Obama Damage (Forbes)


Obama Damage (Forbes, Nov 15, 2012):

America has decided to reappoint Barack Obama as President of the United States. This is quite surprising, considering a number of facts: a $5 trillion increase in government debt to $16 trillion (a higher per capita number than any European country, including Greece); an unemployment rate of 7.9 % (higher than when Obama took office) ; 50 million people on food stamps and economic growth less than 2 %. Winning an election with such a poor track record is remarkable, considering that concern about the economy was the main issue for voters this year.

The stock market was surprised as well as it fell by 2.5 % the day after. Although the media and the Obama supporters tried to spin it as if the decline was caused by other reasons such as the Euro crisis, it is difficult to explain why then the biggest losers were energy stocks (in particular coal manufacturers) and the only winners were private hospitals (who will get more paying customers thanks to Obama care) and gun manufacturers. As on Intrade, a highly respected betting website, the odds of an Obama victory were 70 %, the 2.5 % stock market decline represent only 30 % of the expected damage of an Obama victory. Hence, the total damage can be estimated as 2.5 %/0.3 = 8.33 %. Another way to put it: if Romney had been elected the stock market would have risen by 8.33 % – 2.5 % = 5.83 %. With a stock market capitalization of $ 16 trillion the market’s estimate of the Obama- induced wealth loss is $ 1.33 trillion. This loss does not simply hurts the “top 1 %” as more than 50 % of Americans is currently invested in the stock market. They all will be hurt by Obama’s intention to let the Bush 2003 tax cuts on dividends and capital gains expire.

Evidence of damage on the real side of the economy became clear as many companies have been warning of significant job losses if Obamacare becomes the law of the land. Under Obamacare all companies with more than 50 employees have to provide health insurance for their full time employees, where full time is defined as more than 30 hours per week. While this law may well be socially desirable, the fact is that there is no free lunch so that the cost of labor has gone up as a result, which will increase unemployment , especially in very competitive sectors where companies can’t pass on the full cost to consumers. Especially small businesses may be reluctant to grow as the marginal cost of the 50th employee has now become very large. Some companies are already forcing their full time employees to become part time employees, who are likely to become the biggest losers: not only will they have no health insurance, but they will also see their income fall. Obamacare may well become a classic example of government intervention: good intentions with bad results, mainly because bureaucrats who design a law don’t anticipate how firms and individuals will respond.

In some ways, America has confirmed it wants to become like a European country, with bigger government, more regulation, subsidized alternative energy, more social spending and higher taxes on the “rich”. It seems that such a trend becomes irreversible once a large fraction of the voting population starts to become net beneficiaries of government handouts and subsidies. The Europeans are cheering, but they may get some second thoughts after realizing that the European social model is only sustainable if they can export their products to countries that don’t adopt their model, countries with high growth. Moreover, the election also does nothing to help avoid the “fiscal cliff”, i.e. the combined expiration of tax cuts and spending cuts on January 1. While the 2008 election led to change, this election has changed nothing in the balance of power: a president who won barely 50 % of the popular vote, and a Congress controlled by Republicans. More than ever America is a divided country.

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