mid-July, announced U.S. layoffs and terminations at Cisco and Borders alone were within striking distance of the number of seasonally adjusted jobs the whole economy gained in June.
- On Friday evening, July 15, the better to avoid attracting much attention, Goldman Sachs dropped its annualized second- and third-quarter growth forecasts to 1.5% and 2.5%, respectively, and indicated that another recession is “clearly a possibility given the recent numbers.” Putting its employment practices where its predictions are, Goldman announced on Tuesday that “it might lay off as many as 1,000 employees globally.”
- Most germane to the Washington discussions is the fact that federal collections, after rising steadily if not spectacularly for about a year, suddenly fell on a year-over-year basis in June.
When the economy is sitting on such a dangerous precipice, unless the goals are to deliver a knockout punch and to take the intimidating uncertainty to the level of debility (given this administration’s mindset, these cannot be ruled out), you don’t even think about raising taxes. With a federal budget hopelessly out of balance, all you can do is cut spending, period.
You also don’t raise taxes when you know, as anyone with an ounce of perception does, that for the next eighteen months if we’re lucky, or an unthinkable 66 if we’re not, we’re stuck with the current fear-based economy. I could be wrong, but I can’t conceive of anything this administration could do to change the current frightened mindset in the business community before it leaves the stage. Wynn agrees, saying that until Obama is gone, “everybody’s going to be sitting on their thumbs.”
You could also call this “going Galt.”