It is better to suffer wrong than to do it, and happier to be sometimes cheated than not to trust.
Samuel Johnson
Job Picture Is Not Good
Let me excerpt and restate today's CNN news brief, because it is well-stated:
The economy added no jobs in August, the worst number since September 2010, weak in comparison to job gains of about 200,000 a month earlier this year. The jobless rate was unchanged at 9.1%. Economists typically estimate the nation needs to add about 150,000 jobs each month to keep up with population growth alone.The numbers are somewhat distorted because of the Verizon strike and the Minnesota state budget impasse, but the larger point is that even during better months, we were only generating 50,000 jobs, net of labor market growth, which is a drop in the bucket when you are looking at nearly 20 million unemployed or underemployed workers.
A couple of comments before continuing: first, on Fox News Channel, there was an interview today from someone on the President's economic council. One of the very first things this gentleman did was reference the economic problems that Obama inherited. Now I don't like to repeat myself, and quite frankly this scapegoating of the Bush Administration started wearing thin two years ago. If there's anything worse than a typically clueless economist in the Obama Administration, it's a clueless economist engaging in political spin. I understand there are some polls showing Bush rather than Obama is held responsible for the recession.
I am well aware that Bush encountered a number of problems which, unlike Obama, he didn't constantly blame on other people: a Nasdaq meltdown in Clinton's last year in office (which, by the way, we've never come close to recovering from), the 9/11 shock, the financial scandals, and the economic tsunami--based on a housing bubble which started early in Clinton's first term, Bush had poor economic results: only a million jobs created net, and most of those were at the local/state government level. If I hear one more time about Bush failed policies: both of them had Wall Street veterans (e.g., Goldman Sachs) in their administration; both of them appointed the same Fed Reserve chairman with loose monetary policy Ben Bernanke, both of them significantly increased domestic expenditures, both of them increased the size and scope of the federal government, both of them have practiced government intervention policies, both of them radically increased regulatory burden on businesses, both of them advocated making housing loans available to higher-risk applicants, both of them advocated policies shifting the tax burden to the highest earning earners, and together they've almost tripled the national debt since 2001.
Second, I'm annoyed by the kerfuffle over the timing of Obama's long-hyped job/economic address next week. Are we to believe that no one in the Obama White House realized that the GOP Presidential contenders had a preexisting scheduled debate on, surprise, surprise, Obama's proposed date to give the address. This has nothing to do with the fact that Congress has something like a 16% approval rating, and the President didn't want to do this knowing that it would put Speaker Boehner in a spot of asking, for the first time ever, a rescheduled date for the proposed joint session of Congress?
Personally, I don't care about the the GOP Presidential debate, but it's rather pathetic just weeks after complaining about the bitter partisanship over the national debt ceiling increase, Obama picked a date for the speech which even rudimentary due diligence would have exposed as unsuitable in an allegedly post-partisan administration.
As to the speech itself, I seriously doubt that we'll see anything dramatically new. He's been hinting at small business relief, new infrastructure funding, and finally getting to resurrected trade deals that the Democrats have been stonewalling for years (e.g., Colombia, South Korea, and Panama. Why would this get House GOP pushback? Because Obama wants to add government funding for personnel allegedly losing jobs over new competition from these countries as anti-consumer tariffs are scaled back bilaterally. THUMBS DOWN! This is little more than corrupt deal making with union interests as usual during this Administration. If we do something with unemployment compensation, we do it in a comprehensive matter, not piecemeal to unrelated treaties or bills.
What should we do? Realize that Obama is not going to address any of these; he's incapable of talking about profits without a related discussion on income redistribution. One of the things profitable companies often do is reinvest some earnings into expansion.
First of all, we need to put the horse ahead of the cart: businesses are not humanitarian associations. They hire more people because it is profitable to do so. For example, I have sometimes gone to regular restaurants while on business travel, and I didn't want to wait an hour to get seated. (I can even recall in one instance where I was seated, but no waiter came by for 15 minutes to handle me a menu or take my order; I walked out of the restaurant.)
Second, we need to realize that public policies can affect business profitability. At the local level, for instance, we could see blue laws. I remember back in 1992 while I was living in Irving, TX (in a "dry county") that my fellow Americans were about to make a huge mistake by entrusting the Presidency to yet another clueless incompetent progressive professional politician, Bill Clinton. I decided to buy a six-pack of beer; I knew when I visited my sister near Plano, there were package stores in the neighborhood. (As an aside, it was a bad decision; I needed to drink more than a can of beer over 4 hours on election night. I do recall I had the worst nightmare that night: I dreamed otherwise rational people really did elect Bill Clinton President.) Irving didn't collect my sales tax; a local business didn't make the profit on the sale. I had to go out of my way to make my purchase.
Another example takes place at various levels of government, including the federal government: the minimum wage. These laws, however well-intended, are counterproductive because more lower-skilled work hours would be deployed below an artificial wage floor. For example, workers could get longer shifts at lower rates which would work to maximize their aggregate income versus hourly rate. Similar considerations come into play when we consider other compensation elements like employer share of payroll taxes or various mandated benefits (e.g., health). There are a number of indirect personnel costs that most people don't see: recruitment and staffing, payroll processing, government payments and paperwork, etc.
There are also business-level income taxes, various permits and fees, regulatory compliance such as mandated inspections, etc.
Government imposes a number of other restrictions as well in terms of where you can locate your business, whom you can sell to, etc. I recall my mother at one point had developed some cake decorating skills. But chances are, even if she wanted to sell custom-made, decorated cakes, she would not have been able to do it based on zoning restrictions, health inspection and/or other policies. Say if she had to secure a relevant lease, would she be able to sell enough decorated cakes to at least cover her costs?
We have seen all sorts of restrictions--you can't purchase health insurance across states; you used to be prohibited against opening bank branches in different states, you weren't allowed to sell your goods to certain foreign countries, you weren't allowed to sell certain items or services below some minimum price (e.g., stock market transaction fees, even if the price was profitable), and a truck before deregulation might not be able to load goods for a return trip back.
Now, of course, there are other considerations besides often dysfunctional or counterproductive government policies: for example, workers uncertain about their own jobs may save more for the rainy day. A competitor may introduce a new product that outperforms yours.
Government is also a competitor to businesses; it sells bonds, often with tax-advantaged interest payments. It competes with the private sector for employees and contractors.
So how can government help businesses be more profitable and/or hire more people? This is an incomplete list, but I wanted to provide at least a few good first steps:
- Make it easier to start a business and minimize government tax and regulatory burden until sales reach a critical mass.
- Limit government footprint on employment, i.e., tax and regulatory burden on the hiring and laying off of workers
- Address structural government deficits, including underfunded entitlements; failure to do so implies long-term increased individual and business tax burden
- Enact globally attractive tax and regulatory policies to do business in the US.
- Open up new domestic and foreign markets for one's goods and services
- Eliminate or at least phase out most government subsidies, arbitrary anti-competitive barriers to entry (e.g., licensing qualifications) and arbitrary price floors or ceilings which reflect crony capitalism.
- Shore up a weak dollar which adversely affects margins of American goods and services depending on foreign-supplied resources and components.
- Stop competing with businesses for investment dollars which effectively increases business cost of borrowing, i.e., STOP SPENDING, STOP SPENDING, STOP SPENDING.
- Suspend indefinitely all new business regulations and sunset all but the most essential existing burden.
- Simplify the tax structure; the status quo reflects the impact of special interests which increases the tax burden to the rest of businesses.
Musical Interlude: My Favorite Groups
Air Supply, "All Out of Love". Whereas I knew and liked "Lost in Love", this was the single that really caught my ear and made me a group fan. It is a fun, vocally challenging song to sing in the shower; great arrangement...
