In his State of the Union speech, President Obama suggested that employers of non-skilled and low-skilled workers who are being paid the minimum wage should be required to provide those workers with a pay raise of more than 24 percent. But the president did not bother to analyze the impact that his government-imposed labor-cost increase would have on small-business employers, their business prospects, or even their ability to remain in business.
The same president claims that real human tragedy is imminent when sequestration allows an increase in 2013 federal spending of only $25 billion (a tad under 1 percent), instead of the pre-programmed increase of $68 billion (a smidgeon under 2 percent).
That’s right. Contrary to the president’s rhetoric, spread far and wide, but without context, sequestration does not cut federal spending at all. Federal spending in 2013 ($3.55 trillion after sequestration) will be higher than federal spending in 2012—and 2012 saw the highest level of government spending in all of human history ($3.53 trillion).
How can a 24 percent increase in labor costs, which is a major cost category for small business, fail to have any negative consequences while no real cut in federal spending can cause the sky to fall? The answer, of course, is whose ox is being gored?
The president does not like Small. He lumps small-business owners, who often “make more than $200,000,” in with “millionaires and billionaires.” As such, he deems that they are “not paying their fair share” and deserve further tax increases (beyond the January 1 income-tax hike).
Returning the favor, small business is not a friend to the president or his political party. Small business opposes Obamacare, the implementation of which already is limiting growth beyond fifty employees and increasing the health-insurance costs imposed on small enterprises. Small business favors lower taxes to encourage reinvestment of earnings and growth. Small business opposes increased federal regulation.
On the other hand, the president does like Big: big industry (GE and GM were both bailed out), big rail (Warren Buffett’s railroad that is carrying all the oil from the Bakken, while the Keystone XL pipeline remains stalled by the State Department), big banks (too big to fail), big tech (Google and Apple), big ed (the American Federation of Teachers and the National Education Association), big green (alternative energy receives billions in subsidies, with nothing but bankruptcies to show for it), big law (trial lawyers escaped the Obamacare debate without one iota of tort reform), big mouth (ABC, CBS, NBC, the New York Times and the Washington Post), big fantasy (Hollywood) and big labor (unions like SEIU, AFSCME and the AFL-CIO). The president loves, and luxuriates in, the big contributions flowing from Big. (This is despite his feigned opposition to the Supreme Court’s decision in Citizens United.)
Small business is kept nimble by competition and free markets. Such concepts are too chaotic and uncontrollable, simply too messy, for a statist like Obama. The Bigs encourage and thrive on increasing control: more monopoly, more oligopoly and much more monopsony. In brief, the Bigs support cronyism, Obama’s stock in trade.
The real class war the president is leading differs markedly from that which he pretends to fight. Obama claims to be for the middle class and against the “rich.” But the president’s major contributors are the very “fat cats” the president feigns to oppose. They are the owners and lobbyists for the Bigs, the crony enterprises that are so beloved by Obama. The middle class the president pretends to protect actually is composed substantially of those people the President’s policies are designed to impair, small businesses and their owners.
That is why the President has no trouble at all raising costs for small business. With each imposed regulation, with each tax increase, with each labor cost increase, with each health care insurance mandate he can command or cajole into existence, the president helps his supporters become more dominant in the marketplace. With each new fiat dollar that the Federal Reserve’s Benjamin Bernanke keystrokes into existence to facilitate the endless growth of Obama’s entitlement state, the president’s supporters see the value of their stocks rise. As those stocks rise, they are used as currency to acquire their smaller, more innovative rivals, further enhancing the Bigs’ market dominance.
The Bigs can afford compliance officers to deal with new regulations. Small businesses cannot. The Bigs can easily shelter income from federal taxation, through foreign accounts and accounting expertise. Small businesses cannot. The Bigs, with their K Street lobbyists, can shape and then win the most lucrative government contracts. Small businesses, without a seat at the federal contract drafting table, cannot. (Small business “set asides” are but mere crumbs, and generally are available only to politically favored subgroups. Of course, such “set asides” are merely another form of cronyism, simply on a smaller scale.)
But with each little bit of extra, short-term profit that can be extracted by the dominant firms—a result of the government-aided destruction of their small-business competitors—the more sclerotic and unresponsive the Bigs become. The big, heavy fortresses of the Maginot Line did not save France from the Blitzkrieg. Similarly, the ever-increasing salaries and bonuses that the Bigs lavish on their executives ultimately will not save the Bigs or the U.S. economy.
With their resiliency lost, and as they toast their own genius at having government do for them what they never could do for themselves, the Bigs eventually (and perhaps soon) will fall to more nimble foreign competition. The ongoing hollowing out of America will accelerate. All that will remain is hundreds of millions of mouths to feed and prescriptions to be filled with increasingly worthless scrip.
Jay Zawatsky is the CEO of havePower, LLC (a natural gas infrastructure developer) and a professor of business, economics, and finance at Montgomery College in Rockville, Maryland.