Democrat Lies On What Ails Small Business

James Pethokoukis links to a post by Brad DeLong that quotes a post by Democrat shill Paul Krugman (Krugman also had a column in Friday’s New York Times on the same subject). Here is what Krugman had to say:

Larry Mishel has a very good piece systematically debunking the zombie claim that fears of regulation are holding back job creation. There is, literally, not a shred of evidence for this claim — not in the numbers, not in what businesses say. Yet it has been eagerly adopted not just by Republican politicians but by Chicago economists, Federal Reserve presidents, and more. I think the willingness of so many people to completely abandon any intellectual principles here, so that they can play for Team Republican — or maybe we should call that Team Oligarch — is part of what has me down these days.

Now, I don’t like to see anybody down. But in Krugman’s case, I’ll be happy to make an exception.

Pethokoukis links to a publication by the Economic Policy Institute’s (EPI) Larry Mishel, the one mentioned by Krugman. Per Krugman, it is “proof” that something other than what conservatives and Republicans have been saying, that over-taxation and too much regulation are the reasons for the slow (or as I believe, non-existent) recovery. Ezra “The Constitution is Confusing Because It Was Written More Than 100 Years Ago” Klein also uses the Mishel piece to say the same as Krugman.

Mishel’s report attempts to use three pieces of “evidence” to prove his point. I ignore the first two, growth of equipment and software investment as a percentage of GDP and private sector employment growth, since it’s obvious neither have done much of anything in regards to fixing unemployment and underemployment. Krugman glosses over these two items as well, while Klein rewrites Mishel’s spin for these factors. Pethokoukis mentions the part about employment growth, saying [emphasis mine]:

Another piece of EPI evidence: Private sector employment is up 1.1 percent during the 25 months of this recovery vs. a 0.6 percent drop during the “jobless” recovery following the 2001 recession. But go ahead and contrast the Obama recovery, instead, to the Reagan recovery where private sector jobs grew 9.9 percent during its first two years. One difference then: taxes and regulation were on a pro-growth trajectory—unlike today. (EPI credits Fed easing rather than Reaganomics.)

The kicker is the third piece of “evidence” provided by Mishel, which is covered by Pethokoukis, Krugman, and Klein. It has to do with a survey from the National Federation of Independent Business (NFIB). Per the chart provided in Mishel’s report, the survey showed that since Obama’s been the President 30% of small business owners stated poor sales were the main cause of their problems, 21% stated taxes were the cause, and 14% stated it was regulations. EPI’s conclusion [emphasis from original]:

In other words, slack demand appears to be the key concern of small businesses[.]

From here, Mishel’s policy preference is to increase this demand by through “investments” (spending) by the federal government. Naturally, the “investments” (money) would all have to be borrowed and will add to the debt, not mentioned by Mishel (or Krugman, or Klein).

Along with my regular job, which brings in 80+% of my family’s income, my wife and I have a small business. I agree with Mishel’s chart that our main problem is lack of revenue (poor sales). But the business we’re in is not the kind that the federal government can directly give money for, either as a loan or as a handout; plus, I wouldn’t want it since there would probably be all kinds of strings attached. Additionally, I live in a Republican district; as Chu’s implementation of the Energy Loan program has shown, along with other programs run by the Obama administration, government money is being directed towards Democrats. The kind of business we’re in requires people to have discretionary income available to use our service, which means people with jobs.

So unless the federal government starts handing out 50% of GDP in currency to everyone without strings attached and instead of to those politically connected to the Obama administration and the Democratic Party, or starts creating meaningless “jobs” for everyone who is unemployed or underemployed, the whole increased demand meme falls apart since there can never be enough money that could be used by the federal government to increase total, or even aggregate, demand, which is the point conservatives and Republicans have been saying since the first Porkulus was announced.

And, as noted by Pethokoukis, adding up the two other items mentioned in EPI’s chart, taxes and regulations, are still greater than poor sales. A reasonable inference can be made that government, in the form of taxes and regulations, is the biggest problem for small business owners, which confirms that conservatives and Republicans are pushing the proper approach to help the U.S. economy recover. Pethokoukis mentioning how great the Reagan recovery was proves Reagan’s great line, government is the problem and not the solution. The EPI chart confirms this, going back 40 years. But you won’t hear EPI’s Larry Mishel saying this, preferring to use Democrat talking points for his and his organization’s policy preferences.

In fact, Pethokoukis hits EPI hard on this by linking to an EPI report that came out in May of this year. Here is what Pethokoukis had to say:

Maybe EPI should run its own survey and ask entrepreneurs whether they would like to operate in an economy where government spending was running at 28 percent of GDP, revenues 24 percent, and big budget deficits extended as far as the eye could see. That is, by the way, exactly the fiscal scenario EPI recently concocted.

On page 2 of the EPI report comes this [emphasis from original]:

Our proposed budgetary path is based on Investing in America’s Economy, a joint project with Demos and The Century Foundation. This path achieves the goals of creating jobs and investing in America while putting the federal budget on a sustainable course. The path stabilizes debt as a share of the economy without demanding draconian cuts to national investments or vital economic security programs. It provides substantial and sustained increased funding for job creation and investments, particularly in the near term, all while improving both the 10- and 25-year budget windows. Our path achieves primary budget balance by 2017, and improves the course of public debt in the long term.

Page 6 of the EPI report is a chart that confirms what Pethokoukis is saying. In 2021, 10 years from now, spending is 24 1/2% of GDP while revenues are 21.6% of GDP, a deficit of 2.9%. In 2035, at the tail end of the 25-year budget window, spending will increase to 27.1% of GDP with revenues at 24.1% of GDP, a deficit of 3.7%. It also mentions that debt held by the public will be more than 75% of GDP in 2021 and more than 81% of GDP in 2035. Considering our debt to GDP ratio is sitting at around 100% right now, EPI’s debt numbers assume there will be an attempt to pay down debt at some point, although how that will happen is never explained considering Democrats make it a point never to pay down debt at any time. Plus, EPI’s numbers show they have no problem with the government running up the debt with increasing deficits during their whole time period. To put it more succinctly and despite EPI claiming they are non-partisan, the reality shows they are just another arm of the Democratic Party.

Instead of proving the case for increased federal government “investments”, as stated by Mishel and Krugman and Klein, Mishel’s numbers confirm the need to reform the tax code and get rid of the most onerous regulations in order to keep government as much out of the private sector as necessary. No amount of spin (ie., lies) from these Democrats or from Democratic Party politicians can be used to say otherwise.

Cross-posted at Scipio the Metalcon.