Thoughts Before The Alarm Sounds

     The recent recession, coupled with the persistently high rate of unemployment, tends to justify my theory of personal economic success for young people: If your living depends upon having a job, you are in trouble; if it depends upon the stock market, you are home free. I am basing that on the observation that those individuals who control the jobs market tend to be the same ones with a substantial investment in the stock market.      Now I do not mean to suggest that one should buy into every stock investment that comes down the pike. The usual investing rules apply: diversify, balance income versus growth, keep your eye on the long-term, etc. And of course, have at least a three month emergency fund available.      But to return to my original theory, as long as the government gives great tax breaks for investing in new equipment, research and development expenses, and other “productivity” investments, the ability to p...

Let's pretend that you are the sole proprietor of a small business – one that employs 15 or 20 people. Suppose you manufacture two products: shirts and widgets. Both lines are selling very well - your bottom line nets out to about $100K, on which you pay about $15K in income tax after deductions. Now the government, in its relentless pursuit of job creation, lowers your taxes to $13K. How many new employees will you hire with that extra $2,000? (A no-brainer.) Suddenly your sales of shirts drop 50% because your competitors have outsourced their production to India; do you keep all the employees in the shirt production line, or do you lay some of them off? (Another no-brainer.) Your accountant tells you that the government will give you a hefty allowance if you install automated equipment (made in China) that will enable you to compete. In fact, you will need even less employees than you have now! Do you buy the new equipment? (This is almost too simple.) Suddenly a ne...

     I have posted several blogs in which I stated that the stimulus promoted by President Obama was too small and that another was necessary. I backed up my suggestion with data indicating that President Roosevelt's stimulus, i.e., the New Deal, was working until he tried to balance the budget in 1937.      I believe I was right in advocating a stimulus to promote jobs under the economic conditions of the past, but as far as the current situation is concerned, I am beginning to think I was wrong! The economy is vastly different from the one that prevailed during the Great Depression.      It is true that a stimulus in the form of government spending on projects for which the government is most efficient , i.e., providing a single service for many customers, will provide a limited number of jobs. Society does not need competing armies, courts and legal systems, police forces, power grids, government buildings or interstate hi...

     The decision to raise the debt limit of the United States Government should be a no-brainer, but the idiots in Washington seem to be unable to rise to that level. When a person, organization, and especially a nation makes a promise to pay, one should be able to expect that promise to be kept. Is it asking too much to assume the United States will pay your government bond when it comes due?      I find it hard to see the difference between demanding concessions for keeping one's word, and someone who takes a hostage and demands money for a safe return - both are bandits! This whole thing reminds me of little boys holding a pissing contest behind the barn.      I know there are legitimate arguments concerning government revenues and expenditures, tax reforms, entitlements, discretionary items, jobs, recession, wars, and a host of other subjects, but whether or not to throw the government into default is not one of them. Mo...

     Of all the wise politicians (another oxymoron) in Washington, who do you think made the following remark: “Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.”? Rep. John Boehner R-OH), Sen. Rand Paul (R-Ky.), Rep. Michele Bachmann (R-Minn.) or Sen. Jim DeMint (R-S.C.).      Although it could have been any of these, the quote is actually from President Obama's last weekend address to the nation. Apparently he was either joking, taken leave of his senses, or joined the Republican party. This is the same old gibberish the GOP has been mouthing since the days of Herbert Hoover. Let's look at these suggestions one at a time.      “Government has to start living within its means, just like families do.” The government is not a family – one excel...

     Some time ago I mentioned Ross Perot's “giant sucking sound” of jobs leaving the country in the wake of NAFTA (See February 16, 2011). As I stated, “If that sound is a whisper, today's sound of American jobs heading all over the globe is a space shuttle liftoff.” As of today that sucking sound has grown even louder.      According to the Bureau of Labor Statistics , the US unemployment rate for May was unchanged from the April figure: 9.1%. Private sector employment increased by 83,000; this is really a net loss because 125,000 new jobs are needed each month just to keep up with the increase in the number of individuals entering the labor force.      Also in May the number of long-term unemployed increased by 361,000. That number now stands at 6.2 million.      It is important to note that the BLS's definition of unemployment includes only job seekers who have looked for work at some time during the ...

     The Labor Department's hiring report for May came out in Saturday's newspapers, and it wasn't pretty. Just 54,000 jobs were created – far less than the expected 150,000. Although the private sector added 83,000 workers – the lowest monthly total in the past year - they were offset by the loss of 28,000 jobs in local governments – firefighters, police, teachers and clerks. The Economic Policy Institute estimates that up to 300,000 new jobs a month are required to significantly affect the unemployment rate.      Meanwhile, back in Washington, the figures elicited what can best be described as a collective “ho-hum,” as Congress decided to dance around the subject of raising the debt ceiling. Without such action, the nation will soon begin defaulting on its debts, with a corresponding increase in interest rates. Through April, interest on the national debt for fiscal year 2011 is on track to surpass 2010's total of $4.13B. That's 413 followed by...

     ...But it is going to last a long time for the rest of us. At last the rich have managed not merely to stack the deck in their favor, but to cut the not-so-rich completely out of the game. Not only that, they have managed to get rewarded in the process. It is as if, after having been mugged, we told our attacker to come along home – we have more money there.      For those who measure prosperity by stock market indexes, the recession is over; people for whom the job market is the basis of measurement strongly disagree. I am going to let you in on a little secret: In today's post-industrial society the two are polar opposites! Unless something drastic is done, the unemployment rate is going to rise and fall in tandem with the equity market indexes.      During the industrial era, manufacturers had to rely on workers to produce products, and they still do to some extent. But in the information era, production is not neces...

     NBC Nightly News is reporting that President Obama will not be visiting the city of Bangalore during his current trip to India. To learn why, a little background information is required.      Joe Pitts (R), our district representative to Congress, submits a weekly column to our local newspaper. A few weeks ago Rep. Pitts was complaining about the uncertain playing field the Obama administration has created for businesses. This uncertainty is a major contributor to the lack of available jobs. According to Representative Pitts, if businesses would know what to expect in the way of taxes, healthcare, environmental costs, etc., they would immediately set about creating jobs galore. In addition, they would invest in more efficient software, equipment, new products and all sorts of wonderful things.       What has not made the news lately is that businesses are already investing heavily in software, automation and efficie...

     Although people have rung in from all points of the political spectrum with complaints about President Obama, there is one big argument in his favor: he has kept his campaign promises. He promised a tax cut, and his stimulus package delivered a cut (conveniently forgotten by the opposition) of $282 billion over two years. He promised to get troops out of Iraq – only 50,000 remain. He promised to agressively advance the war in Afghanistan – he has done so. He promised to create a universal healthcare plan – there is no doubt that he has done that. And he promised to bring the parties together for peace talks in the Middle East – the talks began last week and are continuing tomorrow.      But with all that, why has his approval rating sunk so low? As Bill Clinton said, “It's the economy, stupid.” Obama wasted a huge portion of his political capital on a stimulus that was way, way too small. I have written several times about the inadaquacy of ...

      A Commerce Department report Friday showed that the economy grew at an annual rate of 2.4% after reporting 5.0% at the end of 2009, and 3.7% in the first quarter of the year. Meanwhile the Bureau of Labor Statistics is reporting that there are five applicants for every job opening. Obviously the economy is slowing down.       But if that is true, manufacturers apparently are not aware of it. For the quarter, industrial spending for buildings, equipment and software increased at an annual rate of 17.0% compared with a 7.8% increase in the first quarter. If businesses are investing at an increasing rate, why are no more jobs available? There are several reasons why this is happening.      (1) Efficiency. If machines or computers can do the job that a human being was doing, that is one less worker for the same amount of production. The machine does not require a salary, payroll taxes (in many cases the manufactu...

      There is a saying that the success of a business is dependent upon three things: location, location, location, and for many businesses that is true. For example, if you are managing a restaurant or a retail store, your establishment needs to be located where customers can easily find it.       But no matter what your business, whether you are a drug dealer, an aircraft manufacturer, or anything in between, there are three things even more important than location: customers, customers, customers. Especially with the increasing use of online buying, if you have a good delivery service available, your business could be located way back in the mountains. But without customers, you may as well be selling buggy whip sockets or antimacassars (look it up).       There are very few people who can afford to be a customer without having a job. So it is extremely important for the economy to include a large number of...

      When Bill Clinton was running for the presidency against George H. W. Bush, the catch phrase for his campaign was “It’s the economy, stupid.” Just as James Carville hung a sign containing that slogan in Clinton’s campaign headquarters, so should Barack Obama have the same reminder on banners all over the White House.       Obama’s campaign promised change and hope, but change has gotten out of control, and hope seems to be retreating into the hills. Every poll indicates that healthcare is way down on the list of voters’ concerns. Now the primary focus is on jobs, jobs, jobs.       Presently there is a bill in the Senate which would grant an exemption to an employer for each new hire during 2010. In addition, if the employee stays on the job for 52 weeks, the employer will get a $1,000 business tax credit in 2011.       I have a bit of trouble understanding how this will do much t...