Five Ways Obama Is Hurting the Poor

Last week, Pres. Obama embarked on a speaking tour to bash Republicans for wanting to harm the poor and destroy US civilization, A.K.A. his deficit reduction tour. As with all leftists, Obama’s only solution to the deficit issue is more spending and more taxation. Obama is playing to his leftist base’s meme that Democrats are the only party that cares about the poor. In fact, Democrat and Obama policies are greatly hurting the poor, despite the easy assumption to the contrary. While hardly exhaustive, here are five things Obama is doing to hurt the poor:

1. Obama is hurting the poor by promoting inflation.

As Shout Bits has said, inflation is the transfer of wealth from savers to borrowers because it causes the real cost of debt to decline and the real value of savings to fall. Further, wages, especially low skill wages, rarely keep up with the rate of inflation. Obama’s stimulus polices and his endorsements of the Fed’s expansionist policies are guaranteed to stir inflation.

Inflation mostly benefits the government because the US government issues unimaginable piles of debt that can be defaulted upon through inflation. Inflation also benefits many middle and upper class homeowners who see the real cost of their mortgages fall, the nominal value of their homes increase, and their wages nearly keep up with the pace of inflation.

Inflation will mostly hurt the poor whose incomes will not keep up with increases in rent, utilities, and food prices. Retirees will also suffer as their savings, unless invested in specific assets, will not grow at the pace of their living expenses.

2. Obama is hurting the poor by trying to save failed mortgages.

Obama has cajoled and threatened banks into forbearance on their right to foreclose on delinquent mortgagors. He has seized on technicalities to stop foreclosures, ignoring the fact that basically all foreclosures are the result of non-payment. Perhaps counter intuitively, foreclosures help the poor and actually increase home ownership.

Obama is trying to keep middle class people in the homes that many of them should not have bought in the first place, but foreclosed houses are eventually occupied by someone, so Obama’s policy does not increase home ownership in any way. Instead, Obama is chilling the market incentive for banks to make new loans for fear that their loss backstop, foreclosure, will not be available. Obama is temporarily propping up home prices with mortgage rescues and tax credits as well. Because of these uncertainties and market distortions, new home construction is at a generational low.

Middle class Americans, many of whom already have a home, are not especially hurt by Obama’s housing policies compared to the poor who cannot afford artificially inflated housing prices and lack of new construction.

3. Obama is hurting the poor with wage and labor policies.

Obamacare, which forces most employers to provide government directed healthcare, will be a disaster for the poor. Contrary to the standard leftist line, employment costs like wages, taxes, and insurance must be exceeded by the value an employee offers his employer. Employees are generally paid exactly what they are worth, and no more. Middle class workers create enough value for their employers to justify their wages and benefits, so Obamacare will only retard their wage growth as the new healthcare mandates are enforced. Employers cannot profitably employ low skill workers and pay for Obamacare style healthcare, so those jobs will be lost. The first step out of poverty is usually a low skill job, so Obama has eliminated hope for the poor to improve their lives. These low skill jobs will move to other countries or be pushed underground where taxes and regulations do not apply.

Obama has also pledged to increase the minimum wage to $9.50 and index it to inflation. As with Obamacare, minimum wages do not enhance the value of low skill workers. Employers will never keep employees that are not profitable. Raising the minimum wage actually hurts the poor by denying them employment today and the chance to qualify for better jobs tomorrow. Even Obama’s threat to act on raising the minimum wage chills the job market because employers do not want to invest in facilities for low skill workers only later to find that those jobs have been destroyed by higher minimum wages.

4. Obama is hurting the poor with new finance laws

Obama signed the Dodd-Frank law which tightly regulates consumer finance. In the guise of helping consumers, Dodd-Frank limits the various fees banks may charge consumers for things like debit cards, checking accounts, and payday loans. Unfortunately, Obama is denying the poor access to the financing they need to improve their lives.

Banks, like all businesses, will only serve customers that are profitable. In the past, banks have charged fees for overdrafts and debit cards to make low income customers profitable. While these fees are expensive, they are much better than those of check cashers, pawn shops, and loan sharks. By outlawing the fees that allowed banks to serve poor credit risk customers, the banks will certainly drive many poor customers out of the banking system. Likewise, by limiting the fees that payday loan companies charge, those companies will be forced to stop serving their poorest customers.

Obama’s consumer finance policies will drive the poor into the hands of pawn shops and loan sharks, the most expensive financing around. As with so many leftist pipe dreams, the stroke of a pen cannot make people better credit risks or improve their condition. The lowest rung on the ladder of consumer finance is not a good place to be, but taking that rung away is a huge disservice to the poor.

5. Obama is hurting the poor with his green economy policies.

Obama is an advocate of the ‘green economy,’ which pledges to make the world better in every way. Essentially, Obama wants to replace low cost energy sources like coal with more expensive ones like grain ethanol, natural gas and wind. Obama has admitted that his policies will increase the cost of energy. Obama’s shutdown of oil exploration in the US has also driven up the cost of gas. Even if Obama’s ‘green’ agenda achieves its goals of eliminating global warming and dependence on foreign oil, it is a disaster for the poor.

Middle class families can afford to pay extra for gas, electricity, and expensive bluish light bulbs because these expenses are a small part of their budget. The poor struggle to pay their utility bills. Obama’s ‘green’ policies replace a low cost system with a high cost one that is no better and disproportionately hurts the poor along the way.

Even though Obama’s policies hurt the poor and work to keep people in poverty, he is not without compassion. Obama has extended unemployment payments, and social services like food stamps are doing stellar business. Leftist policies like Obama’s reduce the natural income mobility that lifts people out of poverty, and the left’s response is more programs that actually further hurt the poor . It is time to get the government out of the business of creating wealth so that the capitalist system can actually do something positive for the poor.