Monday, January 18, 2010

Why isn't the economy recovering?

I have been saying for some time that California real estate isn't headed for a recovery, but another dip (barring government intervention like the tax credits, and no growth policies like in SF). It's widely acknowledged that small businesses provide 70% of the jobs in the US.

The current federal and state governments are ideologically opposed to freedom for the people. The lack of transparency and the desire to regulate practically everything is evidence of this.

If you haven't read anything by The Heritage Foundation you need to read this article. More taxes on investment and on earnings to fund "health care". Which is little more than direct payments to insurance companies and pharmaceutical companies. These new taxes when combined with the expiration of the Bush tax cuts will take capital from investors.

Less money for investors, means less jobs. Investors use jobs as a multiplier for their capital. As long as a business is profitable, it is reasonable to hire more employees to make more profit. When taxation and regulation cause a business to become unprofitable, it either adapts or closes, leaving employees struggling as they must  find new sources of income. Read this article about a jobless recovery--which to me is an oxymoron.

As our economy continues to worsen, people are spending less (read this article). I've seen empty commercial buildings all over Southern California. Commercial landlords are handing back keys to the bank, just as homeowners have. There won't be any commercial property bailout--as there is no sympathy from the current administrations for profit makers.

An aside: If you have seen a number of commercial building projects in the works and are thinking this is a sign of an improving economy, you need to think again. If builders do not complete currently approved plans, they will have to submit new plans. These new plans will have to comply with newer building codes, and the newest set of Energy Efficiency codes are much stricter, which will mean much more expensive buildings. I think the builders are hoping that the economy recovers by the time they are done building (and hopefully it is)

So, after all these small businesses go out of business (or don't open at all due to startup costs) we will continue to see more people unemployed. These people are also likely to fall behind on house payments and eventually lose them, adding even more foreclosures to the market.

Let's not forget, that there are lots of public employee unions that are investors. They have retirement accounts that are invested in stocks. So profits also help unionized employees, too. Though, as many of the public employee retirements are guaranteed, any shortfall in retirement accounts caused by a decrease in value of stocks will leave taxpayers (once again) footing the bill, further slowing the economy.

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