But businesses weren’t required to provide medical care, unless their union contract required it. It wasn’t their cost, it wasn’t their risk.
Come now. The government has had to do AMT patches – generally one year, temporary fixes – since the late 1990s to avoid substantial tax increases on almost one quarter of the taxpaying population, but that didn’t seem to affect the business climate. Now the potential for rather modest tax increases for 2% of taxpayers is suddenly a big deal that’s grinding our economy to a crawl? Does not compute.
“Uncertainty” was the reason Stephen Harper provided for not wanting to have an election this year. Apparently, democracy is bad for business.
Nice hijack.
I thought it meant that you can either know the direction the market is going or its rate of change–but never both at the same time.
Moving thread from IMHO to Great Debates.
These businesses will now have to deal with the exact same uncertainty that other businesses have successfully dealt with for decades. 50% of American jobs offer health insurance, now a somewhat higher percentage will offer health insurance. Tragic.
Frankly, the idea that business won’t open or expand because they don’t know what their health insurance costs are is nonsense. #1, you sign a contract with a provider, your costs are going to be fixed for the length of that contract. #2, the uncertainty around your revenues is probably 10x the size of any possible uncertainty around health insurance. It’s like saying I won’t expand my business because I would have to rent a bigger office, and I don’t know what the new electric bill would be.
If we believe Republicans, every human makes every decision solely on tax rates and millionaires lie awake at night saying “hmmm… should I start up a business or not? But maybe they’ll raise taxes and I’ll get to keep only 72% of what I make and not 75%? So rather than lose 3% of something I guess I’ll just not do anything and make nothing.”
And if you believe Democrats, business owners care nothing whatever about tax rates, regulation, or future costs, and think that a politician with no business experience at all knows better than they how to spend their money.
Regards,
Shodan
Oh dear! Where to start? So much rubbish in so few lines. I work in for a multinational that is headquartered in Europe but has more than half its operations in the US. So not only do I have a good view into cost structure in the US and some European and Latam countries, but also how the Europeans view our health care economics.
In the US about 90% of our workforce is unionized and we provide health care to them at various levels (better for full time than part time, better in some locations than others, better under some local union contracts than others). The union players in our industry have been losing market share over the last 30 years to non union ones, though our particular company has done quite well, not least because most of the union competitors have gone out of business, and we are probably the lowest cost of the union guys.
Health care is the #1 source of uncertainty in our financial modeling for the medium term (3-10 years out). Health Care reform is a huge source of uncertainty in 2014, and generally health care costs are the major factor. I cas assure you that we spend a lot more time talking about health costs than sales projections. In fact health care costs are the #1 item driving our costs up, and hence our prices, which is what is putting pressure on our sales.
The company sees the best expansion opportunities in areas of the US where we could potentially have non-union operations, where we would have wages comparable to union employees, but not provide health coverage to part timers. The uncertainty around what this would mean in 2014 has completely stalled any action. Being off in your cost calculations by 2-3% of sales, completely sinks any business model in our industry, and since most of our employees are part timers, this is a big deal.
Note that our union operations, where we offer health care coverage to part timers have a severe adverse selection problem. The employees we attract are largely older, with health issues. The younger employees would rather work for the non union shop where they don’t have to pay union dues. For part timers, health care costs can add 40%, even 50% to the wages we pay. So we will pay $12 and hour wages, and $5 an hour for health insurance. We may know that $5 for the next two years, but in 2014, who knows. It could be that our competitors will have higher costs, because they will have to pay fines. It could be that we will have higher costs because adverse selection will get worse. A lot depends on the exact rules that will be in place in 2014.
Note that I am not taking a position on whether ObamaCare is primarily causing the uncertainty. The way to take out the uncertainty is to go to a single payer system and put the uncertainty on the backs of the taxpayer. Of course the most popular way to finance a single payer system is going to be to try to tax away the “windfall” that employers will get from not having to pay health insurance. I don’t think the idea of an increase in the income or payroll tax rate of 5% or 7% is going to be very popular.
But your contentions are staggeringly stupid in these respects:
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Employers who provide health insurance have not “successfully dealt with” it. They are either pushing the costs off to the employees, cutting out coverage completely or losing out to competitors who do.
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Knowing what your costs are for two years is not enough. Investment plans that result in sustainable job growth have a longer time horizon.
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The 2014 even is a crapshoot of unprecedented proportions. We have very highly paid consultants trying to figure out what will happen. Their advice pretty much can be summed up as “wait and see”.
What a frustrating thread.
Uncertainty is not a difficult concept. The effect it can have on business is easy to understand. This thread is split 50/50 between people patiently attempting to explain how uncertainty works and how it affects investment, and the other half with a political axe to grind throwing out baseless assertions, attempting to hijack the discussion, or coming up with bizarro explanations that indicate they don’t even understand the issue but are still certain the other side is wrong.
Let’s say you’re a manufacturer of a product that requires a lot of energy to produce, such as steel beams. You’re thinking of expanding. How do you make that decision? Well, it’s complex. You have to look at the futures cost of steel, the future cost of energy, the trends in demand for steel, the future cost of labor, etc.
The thing is, most of these numbers are amenable to analysis. Even if you can’t get very precise numbers, you can usually put upper and lower limits on them, which means you can calculate risk. So you go through a lot of long, tedious analysis, and finally pop out some numbers that represent return on investment in best-case and worst-case scenarios. From that, you determine whether expansion is a good investment or not. Remember, as risk goes up, the return on capital required is higher. That’s why safe AAA bonds return less than junk bonds.
If the risk is so high that you could earn more money with the same risk by dumping your capital into a Muni bond or something, the expansion won’t happen. So if economists come out and say that there’s a 10% risk of a double-dip recession, at least you can factor that in to your analysis. If that drives up risk, then economic activity on the margin will decline.
In some cases, companies will control their risk by buying insurance. If one risk is that an extended period of bad weather will slow down your project and drive up construction costs, you can find an insurer who will take on the risk and charge you a fixed rate. They can do this because their actuaries will figure out the risk, and add a premium so the insurance company profits.
But uncertainty is a different breed of cat. Let’s say the EPA comes out and says, “Hey everyone! We’re thinking of regulating CO2 as a greenhouse gas!” What does that mean? What happens if they do? What will that do to energy prices? Well, no one knows, because we don’t know what the EPA would do with that power. Does that mean they’d start slapping hefty CO2 tariffs on source energy producers? Or would they regulate every factory that uses energy? How stringent would their regulations be? No one knows. How much will it cost? No One Knows.
You can’t put a number to that uncertainty. There’s just not enough information. But nonetheless it’s there. Potentially, the EPA could raise costs enough to make your new factory unprofitable. So how do you plan? How do you make the decision to invest in that factory? And now you can’t even buy insurance protecting you from that, because the insurance company actuaries can’t quantify the risk either.
It gets worse if you need to raise capital for your expansion, because venture capitalists aren’t going to buy a pig in a poke. They want business plans, and they want risk quantified and priced so they can decide whether your venture is a better use for their money than all the other ventures applying to them for capital. If you can’t give them those numbers, they aren’t interested.
So when you have a government running around proposing new regulations willy-nilly, it has an effect on investment and growth, even if those regulations never come to be. If your government refuses to produce budgets for political reasons, then the business community can’t figure out where the government is going to spend its money. Government contractors can’t plan. If your government has a habit of signing thousand-page bills that don’t take effect for several years, and for which the effect can’t be known until the bureaucracy converts them into actual laws, you create uncertainty.
When no one knows whether or not the Fed will do another round of ‘quantitative easing’ and inject another trillion dollars into the economy, this adds uncertainty.
No matter how much you want to believe that this stuff has no effect, it does. Every survey of small and medium sized businesses overwhelmingly shows that this is a major factor in them keeping their money on the sidelines.
If they don’t have the stomach to gamble, they need to get the fuck out of the business world. These days, these cocksuckers think the government should guarantee them a profit.
They ARE getting out of the business world. To the tune of about 2 trillion dollars. I thought this was the problem you’re hoping to solve?
And businessmen don’t ‘gamble’. They take calculated risks. It was the derivatives traders who were ‘gambling’. Is that what you want? A shift away from carefully considered productive enterprise to people ‘gambling’ on your future?
When the rules are more clear in other countries, hell yeah, they are going to take their business else where. I guess the American government showed them!
Oh bullshit.
If you believe that then take a bet with me. The deal is this, if I win you give me $1000. If I lose I give you $1000.
The rules? Well I will tell you the rules after you accept the bet.
Do you accept?
Of course not. Neither would any business. One of the reasons businesses are twitchy right now is they do not know what the rules will be. If you don’t know the rules you don’t stand a chance.
Sam covered the gamble vs. calculated risk aspect already.
Slee
Don’t you think your competitors who do not offer health insurance now have even more uncertainty? Doesn’t a level playing field give you a competitive advantage, since your costs will likely not go up as much as theirs? The race to the bottom you mentioned has costs also, from sicker employees to increased costs for you as you help pay for healthcare for those without insurance.
Also, wouldn’t the situation be more stable if no one was trying to defeat the plan in the courts, and all the efforts of the government were devoted to writing and publishing the rules everyone is going to have to live with?
No. The possibility of the new health care law being defeated lowers uncertainty, because it presents a possibility of a return to the status quo.
The problem with the Affordable Care Act is that NO ONE understands the effect it will have on the economy. No one can understand the effect it will have on their competitors. No one can understand the effect it will have on prices in the supply chain.
For example, if one company has more automation and higher-paid, technically trained employees, it may actually be at a disadvantage over a company that uses brute-force manufacturing with lower-skilled employees. This is because the government subsidies go up dramatically as the wage of the employee goes down.
Then there are those companies that already provide health care, but have no way of knowing A) how much their cost will rise when the health care companies are hit with all the new requirements and demand increases by 30 million people, and B) whether their coverage is adequate to prevent employees from leaving for the exchanges, thus causing them to get hit with fines.
And even if you’re confident that your company will do okay - maybe you’re mostly automated and don’t have that many employees, and you already provide them really good coverage (but hopefully not good enough that now you’ll get hit with fines for having ‘gold-plated health coverage’…). But let’s say you’re confident that your own health care costs will remain in a predictable, reasonable range. But what about your competitors? What about the companies in your supply chain? Are you going to see a rise in prices as these companies pass along the new health care costs? What will that do to your competitive position? How will this affect your export market?
This is a big deal. Ask the owner of any small-to-medium sized business. And it’s just one of the new big uncertainties this administration has thrown into the planning mix. The new financial bill is just as large as the health care bill, but it’s even harder to understand and most of the regulations to support it have not been written yet. The EPA’s threat to regulate CO2 as a pollutant would give it sweeping new powers to essentially regulate every business that consumes energy. No one knows how far they would take it.
Then there’s the rule of law. This administration’s regulatory agencies have been skirting around it. The Administration pushed the union ahead of investors in recouping value from the GM takeover. That has to spook investors in other companies that could be subject to the same thing. The NLRB has refused to allow Boeing to open a new plant in Louisiana because it’s a ‘right to work’ state, and they’re saying that makes it a punishment of union workers in Washington. These kinds of acts are unprecedented, and leave business owners and investors worried about interference in their investments.
I already posted a thread about one major unintended consequence of the Dodd-Frank act - a little requirement forcing businesses to ensure that goods purchased from the Congo do not profit warlords. It seems like an innocuous enough regulation, but it ignored the fact that businesses have no way to make that determination, and so rather than face punitive measures under Dodd-Frank, they have simply withdrawn from the Congo altogether.
That was an example of businesses raising their expanses to avoid uncertainty. And it obviously raised their expenses, or they wouldn’t have been in the Congo in the first place. How much did that one little reg in a 2,000 page financial bill cost that industry? How many more little ticking bombs like that are hiding in there?
For that matter, consider the varying impact of the legal fees required just to maintain compliance with a behemoth like that. Big companies don’t mind - legal fees are a small portion of their costs. But imagine you’re running a lumber yard and just getting by month after month in a tough economy. How are YOU going to know what your new obligations are under this new legislation, and how much will it cost you to hire a lawyer to even find out? And what does the constant stream of new requirements from regulatory agencies do to your business confidence and your willingness to expand your operation?
There’s plenty of economic uncertainty. Consumers don’t know whether they’re going to be still in a job in a month, they don’t know if their house value is going to fall so they’re underwater on their mortgage and so on. Businesses have seen consumer demand (consumer spending is 70% of US GDP) drop alarmingly and don’t know when it’s going to come back. So there’s plenty of uncertainty.
But it’s economic uncertainty. What the GOP are doing is claiming that it’s regulatory uncertainty, that the fear of new taxes and regulations by our new Kenyan socialist leader is preventing them from investing and thus the economy recovering. They’re ignoring the plain as day fact that the demand chicken comes before the investment egg and are conflating the very real worries about the economy with “regulatory uncertainty” and using this to campaign in the media and congress to block any effective re-regulation of the morons and criminals who caused the economic meltdown in the first place.
There’s a monthly survry of America’s small businesses that shows all this quite clearly. Here it all is in a handy chart form :
http://economix.blogs.nytimes.com/2010/09/14/whats-holding-back-small-businesses/
http://modeledbehavior.com/2010/09/17/sales-vs-labor-quality/
You can see how things like “government requirements” and “taxes” are at very low levels, much lower than the 90s boom years when despite those levels of regulatory uncertainty the economy did quite well. And you can see how businesses saying lack of demand is their main problem has skyrocketed since the 2008 meltdown.
So basically it’s the GOP doing the bidding of their corporate masters. Anybody complaining about uncertainty being our main problem in getting the economy turned round is either a cynical motherfunker who knows quite well that he’s full of shit or one of what lenin termed “useful idiots” who belive and spout elite propaganda even when it’s directly against their economic interests to do so.
Let’s say for the sake of argument that the economy turns round and in six months is producing a solid 3-4% yearly GDP growth. Would you expect business to then pump that two trillion back into the economy?
A business will pump money into the economy when exactly one condition is met - when he can write a solid business plan that shows a return on investment higher than what can be had by putting the money into other investments with similar risk.
It doesn’t matter if the economy is growing at 4% or at 2%. For that matter, the economy is stagnant right now but there are still companies investing like crazy. Apple, for example.
While aggregate values can be important for macro analysis, never lose sight of the fact that from an individual businessman’s standpoint, there is no such thing as ‘demand’. There’s only demand for his product. Apple is having no trouble selling iPads. Lots of companies are doing just fine, and are investing money and hiring workers.
The biggest flaw in ‘pop’ Keynesianism is that it tends to make people disregard the fact that when all is said and done, the health of an economy is measured by how well the productive capacities of a nation are geared towards making things that people want and need. Bailing out a company that makes products no one wants may cause a temporary boost because those workers are still getting paychecks and therefore still spending, but ultimately that factory has to go or your economy will run inefficiently.
How many of today’s problems with demand are the result of irrational fear, vs a change in preferences of consumers that are not being transmitted to producers because the government is distorting market signals by bailing out companies, subsidizing losers, and injecting money into the economy in haphazard fashion?
Imagine you had an economy where people build tables, and they build chairs. Let’s say there’s a bubble in the chair economy, and people over-buy in chairs. The bubble has caused table manufacturers to switch to chair manufacturing. But people want tables, so the demand for chairs falls.
In a healthy economy, the chair manufacturers go out of business, and all that labor and capital is freed and looking for something to do. The demand for tables is high, so those people get re-hired as table builders, demand picks up, and all is well.
Now imagine that the government steps in and bails out the chair manufacturers. So they keep making chairs, but no one wants them. In the meantime, aggregate demand is falling (because people won’t want more chairs). The government responds by giving everyone lots of money to spend. This boosts chair sales a little, but most of that money just winds up being saved because people have nothing to spend it on that they value. So now the Keynesians are scratching their heads, wondering why their chair bailouts and stimulus to potential chair buyers hasn’t created a better economy. All they work with is aggregate supply and aggregate demand, so they’re blind to the fact that once you move away from aggregates, the real problem is a misalignment between production and the demands of consumers.