THE ENTERPRISE--THE REAL PROBLEM IN AMERICA
WHAT IS THE REAL PROBLEM IN AMERICA?
First of all, the Industrial model upon which America's amazing 20th Century growth was based is now obsolete. Globalization, the emergence of China, the ease of transferring technology and intellectual property around the world in an instant, and the growing unwillingness of Americans to "actually work" have resulted in many jobs moving out of the USA. Unions in the USA have cost Americans millions of jobs by their obstructionist behavior and (until the crisis is upon them) their unwillingness to bend or compromise on a whole range of work rules, benefits, etc. have priced American companies using American labor out of world markets. Add to that what is nearly the highest corporate tax rate in the world, and a growing and oppressive number of regulations and regulatory agencies looking for someone to punish--and US businesses are at a huge disadvantage vs. many other competing countries. And that is just the short list.
MATURING & COMMODITIZATION OF LUMPY OBJECTS
Consumer products have been so competitive that prices are almost unbelievable. Small appliances for $5-10. Bicycles for under $50. Every imaginable form of household product for prices ranging from $1 to $10. Walmart has truly saved billions for American consumers. But it and its competitors--Target, Home Depot, Lowe's, even Kmart/Sears have driven so many prices down so far that they struggle to achieve comparable store sales gains year over year, because they are consistently selling more stuff for less money. In the process, as they search the globe for suppliers they find someone, somewhere who will meet their latest low price target, and sell them what they want.
IT'S NOT "WILL AMERICANS COMPETE?" IT'S DO AMERICANS HAVE THE WILL TO COMPETE?
We have two different generations with widely different problems. Those over 50 once knew how to work, and they worked hard--and made good money--and if they had a Union, they got benefits that were far too rich and ultimately unaffordable. Their jobs have largely gone away or been replaced by technology or automation, both of which allow far fewer workers to make more, better products. Then there are the "Millennials"--a generation so pampered and pumped up that they think the world owes them a living and adulation. They are in for a big surprise--and a tragic one. Many of them never learned that part of success was just showing up--for work--on time--and actually working. Not web browsing or long lunches or texting friends--but doing productive work.
AMERICANS WANT WORK, BUT DON'T WANT TO "REALLY WORK" (SOME IMMIGRANTS DO)
Americans--too many of them want work, but don't want to really work. The American immigrant will to win shown in the mid-20th Century, to work hard and succeed has been diluted, lost and/or destroyed. The current wave of immigrants seem much more willing to work, than they are to comply with immigration laws. A disconnect that is impeding their ability to succeed, be assimilated into America's culture and communities. And so they remain here, but isolated and afraid of being found out, working for low wages, and sending the money home to their even poorer relatives.
THEN COMES THE DEBATES ABOUT GOVERNMENT STIMULUS AND TAX POLICY
Studies have proven that tax cuts create more jobs than government stimulus programs---these just build a bigger and bigger bureaucracy to be loaded on the backs of taxpayers. However, tax cuts without spending restraint is a fool's game too. America is spending--right now--$3 for every $2 it takes in in revenue. That simply has to stop--and the process of stopping it will be painful, but necessary. The old exercise adage: "No pain, no gain," applies more appropriately than most can imagine. Services need to be cut. Governments neither need to nor should operate so many things (like prisons, for one example). They do it poorly, at higher cost, and with less incentive to do it better. Schools need to be consolidated to reduce administrative salary costs. Classes have been shrunk too far--to attempt to staff for classes of 15 is ludicrous. Try 25-30 in each class, and then give the good teachers excellent pay and pay incentives and throw out the bad ones--and let the Teachers' Unions go crazy
====================[my emphasis added]
Tax Cuts vs. 'Stimulus': The Evidence Is In—A review of over 200 fiscal adjustments in 21 countries shows that spending discipline and tax cuts are the best ways to spur economic growth.
By ALBERTO ALESINA
Politicians argue for increased stimulus spending, as opposed to spending cuts, on the grounds that it would speed up economic recovery. This argument might have it exactly backward. Indeed, history shows that cutting spending in order to reduce deficits may be the key to promoting economic recovery.
In Europe today, the risk of a renewed recession comes not from the spending cuts that some governments have enacted, but from a sovereign debt overhang and multiple bank failures. July's stress tests were not reassuring because they didn't test the exposure of European banks to sovereign debt; had they done so, many banks would have failed. Those banks remain a threat to the European economy.
In the U.S., meanwhile, recent stimulus packages have proven that the "multiplier"—the effect on GDP per one dollar of increased government spending—is small. Stimulus spending also means that tax increases are coming in the future; such increases will further threaten economic growth.
Economic history shows that even large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions, not recessions. Fiscal adjustments based on higher taxes, on the other hand, have generally been recessionary.
My colleague Silvia Ardagna and I recently co-authored a paper examining this pattern, as have many studies over the past 20 years. Our paper looks at the 107 large fiscal adjustments—defined as a cyclically adjusted deficit reduction of at least 1.5% in one year—that took place in 21 Organization for Economic Cooperation and Development (OECD) countries between 1970 and 2007.
According to our model, a country experienced an expansionary fiscal adjustment when its rate of GDP growth in the year of the adjustment and the next year was in the top 25% of the OECD. A recessionary period, then, was when a country's growth rate was in the bottom 75% of the OECD. Our results were striking: Over nearly 40 years, expansionary adjustments were based mostly on spending cuts, while recessionary adjustments were based mostly on tax increases. And these results would have been even stronger had our definition of an expansionary period been more lenient (extending, for example, to the top 50% of the OECD). In addition, adjustments based on spending cuts were accompanied by longer-lasting reductions in ratios of debt to GDP.
In the same paper we also examined years of large fiscal expansions, defined as increases in the cyclically adjusted deficit by at least 1.5% of GDP. Over 91 such cases, we found that tax cuts were much more expansionary than spending increases.
How can spending cuts be expansionary? First, they signal that tax increases will not occur in the future, or that if they do they will be smaller. A credible plan to reduce government outlays significantly changes expectations of future tax liabilities. This, in turn, shifts people's behavior. Consumers and especially investors are more willing to spend if they expect that spending and taxes will remain limited over a sustained period of time.
On the other hand, fiscal adjustments based on tax increases reduce consumers' disposable income and reduce incentives for productivity. American firms today are profitable and have large unspent resources. But their uncertainty over regulation and taxes discourages them from risk-taking, investment and consumption. In Europe, governments would strengthen the banking sector if they cut spending and reduced their default risk. This, in turn, would ease the flow of credit into the private sector.
The composition of fiscal adjustments is therefore critical. Based on what we know, the U.S. and Europe are currently at greater risk from increased stimulus spending than from gradual but credible spending cuts. Europe seems to have learned the lessons of the past decades: In fact, all the countries currently adjusting their fiscal policy are focusing on spending cuts, not tax hikes. Yet fiscal policy in the U.S. will sooner or later imply higher taxes if spending is not soon reduced.
The evidence from the last 40 years suggests that spending increases meant to stimulate the economy and tax increases meant to reduce deficits are unlikely to achieve their goals. The opposite combination might.
Mr. Alesina is a professor of political economy at Harvard. ©The Wall Street Journal, Sept. 15, 2010.
=======================
HOW ABOUT OUR UN BALANCED BUDGETS? WHAT CAN BE DONE?
The CATO institute recently ran a full page ad pointing out Ten areas where savings in the Billions and maybe in the Trillions could be achieved. It will require tough-mindedness and fortitude. I can't reproduce its findings here, but you can go read about them here: http://www.downsizinggovernment.org/ NOTE: The only way to balance an unbalanced budget is TO SPEND LESS OR FIND MORE REVENUE/INCOME. TAXATION CANNOT, AND WILL NOT FIX A BROKEN BUDGET WITHOUT BIG SPENDING CUTS.
THE US INDUSTRIAL MODEL IS RAPIDLY BECOMING OBSOLETE--A NEW, IMPROVED ONE IS CRITICALLY NEEDED
I opened with this topic but it is far too broad to cover much more in the space I have left. The US Industrial Policy and Model is worthy of dedicating an entire edition. Until that time, simply consider how the nature of jobs has changed in the USA in your lifetime. Check where people work, and the kind of work they do. Then check where nearly everything you use is made--(except your house and its essential materials)--and it is not in the USA. This is why the housing crash and decline has been so devastating to the economy. Nearly everything major in your house is still produced in the USA, including the labor to make it all into a house. When that demand drops by 50% or more, it's no wonder the overall jobs picture is bleak.
NO AMOUNT OF POLITICAL MANIPULATION WILL FIX THE JOBS PROBLEM (OR THE HOUSING PROBLEM)
It requires time for the free enterprise system to "right itself" after a bad fall. Meanwhile, the best solution is to adopt fiscally sound policies on spending--both in business and in government. But that leads to yet another big issue. Gotta quit for now...more later.
Best, John
IRONIC, ISN'T IT?
Let me get this straight. We're going to be "gifted" with a Trillion dollar health care plan we are forced to purchase and fined if we don't, written by a committee whose chairman says he doesn't understand it, passed by a Congress that hasn't read it (but exempts themselves from it) to be signed by a president who smokes but has a much better health care plan, paid for with funding administered by a treasury/IRS chief who didn't pay his taxes, to be overseen by a surgeon general who is obese, and financed by a country that's broke. What the hell could possibly go wrong?
-----------------------------------------------------------
I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle. -- Winston Churchill
----------------------------------------------------------
John L. Mariotti, President & CEO, The Enterprise Group, Phone 614-840-0959 http://www.mariotti.net http://mariotti.blogs.com/my_weblog/
------------------------------------------------------------
WHAT IS THE REAL PROBLEM IN AMERICA?
First of all, the Industrial model upon which America's amazing 20th Century growth was based is now obsolete. Globalization, the emergence of China, the ease of transferring technology and intellectual property around the world in an instant, and the growing unwillingness of Americans to "actually work" have resulted in many jobs moving out of the USA. Unions in the USA have cost Americans millions of jobs by their obstructionist behavior and (until the crisis is upon them) their unwillingness to bend or compromise on a whole range of work rules, benefits, etc. have priced American companies using American labor out of world markets. Add to that what is nearly the highest corporate tax rate in the world, and a growing and oppressive number of regulations and regulatory agencies looking for someone to punish--and US businesses are at a huge disadvantage vs. many other competing countries. And that is just the short list.
MATURING & COMMODITIZATION OF LUMPY OBJECTS
Consumer products have been so competitive that prices are almost unbelievable. Small appliances for $5-10. Bicycles for under $50. Every imaginable form of household product for prices ranging from $1 to $10. Walmart has truly saved billions for American consumers. But it and its competitors--Target, Home Depot, Lowe's, even Kmart/Sears have driven so many prices down so far that they struggle to achieve comparable store sales gains year over year, because they are consistently selling more stuff for less money. In the process, as they search the globe for suppliers they find someone, somewhere who will meet their latest low price target, and sell them what they want.
IT'S NOT "WILL AMERICANS COMPETE?" IT'S DO AMERICANS HAVE THE WILL TO COMPETE?
We have two different generations with widely different problems. Those over 50 once knew how to work, and they worked hard--and made good money--and if they had a Union, they got benefits that were far too rich and ultimately unaffordable. Their jobs have largely gone away or been replaced by technology or automation, both of which allow far fewer workers to make more, better products. Then there are the "Millennials"--a generation so pampered and pumped up that they think the world owes them a living and adulation. They are in for a big surprise--and a tragic one. Many of them never learned that part of success was just showing up--for work--on time--and actually working. Not web browsing or long lunches or texting friends--but doing productive work.
AMERICANS WANT WORK, BUT DON'T WANT TO "REALLY WORK" (SOME IMMIGRANTS DO)
Americans--too many of them want work, but don't want to really work. The American immigrant will to win shown in the mid-20th Century, to work hard and succeed has been diluted, lost and/or destroyed. The current wave of immigrants seem much more willing to work, than they are to comply with immigration laws. A disconnect that is impeding their ability to succeed, be assimilated into America's culture and communities. And so they remain here, but isolated and afraid of being found out, working for low wages, and sending the money home to their even poorer relatives.
THEN COMES THE DEBATES ABOUT GOVERNMENT STIMULUS AND TAX POLICY
Studies have proven that tax cuts create more jobs than government stimulus programs---these just build a bigger and bigger bureaucracy to be loaded on the backs of taxpayers. However, tax cuts without spending restraint is a fool's game too. America is spending--right now--$3 for every $2 it takes in in revenue. That simply has to stop--and the process of stopping it will be painful, but necessary. The old exercise adage: "No pain, no gain," applies more appropriately than most can imagine. Services need to be cut. Governments neither need to nor should operate so many things (like prisons, for one example). They do it poorly, at higher cost, and with less incentive to do it better. Schools need to be consolidated to reduce administrative salary costs. Classes have been shrunk too far--to attempt to staff for classes of 15 is ludicrous. Try 25-30 in each class, and then give the good teachers excellent pay and pay incentives and throw out the bad ones--and let the Teachers' Unions go crazy
====================[my emphasis added]
Tax Cuts vs. 'Stimulus': The Evidence Is In—A review of over 200 fiscal adjustments in 21 countries shows that spending discipline and tax cuts are the best ways to spur economic growth.
By ALBERTO ALESINA
Politicians argue for increased stimulus spending, as opposed to spending cuts, on the grounds that it would speed up economic recovery. This argument might have it exactly backward. Indeed, history shows that cutting spending in order to reduce deficits may be the key to promoting economic recovery.
In Europe today, the risk of a renewed recession comes not from the spending cuts that some governments have enacted, but from a sovereign debt overhang and multiple bank failures. July's stress tests were not reassuring because they didn't test the exposure of European banks to sovereign debt; had they done so, many banks would have failed. Those banks remain a threat to the European economy.
In the U.S., meanwhile, recent stimulus packages have proven that the "multiplier"—the effect on GDP per one dollar of increased government spending—is small. Stimulus spending also means that tax increases are coming in the future; such increases will further threaten economic growth.
Economic history shows that even large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions, not recessions. Fiscal adjustments based on higher taxes, on the other hand, have generally been recessionary.
My colleague Silvia Ardagna and I recently co-authored a paper examining this pattern, as have many studies over the past 20 years. Our paper looks at the 107 large fiscal adjustments—defined as a cyclically adjusted deficit reduction of at least 1.5% in one year—that took place in 21 Organization for Economic Cooperation and Development (OECD) countries between 1970 and 2007.
According to our model, a country experienced an expansionary fiscal adjustment when its rate of GDP growth in the year of the adjustment and the next year was in the top 25% of the OECD. A recessionary period, then, was when a country's growth rate was in the bottom 75% of the OECD. Our results were striking: Over nearly 40 years, expansionary adjustments were based mostly on spending cuts, while recessionary adjustments were based mostly on tax increases. And these results would have been even stronger had our definition of an expansionary period been more lenient (extending, for example, to the top 50% of the OECD). In addition, adjustments based on spending cuts were accompanied by longer-lasting reductions in ratios of debt to GDP.
In the same paper we also examined years of large fiscal expansions, defined as increases in the cyclically adjusted deficit by at least 1.5% of GDP. Over 91 such cases, we found that tax cuts were much more expansionary than spending increases.
How can spending cuts be expansionary? First, they signal that tax increases will not occur in the future, or that if they do they will be smaller. A credible plan to reduce government outlays significantly changes expectations of future tax liabilities. This, in turn, shifts people's behavior. Consumers and especially investors are more willing to spend if they expect that spending and taxes will remain limited over a sustained period of time.
On the other hand, fiscal adjustments based on tax increases reduce consumers' disposable income and reduce incentives for productivity. American firms today are profitable and have large unspent resources. But their uncertainty over regulation and taxes discourages them from risk-taking, investment and consumption. In Europe, governments would strengthen the banking sector if they cut spending and reduced their default risk. This, in turn, would ease the flow of credit into the private sector.
The composition of fiscal adjustments is therefore critical. Based on what we know, the U.S. and Europe are currently at greater risk from increased stimulus spending than from gradual but credible spending cuts. Europe seems to have learned the lessons of the past decades: In fact, all the countries currently adjusting their fiscal policy are focusing on spending cuts, not tax hikes. Yet fiscal policy in the U.S. will sooner or later imply higher taxes if spending is not soon reduced.
The evidence from the last 40 years suggests that spending increases meant to stimulate the economy and tax increases meant to reduce deficits are unlikely to achieve their goals. The opposite combination might.
Mr. Alesina is a professor of political economy at Harvard. ©The Wall Street Journal, Sept. 15, 2010.
=======================
HOW ABOUT OUR UN BALANCED BUDGETS? WHAT CAN BE DONE?
The CATO institute recently ran a full page ad pointing out Ten areas where savings in the Billions and maybe in the Trillions could be achieved. It will require tough-mindedness and fortitude. I can't reproduce its findings here, but you can go read about them here: http://www.downsizinggovernment.org/ NOTE: The only way to balance an unbalanced budget is TO SPEND LESS OR FIND MORE REVENUE/INCOME. TAXATION CANNOT, AND WILL NOT FIX A BROKEN BUDGET WITHOUT BIG SPENDING CUTS.
THE US INDUSTRIAL MODEL IS RAPIDLY BECOMING OBSOLETE--A NEW, IMPROVED ONE IS CRITICALLY NEEDED
I opened with this topic but it is far too broad to cover much more in the space I have left. The US Industrial Policy and Model is worthy of dedicating an entire edition. Until that time, simply consider how the nature of jobs has changed in the USA in your lifetime. Check where people work, and the kind of work they do. Then check where nearly everything you use is made--(except your house and its essential materials)--and it is not in the USA. This is why the housing crash and decline has been so devastating to the economy. Nearly everything major in your house is still produced in the USA, including the labor to make it all into a house. When that demand drops by 50% or more, it's no wonder the overall jobs picture is bleak.
NO AMOUNT OF POLITICAL MANIPULATION WILL FIX THE JOBS PROBLEM (OR THE HOUSING PROBLEM)
It requires time for the free enterprise system to "right itself" after a bad fall. Meanwhile, the best solution is to adopt fiscally sound policies on spending--both in business and in government. But that leads to yet another big issue. Gotta quit for now...more later.
Best, John
IRONIC, ISN'T IT?
Let me get this straight. We're going to be "gifted" with a Trillion dollar health care plan we are forced to purchase and fined if we don't, written by a committee whose chairman says he doesn't understand it, passed by a Congress that hasn't read it (but exempts themselves from it) to be signed by a president who smokes but has a much better health care plan, paid for with funding administered by a treasury/IRS chief who didn't pay his taxes, to be overseen by a surgeon general who is obese, and financed by a country that's broke. What the hell could possibly go wrong?
-----------------------------------------------------------
I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle. -- Winston Churchill
----------------------------------------------------------
John L. Mariotti, President & CEO, The Enterprise Group, Phone 614-840-0959 http://www.mariotti.net http://mariotti.blogs.com/my_weblog/
------------------------------------------------------------
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