Higher inflation will not reduce jobless rates

Even the Federal Reserve Bank disputes the view that higher inflation can lead to lower unemployment. At least, that was the view expressed by the FRB of San Francisco. "Almost all economists have followed [economist Milton] Friedman in accepting that there is no long-run trade-off that would allow permanently lower unemployment to be traded for higher inflation." ["Nobel Views on Inflation and Unemployment," FRBSF, Jan 10, 1997.]

The false economy of government “stimulus”

In its ongoing attempts to “stimulate” the economy, the government takes money out of the economy (in the form of cash through taxes or credit through deficits), consumes part of it in waste and administration, and then spends some part of it for a stadium, a bridge or whatever.

All the government can do, at best, is to move some jobs from that portion of the economy where the private sector would have used the money to that portion of the economy for which the politicians can take credit in hopes of reelection. Nevertheless, due to the manifest inefficiencies in government, more jobs would have been created in the private economy had the money not been unceremoniously extracted from the taxpayers' wallets in the first place.

Hence, while the politicians get to take credit for some job creation, the net number of jobs created will always be less than had the private sector been left with the money and regulation reduced.

On economic growth versus political control

Economic growth is radically unpredictable and, almost more than anything else, politicians want control and the power it brings to them.

The most important economic developments happen at the leading edge of the economy where innovations frequently cause things to be slightly out of control. Therefore, meaningful economic advance does not work well within the confines of so-called "scientific economics" or the "planned economy."

The economic activity that drives rapid growth, rapid increases in capital (production of profits) and the growth of new jobs cannot be foreseen in mechanistic terms or easily predicted using mathematical formulas.

This explains why so many of the economic interventions by politicians and government work against innovation and rapid economic growth. Instead, while seeking control, politicians and governments tend to preserve the old industries and firms that are not on the growing edge of the economy. Politicians are far more likely to waste taxpayer money trying to resuscitate dinosaur corporations and industries for the sake of the equally outdated and outmoded unions than to aid any truly innovative entrepreneurs. As a result, government actions actually damage the long-term prospects for the economy and this means the economy will take longer to recover than if government had not intervened at all.

On the power of corporations, unions and other special interest groups

Corporations, special interests (groups) and lobbyists—bad as they may be—have no authority nor power to coerce a Congressional Representative or Senator to do that which hurts the taxpayer, damages the economy, destroys jobs, prolongs unemployment, increases the size of government or add to our deficit and public debt.

Only our elected representatives—only the politicians in Washington and our State houses—have the power to do these damaging things. Sadly, our elected officeholders come quickly to sanctify every act in pursuit of re-election above the sanctity of our U.S. Constitution or the good of the people and the American economy. It is by this wrong priority that the politician becomes readily “hooked” on the dollars offered to him or her by the special interests and take actions that damage the American republic.

Only WE, THE PEOPLE, have the authority to remove from office—by our votes—those officeholders who succumb to the siren sound of special interest money and influence.

Yes! It is WE, THE PEOPLE, through our own lack of vigilance to our duty, that have allowed the evolution of a federal government that has forgotten our Constitution, forgotten limited government, and forgotten the need for sound money. And, it is WE, THE PEOPLE, who can and must fix it.

Change your politicians often! They easily dirty, and generally do so very quickly!

Democrats are wrong about government spending and job creation

Note that the official William J. Clinton Presidential Center website claims that during Bill Clinton’s administration the nation "Moved from record federal deficits to record surplus" and "Began paying off the national debt" while "[Creating] nearly 23 million jobs" and supporting the "Fastest and longest real wage growth in over three decades." Also, during this time "Family income reached record highs, "Unemployment was the lowest in over three decades," the "Lowest overall poverty and child poverty rates since the 1970s," and "Lowest percentage of Americans on welfare in 32 years" was also achieved.

How did they do it?

• They reduced the size of government, having the "Smallest federal civilian workforce in 40 years."
  
• They reduced the burden of federal spending on the economy by having the "Lowest federal spending as a share of the economy since 1966" and the "Slowest per capita growth of government spending since the 1950s."

TODAY'S DEMOCRATS ARE WRONG!

On “Big Oil” and taxes

Between 1980 and 2005, oil companies directly paid more than $2.2 TRILLION in taxes (after adjusting for inflation) to federal and state governments—including excise taxes, royalty payments and state and federal corporate income taxes. That amounts to more than three times what they earned in profits during the same period, according to numbers from the Bureau of Economic Analysis and U.S. Department of Energy.

---

For comparison purposes that is…

---

$88,000,000,000	per year
$7,300,000,000	per month
$803,103	per day
$33,463	per hour

---

Still, for Leftists—who hate success and are filled with envy—that's not a big enough contribution to make to our American way of life.

But this contribution does not include the other major contribution of so-called “Big Oil.” The firms in that industry employ—directly and indirectly—several hundred thousand Americans. Many of those American earn above-average salaries and virtually all of them pay state and federal income taxes, pay in millions in consumption (sales) taxes, and the vast majority participate in paying millions of dollars into property taxes.

Here are some numbers to think about

In 2010, the U.S. oil and natural gas industry provided $476 BILLION in direct support to the economy. This stimulus did not require an act of Congress nor that billions of dollars in new public debt be foisted upon the taxpayers of this generation and generations to come.

• $266 BILLION was returned to the economy in the form of spending on new energy projects, improvements to existing projects and enhancements of refinery and other downstream operations
• $176 BILLION paid to 2.1 MILLION U.S. employees in wages and salaries, plus benefits and payments to oil and natural gas leaseholders
• About $35 BILLION in dividends distributed to American shareholders

On what one cannot do when seeking real progress

The following is common mistakenly attributed to Abraham Lincoln:

You cannot bring about prosperity by discouraging thrift.
You cannot strengthen the weak by weakening the strong.
You cannot help small men by tearing down big men.
You cannot help the poor by destroying the rich.
You cannot lift the wage earner by pulling down the wage payer.
You cannot keep out of trouble by spending more than your income.
You cannot further brotherhood of men by inciting class hatred.
You cannot establish sound security on borrowed money.
You cannot build character and courage by taking away a man’s initiative.
You cannot really help men by having the government tax others to do for them what they can and should do for themselves.

— William J. H. Boetcker

The story for the misattribution goes all the way back to the original publication.

The quotation by this local preacher was printed on a flyer that bore Lincoln's Gettysburg Address on the other side. Some, at the time, apparently thought that both quotations to belong to Mr. Lincoln. It has been very commonly publicized as the words of Lincoln to this day.

Chances are, however, that our illustrious 16th President would have heartily endorsed the sentiment.

Who is a capitalist?

What is a Capitalist? Or, rather, who is a capitalist?

HE'S COMMERCE with a smile on his face. He's REAL PROGRESS standing behind a counter, in a factory, or behind a desk.

Capitalists are the heartbeat of every Main Street in America. In fact, progress all over the world really stems from the risks the capitalists are willing to take.

Every man, woman or couple that decides to risk home and life savings by opening a new business is a capitalist.

Capitalists comes in all sizes, shapes and temperaments. There are tall, sad capitalists who sell hardware; and short, happy capitalists who manufacture shoes or produce software.

There are young capitalists who have taken over the family farm to grow and sell hay. There are old capitalists who still run the family clothing store chain and pay wages to thousands of folks on their payrolls.

A capitalist might be rich and powerful--but most are not. Or he may be small and energetic—most are—and he has risked it ALL to open the little shop around the corner from where YOU and I live.

But either way, rich or small, large or medium, he's the great American businessman who spins the wheels of trade and meshes the economic gears of the nation.

He's a capitalist.

He's a good neighbor back of a cash register, a desk or a milling machine. He's freedom with the front door of his business open to you!

He's America's greatest host and largest employer.

Each business morning he opens his glittering stores and displays what's fine in the world for all to buy at prices you can afford.

He creates, manufactures and/or sells bathtubs, wonder drugs, lumber, automobiles, bread, books, and much, much more.

He is the godfather of better living for you and me by supplying us with wages and helping to drive prices down through production—so our wages will go further and buy more to satisfy our needs and desires. He's the man who buys tomorrow at wholesale in the hope of pleasing YOU.

Yes! He's a capitalist!

He's also a philosopher with a fixed daily overhead and a diplomat with a file full of accounts receivable.

He's the community philanthropist who helps build hospitals, and helps pay for schools. He's the spark plug of every community producing benefits for others while seeking some profit for himself.

He's a capitalist.

Landlords love him because his payroll helps thousands of renters pay their rent on time. Bankers respect him because they understand the risk he undertakes day after day.

We, the customers depend on him.

He keeps the factories of the nation alive. His constant freight moves the overland trucks and the nation's railroad cars. His payroll churns the community's economy.

He's a capitalist.

He likes: Quality merchandise, people who pay their bills, modern stores, clean sidewalks, shiny store windows, good checks, a healthy economy, happy customers, courteous salesmen, the Chamber of Commerce, and Christmas.
He dislikes: Inferior merchandise, shoplifters, checks that bounce, rainy days, fly-by-night salesmen, dirty show windows, and unpaid bills.

He's a buyer and he's a seller. He's a gambler, betting his own money on what will may YOU and ME—his customers—happier tomorrow than they are today.
He's proprietor, a tax collector for the state, a bookkeeper, a straw boss, a messenger boy, an efficiency expert, a cashier, a credit manager, a trouble shooter, an order filler, a payroll clerk, a bill collector, a "Yes" man, a "No" man, and a civic builder.

He's the hardest-working, most valuable man on every Main Street.

He's a capitalist.

Democrats on government spending and job creation

The William Jefferson Clinton Presidential Center web site claims that the country "Moved from record deficits to record surplus" and "Began paying off the national debt" while "[creating] nearly 23 million jobs" and supporting the "[f]astest and longest real wage growth in over three decades." The site also claims that during this time:

• "Family income reached record highs”
• "Unemployment was the lowest in over three decades"
• "Lowest overall poverty and child poverty rates since the 1970s"
• "Lowest percentage of Americans on welfare in 32 years"

So, how did the Clinton administration achieve all these wonderful things?

Well, according to the web site, they reduced the size of government, achieving the "[s]mallest federal civilian workforce in 40 years." They also reduced the burden of federal spending on the economy by having the "[l]owest federal spending as a share of the economy since 1966" and the "[s]lowest per capita growth of government spending since the 1950s."

TODAY'S DEMOCRATS ARE WRONG!

And, remember, the Clinton administration only achieved these things with the help of a Republican-controlled Congress.

Stop blaming CEOs! It’s the way we invest that’s killing us.

Day by day, the leading corporations of the United States are growing more and more disconnected from the U.S. economy. Their interests are less and less attached to those of our workers and our consumers. Worse: they are becoming indifferent to our own nation’s economic future.

A decade ago, only 32 percent of income for firms listed in Standard & Poor’s index of the 500 largest publicly-traded U.S. firms came from sources outside the United States. However, by 2008 that figure had grown to nearly half—48 percent.

A 2008 survey conducted by Duke University’s Fuqua School of Business in conjunction with the Conference Board uncovered the fact that 53 percent of the 1,600 companies surveyed had an “offshoring strategy”—compared to only 22 percent three years earlier. The survey drew the conclusion that “very few” of the companies had any “plan to relocate activities back to the United States.”

Many of the companies that have tried—usually driven by unions—to maintain a significant production presence in the U.S. (such as the automobile industry) have been “hollowed-out” by year-on-year losses. Many of these losses can be traced to bad decisions for profit-taking in earlier years or unwise concessions to unions that management must have known could not be sustained in the long run.

What’s driving this trend?

Of course, we all know the answer to this question: It’s “profits,” stupid!

But there is more than that. The whole of the blame cannot be laid on the shoulders of the CEOs and the corporate boards.

Here’s why:

 

A little history on investment

Prior to the year 1924, most people who invested in a corporation did so for one of two reasons:

1. Because they—or their advisor—believed the firm had opportunity for making profits. Not necessarily profits in the coming quarter, but in the long term.
   
2. Because they had a sincere “investment” in the firm itself. They had a heartfelt interest in what the firm produced or did for people or the economy as a whole.

So, what happened in 1924?

The first modern mutual fund was created in 1924 in Boston, Massachusetts. This began a dramatic shift in the way investors were connected—or, rather, disconnected—from the firms in which they made investments.

Mutual funds removed any sense of heart-felt investment in the long-term good of the firms in which the monetary investments reside. In fact, it removed the investor by one full step from his or her investments. Mutual funds are a dispassionate “yield” instrument only.

 

Paper entrepreneurs

Here’s how the picture has changed. In the pre-mutual fund days, most investors had a relatively direct connection with their investments and the companies in which they were invested.

Investor –> Corporation

In those days, larger investors took a personal interest in their investments and not infrequently attended stockholder meetings. They, more often than not, had a longer view of their investments and were looking out for the long-term profitability of the businesses in which they invested their funds.

However, as open-ended mutual funds grew from 19 in 1929 to more than 100 by 1954, Wall Street investment bankers began to see that the middle class could become a great source for new capital investment (and profits for the investment bankers, of course).

By the end of the 1960s, there were about 270 mutual funds supplying $48 billion in capital. The introduction of bank “money market” funds in the late 1970s boost growth even more. Then the real explosion came when Congress introduced tax-favored treatment for such investments through IRAs, 401(k)s and other defined-contribution plans.

Today, while a great number of middle class Americans are invested in the stock market, the vast, vast majority of them would be unable to name any single corporation in which they hold investments. They are entirely disconnected and interested in one and only one factor: the yield on their investments.

Today the picture looks like this:

Investor –> Fund Manager –> Mutual Fund –> Corporation

As I said, the investor has one and only one interest in his investment: yield—especially short-term yield. (Since this is the “McDonald’s generation,” everything is expected to happen fast or impatience sets in.) Between the investor and his money sits the fund manager. The fund manager also has only one interest: the short-term yield on the fund. His or her interest is driven by a couple of concerns:

• Short-term yield will attract new assets to the fund, likely contributing to the fund manager’s bonus
• Short-term yield will keep assets from leaving the fund, also contributing to higher bonuses in all likelihood
• Short-term yield will increase the earnings of the fund, which is also likely a metric by which the fund manager is measured and compensated

I think you get the picture. The fund manager will measure every investment in corporations by short-term returns on investment (ROI) and the likelihood of future short-term returns. This is why I inserted the “mutual fund” as an entity between the fund manager and the corporation in which the fund is invested. It is likely that the fund manager views the fund as a entity in and of itself and its individual corporate investments as only vehicles for yield on the fund. He has no real interest—beyond short-term yield estimates—in any of the corporations in which the fund is invested.

 

The tail wags the dog

Formerly, CEOs at corporations were wise enough to not sacrifice a firm’s future for short-term profits. They were careful not to consume the company’s long-term future in pursuit of profits in the coming quarter.

But that was back in the days when the investors were invested in the firm with both their money and their hearts (and, sometimes, their souls). That was back in the days when an investor might show up in the CEOs office or at a board meeting and upbraid management for not taking a longer view toward the success of the firm.

Those days are gone for almost all publicly-held companies.

Mutual fund managers can make or break a company today by moving hundreds of millions of dollars from one company to another based solely on the prospect of short-term returns on investment. The fund managers care not one iota about the long-term success of the firms, and the investors in the mutual funds care even less.

So, what do CEOs do?

CEOs of publicly-held corporations seek only one thing: short-term profits. Boards of directors hire and compensate CEOs for this one objective because they know the dramatic loss of market capital that might be incurred if major fund managers decide to disinvest in their firms.

 

Local interests cannot play a part

It is America’s investment strategy that has driven this. It is because American investors are disconnected from their investments that CEOs are driven to this end.

It is America’s investment methods that have driven CEOs to lose interest in the American economy. The investors do not care whether the profits that bring yields to their 401(k) or IRA come from off-shoring or from selling products in South America or on the African continent.

Unlike prior American recessions—including the so-called “Great Depression—this recession is the first in American history from which corporate profits can rebound without rehiring of large numbers of American workers.

 

Politicians blame the “greedy” capitalists and the capitalist system

The politicians ought to look at their own policies. It is the preferential tax treatment given by Congress to instruments like IRAs and similar investment vehicles that have made the mutual fund market explode. Politicians ought to consider revamping every market intervention that makes “paper entrepreneurs”—instead of old-fashioned “investors”—a primary source for capital in the markets.

Actually, corporations that are not publicly-held are more likely to have a local and regional interest in our American economy and the American worker.

In the past, downwardly-mobile American consumers would have created problems for U.S. corporations. Today, since more and more profits come to these corporations from markets in other nations, this is far less a concern to them. And, it should be noted, that the U.S. market emerging from the present recession is very much downwardly mobile. (I, personally, have taken a 29 percent pay-cut in the last two years.)

 

The German model

U.S. politicians could learn a lot by looking at the German model for business financing. In Germany, city-owned savings banks provide funds to enable enterprises, especially family-owned (read: passionately invested) mid-sized businesses, to grow and prosper. The same locally-based financing gives these businesses what they need to grow and become involved in exporting their products. Nearly two out of three of Germany’s small-to-mid-sized businesses get their funding from these local banks.

The funding links and limits these enterprises to doing business in the local markets, thus building both their local economies and the larger economy of Germany as a nation.
Sadly, no similar localism can be found in America’s investment model. Our brand of capitalism and dispassionate investment drives our corporations to move more and more of their part of economic growth and hiring away from the U.S.

The answer is not more regulation of corporations. The answer is a radical restructuring of our investment and financing model for corporations.

Job-killing Health Care Reform

Eric Staib, writing in The Free Market magazine, calls Obamacare what it is, a new "tax" on labor that will lead to increasing levels of unemployment and lower net earnings for employees all across the U.S.

"According to pages 269-273 of the [present version of the] bill, employers of full-time workers will be required to cover at least 72.5 percent of the premium of the least expensive health-insurance plan available that fulfills the bill's minimum criteria of 'acceptable coverage.' In cases in which family coverage is provided, 62.5 percent of the premium is to be borne by the employer," reports Staib. "Depending on the specific plan and other variables such as location, this amounts to a direct labor tax of approximately $300 per month for an individual, or nearly $700 for family coverage."

When a company hires an employee, they negotiate a pay arrangement in which the value of the employee's efforts on behalf of the firm must meet or exceed the amount of money paid out by the firm to retain the employee. In the final analysis, it makes no difference to the employer whether some of the money, all of the money, or none of the money paid out actually ends up in the employee's hands. Consider the following scenarios:

	Scenario
Expense Category	No. 1	No. 2	No. 3
Base Wages	$ 1,733	$ 1,433	$ 1,033
Employer-paid Taxes	$ 133	$ 133	$ 133
Cost of Fringe Benefits	$ 43	$ 343	$ 743
Cost of Training	$ 26	$ 26	$ 26
Cost of Safety Equipment	$ 6	$ 6	$ 6
Other Costs	$ 67	$ 67	$ 67
Monthly Cost of Employee	$ 2,008	$ 2,008	$ 2,008

In these scenarios, we are considering an employee that is worth at least $2,008 per month to his present employer. In the scenarios 1, 2, and 3, the only two factors that change are 1) Cost of Fringe Benefits (e.g., adding in mandated health-care insurance coverage costs) and 2) Base Wages (which are adjusted downward so that the "Monthly Cost of Employee" remains steady.

Scenario No. 2 represents the addition of $300 per month in individual health-care coverage costs. The increase in fringe benefits costs for this typical $10-per-hour employee from $43 per month to $343 per month calculates to almost 700% (698%). For the employer to stay par on the total cost of this employee, the employee's wages would have to drop from $10-per-hour to $8.27-per-hour, a decrease of 17%.

Scenario No. 3 looks at the addition of $700 per month in family health-care coverage as mandated under the Obamacare legislation. Adding in this $700 per month in fringe benefits (really, a "tax", since it will be mandated by the federal government) is a leap of more than 1600% (1628%) in the cost of fringe benefits for this employer. Again, for the employer to stay at par (i.e., the total cost of the employee remaining at $2,008 per month), the employee's wages would have to be slashed 40%, from his or her current $10-per-hour to $5.96-per-hour.

Most rational employers know that an employee that is presently making $10-per-hour is not likely to accept a 17% pay-cut simply because of this new government mandate, the likely outcome is that the employer will lay off the present employee and hire two or more part-time employees not covered under the Obamacare mandated "tax." In the alternative, the employer may lay off the existing $10-per-hour employee and seek to hire a replacement employee that is willing to work for $8.27-per-hour or less but still deliver at least $2,008 in value to the business. A third choice would be for the employer to simply lay off some of its $10-per-hour employees and try to make the remaining employees simply produce at higher levels. If all three of these options fail to sustain profitability in the firm, the employer will ultimately be forced to close its doors and lay off all of its employees.

Under any of these options, real wages in the U.S. economy will plummet and unemployment level will dramatically increase (at least for full-time workers). This is just bad economic policy.

Works Cited

Staib, Eric M. "The Health-Care Tax." The Free Market, December 2009: 1-3.



©2009 Richard D. Cushing

Many of us are unhappy...

"Many of us are unhappy about our worsening economic problems, about the constant crisis atmosphere…, about our diminishing prestige…, about the weakness in our economy…, about our lack of strong, straightforward leadership. And many Americans today, just as they did 200 years ago, feel burdened, stifled and sometimes even oppressed by government that has grown too large, too bureaucratic, too wasteful, too unresponsive, too uncaring about people and their problems.

"Americans, who have always known that excessive bureaucracy is the enemy of excellence and compassion, want a change in public life - a change that makes government work for people. They seek a vision of a better America, a vision of society that frees the energies and ingenuity of our people while it extends compassion to the lonely, the desperate, and the forgotten.

"I believe we can embark on a new age of reform in this country and an era of national renewal - an era that will reorder the relationship between citizen and government, that will make government again responsive to the people, that will revitalize the values of family, work, and neighborhood and that will restore our private and independent social institutions. These institutions always have served as both a buffer and bridge between the individual and the state - and these institutions, not government, are the real sources of our economic and social progress as a people.

"That's why I've said… that we must control and limit the growth of federal spending, that we must reduce tax rates to stimulate work and savings and investment. That's why I've said we can relieve labor and business of burdensome, unnecessary regulations and still maintain high standards of environmental and occupational safety. That's why I've said we can reduce the cost of government by eliminating billions lost to waste and fraud in the federal bureaucracy…. And, because we are a Federation of sovereign states, we can restore the health and vitality of state and local governments by returning to them control over programs best run at those levels of government closer to the people. We can fight corruption while we work to bring into our government women and men of competence and integrity." -- Ronald Reagan (1980)

Elections will determine what kind of country we'll have

"[Elections are] going to determine what kind of country… millions of… American children are going to grow up in. Will it be a country in which everything keeps on going up in price, and jobs are harder to find and keep? Or will it be a country where, because of our efforts… savings will mean something, prices will be stable, and there will be jobs for people who want to work?" -- Ronald Reagan (1980)

Just for Comparison

Yet Another Stimulus Package Being Considered

I just sent the following letter to my delegates in the U.S. Senate and House of Representatives:

Dear _________________:

Please take your time putting together a stimulus package. And I would like to see the following changes made to the package:

1. Across the board corporate and personal income tax cuts to leave more money in the pockets of U.S. individuals and corporations for spending.

2. No more application of socialist means in attempts to 'save' capitalism. In other words, NO MORE BAIL-OUTS.

3. Reduce (suspend or permanently eliminate) burdensome, needless and costly restrictions on U.S. industries such as the ridiculous CAFE standards on the auto industry.

4. Open up the continental shelf and other areas for off-shore drilling immediately.

5. Open up ANWR for drilling immediately.

6. Provide some form of amnesty or a moratorium on frivolous law suits that presently inhibit or stop entirely the development of new oil refineries in the U.S.

All of these actions WOULD STIMULATE THE ECONOMY and WOULD LEAD TO JOB CREATION without reckless government spending and huge increases in public debt.

Thank you for listening.

What are you going to do?

Worth Considering At This Time

"If an American is to amount to anything he must rely upon himself, and not upon the State; he must take pride in his own work, instead of sitting idle to envy the luck of others. He must face life with resolute courage, win victory if he can, and accept defeat if he must, without seeking to place on his fellow man a responsibility which is not theirs." --Theodore Roosevelt

"If a nation values anything more than freedom, it will lose its freedom; and the irony of it is that if it is comfort or money that it values more, it will lose that, too." --W. Somerset Maugham

Are U.S. Automakers and Congress Telling the Truth About Jobs?

“The auto industry supports one of every 10 jobs in the United States,” Michigan Governor Jennifer M. Granholm has said multiple times in her pleas for a bailout of the Detroit Three.

Is it true?

Click here for the real story!