Thursday, July 19, 2012

Obama proves that he doesn't understand how businesses are run

And no, this doesn't have anything to do with his comment that "You didn't build that" - amusing as that may be.  His defenders are all saying that he didn't really say that, he was taken out of context, and that his opponents are a bunch of poopyheads.  The poopyheads reply along the lines of neener neener.

Granted, this exchange is pretty, but is it Art?  More specifically, is there a different way to demonstrate Obama's utter lack of understanding of the business community, one that his supporters will fail completely in their attempts to defend him? Sure is, and we're seeing it right now.  And Obama and his supporters are seeing it right now, and simply cannot understand what's happening.

Let's think about Obama, as his supporters like to think about him.  Highly educated, sharp as a whip, experience from his Community Organizing days giving him a unique ability to plan new policy implementations to minimize political resistance and maximize coalition building.  Now I don't really buy this, but I hate all the neener neener business, and so am interested in showing them the bankruptcy of their world view in their own terms.

So how did Obama's "brilliance" show itself during the last three and a half years, policy wise?  Remember, it's supposed to be about minimizing resistance and maximizing coalition building.  The big costs of his programs are all delayed until after 2012.

Consider Obamacare: the taxes hit on January 1, 2013.  That's not a coincidence - if there were a potential hit to the economy, Obama carefully pushed that out after the 2012 elections.  Same thing with the current tax cuts - Obama supported keeping them through 2012, so that taxes wouldn't go up during the election.

Remember, this analysis is using arguments that Obama's supporters would advance, approvingly.  We're fighting the battle on ground of their choice.

So why do I say that this all demonstrates conclusively that Obama and his supporters have absolutely no idea how businesses work?  They don't have the foggiest notion of Internal Rate of Return.

Consider: the economy has already slipped back into recession in the last month - GDP growth is now negative.  We haven't yet seen the official numbers (which lag by 30 - 90 days), but the signs are everywhere: miserable job numbers, miserable purchasing indices (signs that companies are aggressively cutting inventories), GDP forecasts adjusted downwards, corporate hiring in free fall.  Why?

Obama's supporters likely would say that it's because those evil businessmen hate Democrats and Social Justice.  I say that it's because those evil businessmen understand Internal Rate of Return IRR).

Businesses plan across multiple years.  If you are going to make an investment, you're probably looking at a 3-5 year return period.  Much of the cost is up front, with revenues often delayed for months or even years.  IRR lets you calculate whether that investment will be profitable across the investment's lifetime.  Net Present Value (NPV) analysis allows you to calculate out year revenue and costs in current dollars.  The current investment plus the NPV of out year costs had better be less than the NPV of out year revenue, or your investment will lose you money.

Sure, you have to make estimates on interest rates, price and wage inflation, market share, and that sort of thing, but business executives will object to most odd-ball goofy estimates and make you recalculate things.  "Show Your Work" is a great business tool for not going out of business.

Obama focused 100% on the 2012 election cycle; he doesn't care about out years.  And so we're looking at a fiscal meltdown, where even the chairman of the Fed is saying that Taxmageddon will kill the economy.  So what are businesses doing?

They've recalculated their IRRs.  The out year costs have gone up - in some cases dramatically, while sales/revenue opportunity has at best stayed constant.  This means that a lot of investments that used to look profitable now look like money losers.  And that means that those investments aren't being made.

Purchasing down?  Check.  The investment isn't profitable based on expected higher future taxes/costs.

Hiring down?  Check.  Since those investments weren't made, you don't need the added headcount to execute them.

Inventories down?  Check.  Since purchasing is lower (see above), there's less need to stock equipment and material - or keep on workers to stock and ship them.

And here's the punchline: Obama didn't have the slightest idea that any of this would happen.

Mr. Big Time Constitutional Professor never had to write a business plan, to calculate NPV, or figure out when and how many to hire - or justify his assumptions to the Investment Executive Committee.  And so he simply didn't realize that his "benefits now, costs later" plan was actually "benefits now, costs now".

The economy has already stalled out - likely in the last 2-3 weeks - precisely because he never imagined that this could be possible.  And dig this: none of these economic figures have really shown up on the media's and the voting public's radar yet.  They mostly haven't been announced.  Yet.

But already Romney is crushing Obama on running the economy:

Romney beats Obama by 6 points on whether people think he'll improve their personal financial situation - well outside the margin of error.  He beats Obama by 14 points (!) on whether people think that he'll make their personal financial situation worse off.

14 points.  And this poll was D+6 - weighted with a 6% Democrat advantage.  That kind of turnout simply won't happen in November.

And the double dip recession hasn't yet entered the consciousness of these people.  But it will.  In August, the media will try to cover for the Administration as finances start to bite harder.  In September, they'll try increasingly desperately to cover for the Administration as finances bite even harder, and as it becomes plainer that we're back in recession.

It's September when the rout happens, when the bulk of the undecided voters make up their minds that Obama simply doesn't have a clue what to do other than blame someone - anyone - else.  Democratic Senators and Congressmen are already running away from Obama as fast as they can, but this tidal wave will drown a bunch of them anyway.

And Obama did this to himself, because he doesn't have the slightest idea how business investment is done.  It doesn't have anything to do with this you didn't build this remark, it's all about his world view.

Stick a fork in him, he's so done.


bluesun said...

Slightly relatedly:

In today's newspaper, an article exclaiming "Housing up*! The economy is recovered!"

Meanwhile, if you read the article and notice the *, it says, "Housing still at half of what economists consider a healthy market."

This spinning whirly ride know as "media bias" has got to burn out it's bearings sometime, if it hasn't already. I find it quite entertaining to watch and listen to the screeching noise while they just shove their fingers in their ears and try to keep talking.

Unknown said...

Well reasoned, and that how I'm betting. As I mentioned on my blog, his speech has issues. The entire speech is fairly indicative of his lack of understanding. Cart before the Horse - typical Socialist thinking.

Sadly, if he loses, Mainstream media will blame the result on Romney even though he will have had no chance to enact anything that could have effected the economy when those taxes hit and business start dropping like my bank account.

Not that I expect any better out of Romney - I don't.

Perhaps with Obama out and Romney taking a large chunk of the blame for the Obama excesses, people will finally decide they've had enough of both parties.... nah - just wishful thinking.

Atom Smasher said...

Go Go RomneyBot 9000!

Ian Argent said...

Even if you parse his statement as intended (where the ambiguous pronoun refers to the American system, not the business) the whole thing is a trite, trivial, statement. No one person built the system, but the government didn't either! People acting in their own interests did, usually for profit of one kind or another.