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InsiderOnline Blog: September 2013

Barack Obama’s Policies Have Been Terrible for “the 99 Percent”

The Left says all the time that the rich get richer while the poor get poorer, and now it seems like the claim is actually true of the Obama years. The Huffington Post has 12 infographics on how terrible the recovery has been for everybody except the 1 percent. Here are two particularly telling graphics:


[Huffington Post, September 13]

The Huffington Post caters to liberal readers who will probably see these charts as confirmation that what they already believed has been happening is continuing to happen. But clearly, the first graphic above shows that something is different. What is different is that United States has less economic freedom than it used to have. Salim Furth explained the problem this way in a recent issue of The Insider:

With new regulations and business requirements in health insurance, small-business finance, environment, energy, and tax compliance, not to mention the ever-expanding reach of state licensure boards, it is expensive to open a business. In a report published by the Weidenbaum Center at Washington University in St. Louis and the George Washington University Regulatory Studies Center, Melinda Warren and Susan Dudley have calculated how much money the federal government spends to develop and enforce regulations. They calculate that the federal budget for economic regulation increased to $9.2 billion in 2012 from $6.3 billion in 2007. In President Barack Obama’s first three years in office, 106 new major regulations were created (four times more than in President George W. Bush’s first three years), report The Heritage Foundation’s James Gattuso and Diane Katz. Those regulations cost earners $46 billion annually. The biggest new fixed costs come from the Dodd–Frank bill, ObamaCare, and the activist Environmental Protection Agency. In all three cases, enormous discretion is left to regulators to write and implement rules as they see fit. Under arbitrary enforcement, large firms with lobbyists and lawyers have a competitive advantage over unconnected newcomers.

High fixed costs and onerous regulation are textbook “barriers to entry.” Incumbent firms favor many of these barriers, because they keep competitors out of the market, which keeps profits high. In banking, the stringent regulations of the Dodd–Frank Act not only make it hard for small or start-up banks to survive, they discourage banks from lending to borrowers who do not have a strong track record. Less credit for unknown borrowers means fewer start-up jobs created.

Other factors that might discourage competition and firm creation include: elevated uncertainty over the implementation of new regulations, expectations of higher tax rates in the future to pay for rising debt, implicit promises of bailouts for large incumbent firms, and slow demand growth since the recession.

As long as start-ups are held down by bad policy and feckless deficits, incumbent firms can earn profits without expanding supply. [“Why Such a Slow Recovery,” by Salim Furth, The Insider, Winter 2013.]

Of course the rich do relatively better than everyone else when government policy makes it hard for upstarts to compete.

Posted on 09/13/13 04:40 PM by Alex Adrianson

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