In New Deal or Raw Deal, Burton Folsom, Jr. explains that an atmosphere of regime uncertainty kept businesses wary of President Franklin D. Roosevelt's New Deal policies. Today, under President Obama, the economy is suffering similarly due to the understandable hesitation of companies to expand. The two presidents share certain behavioral and policy similarities: incessantly admonishing businesses for being successful, taxing companies excessively, and goring industry with regulations, thus creating widespread uncertainty and depressed economies. Even at the level of a small business, such uncertainty affects major business decisions.
In our small business, my wife and I buy ingredients, then make and sell candy. Payments received from customers (gross income) are used to pay fixed and variable costs. The fixed costs include loan and credit repayment, rent, and utilities. Variable costs include labor, taxes, ingredients, and packaging. After these costs are removed from gross income, the remainder is profit, or net income.
Since we are a specialty food manufacturer and retailer, the majority of our gross income is obtained around various holidays, especially during the Christmas season. We transact 75 percent of our business in the last quarter of each year, relying heavily on corporations sending our products as gifts to clients and customers. In 2010, our production capacity was near its maximum from November through December. Based on last year's sales, and assuming an increase for 2011, the wise business decision would be to invest in additional equipment and labor to increase production. However, we cannot risk going into debt to finance new equipment while Washington issues threats to business.
A new chocolate machine could easily cost $25,000, necessitating a loan and adding another payment to our fixed costs. To incur this additional expense, there must be a relative certainty that business will increase. Indeed, a decision to take out a large loan in a small business can be a fatal mistake. So considering the current anti-business environment, the rising national debt, and government behemoths flooding the market with regulations, investing in additional equipment at the present time could add enough cost to wipe out our profit. In effect, acting as though Barack Obama will create policies that reward business risk amounts to an invitation for financial disaster.
In addition to production costs, shipping expenses also constitute a major concern for our small business. President Obama promised to significantly increase energy rates. He has managed to achieve this goal by destroying the Gulf of Mexico oil industry and refusing to consider new domestic drilling and production. As gasoline prices rise, shipping companies such as UPS add fuel surcharges to most shipments. Unable to absorb such increases, we must pass the added costs on to the consumer. Customers unwilling to pay higher prices will take their business elsewhere.
The resulting economic tightrope-walk of keeping prices down without losing money gets shakier when our national "leaders" spout language and policies that make conducting business even riskier. Business operators' risks increase in proportion to taxes, regulation, and the shrillness of the Marxist rhetoric emanating from the White House. As Washington raises or talks of raising taxes, increases spending, and vilifies profit, I am less inclined to risk my family's future by investing for growth.
For sustained growth cannot transpire under the Obama administration. The big-government "help" that the president offers won't spur the economy, entice entrepreneurship, or engender consumer confidence. Obama's ridiculous "tax incentives" for hiring new employees, for which only a tiny fraction of businesses qualify, could have been dreamed up only by someone who has never made a payroll and whose only associates are leftist ideologues. Obamaesque socialism has a deadening effect on innovation, entrepreneurism, and the economy.
Economist Robert Higgs explains the deadening effects. Referring to the current Obama recession, Higgs observes:
[D]uring the past three years ... an important reason for [the] apprehension and the consequent reluctance to make new capital commitments is regime uncertainty-in this case, a widespread, serious fear that the government's major policies in areas such as taxation, Obamacare, financial reform, environmental regulation, and other areas will have the effect of depriving investors of control over their capital or diminishing their ability to appropriate the income that the capital generates. President Obama's harping on the desirability of making "the rich" pay their "fair share" (that is, more) of the government's ever-rising costs only exacerbates regime uncertainty. Business leaders have spoken again and again of how the present political environment is discouraging risk-taking and entrepreneurship.
Mitigating risk and entrepreneurship are the business of small business. But in our small company, we are holding our breath and riding out the Obama storm until a free-market leader emerges to instill confidence that the risks which we take will be rewarded with increased profits that we can keep. Until federal spending is curtailed, regulations decrease, and taxes stabilize at a fair level, we will remain skeptical of every word that issues forth from the mouth of Washington.
Our skepticism will keep our growth on hold.
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