Economic Consequences of the Election

Everyone running for president promises “change” and promises a big basket of goodies.  This past election was no exception.  But, once done, the winner’s promises collide with reality, reality in a political context and in a real-economy context.  We forget that our presidents have little power to deliver on promises, only Congress and in particular the House of Representatives can tax and spend.  There are a number of Iraq war promises, most of which appear to be coming true on their own and that President Obama may \”clean up\”.  There are many promises to unions that supported him heavily, now exacerbated by the problems of the old \”Big Three\”.  The strains on government finance are far larger than either candidate could have imagined a year ago in the campaign and government ownership of private companies is on the rise.  How will this end?  Tax reform shifting more burden to higher income citizens (now not quite as high!), taxing the income from “capital” (also rather substantially diminished these days) and providing more tax subsidies will be high on the agenda, with Congress’ imprint.  The “first 100 days” will be bad days for the economy and probably bad days for many of the presidential promises.

Notes on the Economy Excerpt

“An uptick in…lending could help businesses expand and reduce employment,” says the report, reflecting the view that it is credit supply that is the problem.  The banks mentioned in the article are all of the “biggies” who had, and still have, major loan-loss problems and pulled away from small business lending.  Missing in the report are references to the thousands of community banks who did not get caught up in the “bubble” and are the mainstay of lending to Main Street firms.  Yes, credit is harder to get now at these banks than it was during the bubble, and it should be.  Underwriting standards were seriously compromised, and bubble prices overstated the true value of collateral.

That the real problem is loan demand was confirmed while speaking to bank organizations in half a dozen states over the past year.  Loans have to be repaid, meaning that the money must be used to finance the acquisition of employees or equipment that will “pay back” the loan. This is common sense.  But a record numbers of owners – as high as twenty-eight percent – have reported that “weak sales” is their top business problem, while only four…

Read Prof. Dunkelberg’s latest “Notes on the Economy”