THE ENTERPRISE--SOLVING PROBLEMS
WHAT DOES A RIGHT-THINKING POLITICAL LEADER SOUND AND LOOK LIKE?
A MUST WATCH VIDEO: http://www.youtube.com/watch?v=VP2p91dvm6M&feature=related
This is how a candidate who would stand up for America sounds when he speaks.
WHAT ARE THE THREE STEPS TO SOLVING ANY PROBLEM?
1) Understand the problem--not the symptoms--the root causes.
2) Define the problem;
3) Solve the problem; (make plans, make decisions, take action.
And remember, "postponed perfection is the enemy of planned progress". A lot of the right small changes may be easier to make that a few big ones.
HOW DO WE GET POSITIVE LEADERSHIP IN PLACE?
We have to go out to the polls and "re-take control of America."
---ELECT PEOPLE TO CONGRESS WHO "GET IT" ...AND GAIN A MAJORITY IN BOTH HOUSES OF CONGRESS,
---AND TELL THESE ELECTED REPRESENTATIVES THAT WE EXPECT THEM TO MAKE THE CHANGES NEEDED TO FIX THEIR PREDECESSORS BROKE (of course President Obama will veto a lot of it, but that will just insure that he doesn't get reelected in 2012).
NOTE: LEADERS GET THEIR ARMS AROUND PROBLEMS AND ENLIST THE HELP OF OTHERS TO SOLVE THE PROBLEMS. (They don't finger point, place blame, threaten and bully (or sue their fellow Americans) while the problems continue.)
WHY IS THE ECONOMIC RECOVERY STUMBLING?
--THE F. U. D. SYNDROME IS HINDERING AMERICA'S ECONOMIC RECOVERY
The F. U. D. Syndrome is what is retarding the recovery of the US Economy. Fear (of what the government will do next--and when, and IF employment will ever come back), Uncertainty (about how an anti-business Washington, DC will derail the best of plans, and WHEN consumer spending will ever come back) and Doubt (about why the words spoken by our governmental leaders never seem to match their actions--and WHO can you believe--if your President talks one way--and acts another?)
WE SAVE OUR WAY TO SURVIVAL BUT WE CAN ONLY GROW OUR WAY TO PROSPERITY
Growth (in America's economy--the "private sector,") is the only answer to dig out of this economic downturn.
In the short term, we can "save our way to survival, but not to growth. More government spending and higher taxes will make things worse. We must Invest in Innovation--it is the one solution that, done correctly, inevitably leads to growth. To grow, changes must be made that are focused, and permanent--not temporary. These must be changes that reduce FEAR, UNCERTAINTY AND DOUBT about the government being "anti-business," at every opportunity.
OBSTACLES: NEW FINANCIAL REGULATIONS--30 TIMES A COMPLICATED AS SARBANES-OXLEY?
I recall an old quote I heard one time: "One fool can ask more questions than a thousand experts can answer." When our Congress routinely passes 2000+ page bills, regulating major parts of American life and business, we are in trouble. The sheer complexity fo interpreting these new laws is mind-boggling. The risk in how they might be interpreted, or mis-interpreted is terrifying. It is little wonder that American businesses--large and small--are afraid of what obstacle government will put in their path next--and thus they are paralyzed by
OBSTACLES: PERSISTENT UNEMPLOYMENT IS DESTROYING AMERICAN WORKFORCE MOTIVATION
Extended unemployment is not a motivator, it is a de-motivator. Unemployment, no matter how rapidly spent, is not a stimulus, it is an anti-stimulus because every dollar given out by the government must be taken (via taxation) from those who earned it. (Read the full text of "why" below.)
RISKS: THE OBAMA LAME DUCK "CRAM DOWN"
There is a likelihood that the "outgoing" Congress will try to cram some pet legislation through during the lame duck session following the election. The watch list includes such favorites as Cap & Trade, Card Check (EFCA), Stimulus II, and what else?
RISKS: OBAMA AND THE CORRUPT CHICAGO MACHINE
Blago, Rambo, and Barack are all part of it. Tony Rezko was part of it. Jesse Jackson was part of it. Bill Ayers was part of it. How much proof do Americans need that this was a "rotten to the core" group?
OPINIONS: OTHER VOICES WEIGH IN:
Eaton Corp.'s CEO Alexander Cutler said it this way: "Our country is racing dopwn an ill-advised path that is destroying competitiveness in the U. S. The challenge: Find leaders with the political courage to take the actions necessary to preserve our competitiveness." Formerly a big Obama "advisor", Jeffrey Immelt, CEO of GE is describing the government as "anti-business."
OPINIONS: BURY HARRY REID--KEEP YUCCA MOUNTAIN
Our government has been spending billions for years to get this facility ready. Now, when we need to use it for nuclear waste and to encourage the construction of more small-scale, highly efficient nuclear plants, "Dirty Harry" Reid says, "Not In My Backyard!" Are you kidding me?
OPINIONS: DEMS CAN'T CALL GOP OBSTRUCTIONISTS--GOP DOESN'T HAVE THE VOTES IN CONGRESS TO STOP ANYTHING
When the GOP is in such a minority in the House that candidates for reelection are "allowed" to vote against ObamaCare to help their campaigns, that's a big majority. The House could still pass the health care bill without dozens of Democratic votes. The Senate had already decided to "cram it through," so even a filibuster was not an issue. Thus, any tag of the GOP being "obstructionist," just doesn't stick.
OPINIONS: OBAMANOMICS HAS FAILED MISERABLY
President Obama will now start campaigning on reducing the deficit. But he doesn't know how! If he knew how, he'd already be doing it. The past stimulus packages were political pork and patronage. The jobs "added or saved" is total nonsense--"mumbo-jumbo" and made-up numbers. Taking money from those who earn it, to give to those who "need it, in the sense of fairness" (while adding the government inefficiency in doing so) is not helping the economy, it's hurting it. Reducing the deficit by raising taxes--especially on business--will stifle growth, and growth rooted in fiscal responsibility, is the only way out of this mess.
OPINIONS: THE PRIVACY CRACKS IN SOCIAL MEDIA ARE SHOWING
A couple of years ago, I wrote a piece titled "10 Reasons I wasn't using Social Media". Now I've dipped my toe in those waters, and the fears I cited are all coming to pass. Facebook is purposely "losing control" of its privacy--for money. Twitter never had privacy; it's the anti-privacy, and Facebook is heading that way. LinkedIn is a little better, but it will cave-in/sell-out if someone waves enough money in its face. Once you put yourself out there, there is no taking it back. Be careful what you put out there and who you let have access to it.
IRONIC STORY OF THE WEEK: UNIONS HIRE NON-UNION PICKETS AT MINIMUM WAGE TO PICKET WORK SITES
The Mid-Atlantic Regional Council of Carpenter is seeking paid demonstrators to march and chant in its picket line outside the McPherson Building, and office complex in Washington, DC. "It's difficult for a lot of our members to get here," explains a union rep, so they hire minimum wage ($8.25/hour) non-union picketers! The union's director of organization says that the extra feet allow them to staff about 150 picket lines in the DC and Baltimore areas.
OPTIMISM? A LITTLE--A RAY OF HOPE--BUT A SLIM ONE--ON THE NEAR TERM FUTURE
Consumer spending is down. Inventories have been rebuilt and are now in danger of being too high, which will require further correction. We have seen a couple of up and down cycles since last fall.
--Last fall was down, then Christmas was up, then the 1Q was down.
--Easter was early and things went up, and then summer was back down.
--Back to School spending is up, but early fall will probably be down.
(Fall spending will get a boost when Washington finally extends unemployment benefits (again!) and that dumps about $4B in back pay into the hands of unemployed consumers. In an election year, there is no way that extension won't ultimately get passed.)
--With fall and winter holidays (Halloween, Thanksgiving and Christmas/Hannukah, etc.) coming, consumers won't save all of that money. They'll spend most of it, thus creating another artificial cycle upward in consumer spending.
--This will be followed by a downturn in 1Q 2011 when reality sets in again.
FOREWARNED IS FOREARMED: TRACK THE CYCLES & IF YOU ARE PREPARED, YOU'LL KNOW WHAT TO EXPECT.
And hope that underlying these short term cycles, there is a slow upward growth trend in which the American economy is recovering. However, unemployment at 9-10% will be here all year (2010) unless even more people give up and quit looking (the downside of extended unemployment benefits) which will give the false impression of improved unemployment.
These are the dog days of summer. Stay cool--in more ways thaN one--the next few months will be a roller coaster ride of ups and downs and a huge mid-term election. GET TO KNOW YOUR CANDIDATE(S) PERSONALLY AND WORK (+$) TO GET THEM ELECTED.
Best, JOHN
====================
FROM THE WALL STREET JOURNAL©, JULY 8, 2010
Unemployment Benefits Aren't Stimulus
Let's not reduce the incentive to find work. A federal tax holiday is a better way to cut the high jobless rate.
By ARTHUR B. LAFFER
The current debate over extending and increasing federal unemployment benefits encapsulates the disagreement between the Democrats in power in Washington and their Republican opponents. What the consequences will be of raising unemployment benefits in today's depressed economy is at issue.
The most obvious argument against extending or raising unemployment benefits is that it will make being unemployed either more attractive or less unattractive, and thereby lead to higher unemployment. Empirical research supports this view.
The Democratic retort is that the economy today is so different from the past that we have to suspend our traditional understanding of economics. With five job seekers for every job opening, the unemployed are desperate for work and increasing unemployment benefits will have very little if any disincentive effect. This view hinges on a total change in employee behavior from "normal" times to the current period of "the Great Recession."
On the face of it, the idea that higher unemployment benefits won't lead to more unemployment doesn't make much sense. Imagine what the unemployment rate would look like if unemployment benefits were universally $150,000 per year. My guess is we'd have a heck of a lot more unemployment. Common sense and personal experience indicate higher unemployment benefits will make unemployment less unattractive and thereby increase unemployment even in the Great Recession. As the chart nearby clearly shows, since the 1970s there's been a close correlation between increased unemployment benefits and an increase in the unemployment rate. Those who argue that things are different today don't have the data to back up their claims.
The Democratic argument also ignores the impact of unemployment benefits on employer costs. Employers don't usually hire people to assuage their consciences. They hire people to make after-tax profits. And if workers require more pay because of higher unemployment benefits, employers will hire fewer employees. Whether increased unemployment benefits incentivize workers to work less or disincentivize employers from hiring more workers, the effect will be the same—higher unemployment.
The second point made by the Obama administration is that unemployment benefits are a great way to stimulate demand. Increased unemployment benefits operate quickly and the recipients spend what they get, which makes these stimulus funds the best bang for the buck.
Here again the facts are in dispute. Studies have shown that previous stimulus spending—much of which was also targeted for the poor and unemployed—was to a large extent saved and not spent. But I'm not going to rest my case on the obvious failure of Washington's prior stimulus packages. Based upon the above logic (as described in the January 2009 white paper co-authored by White House economists Christina Romer and Jared Bernstein) the administration forecast that the unemployment rate would be a little above 7.3% in the third quarter of this year. That isn't going to happen.
The flaw in their logic is that when it comes to higher unemployment benefits or any other stimulus spending, the resources given to the unemployed have to be taken from someone else. There isn't a "tooth fairy," or as my former colleague Milton Friedman repeated time and again, "there ain't no such thing as a free lunch." The government doesn't create resources. It redistributes them. For everyone who is given something there is someone who has that something taken away.
While the unemployed may spend more as a result of higher unemployment benefits, those people from whom the resources are taken will spend less. In an economy, the income effects from a transfer payment always sum to zero. Quite simply, there is no stimulus from higher unemployment benefits.
To see this, imagine an economy that produces 100 apples. If 10 of those apples are given to the unemployed, then people who otherwise would have had those 10 apples now won't. The stimulus of 10 apples for the unemployed is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken.
Given the massive inefficiencies the government creates in securing resources from the private sector, there may also be a large negative income effect over wide ranges of stimulus spending. This is the proverbial "toll for the troll." These massive inefficiencies could lead to lower output.
To see these effects clearly, imagine a two person economy in which one of the two people is paid for being unemployed. From whom do you think the unemployment benefits are taken? The other person obviously. While the one person who is unemployed may "buy" more as a result of unemployment benefits, the other person from whom the unemployment sums are taken will "buy" less. There is no stimulus for the economy.
But it doesn't stop there. While the income effects sum to zero, the substitution effects aggregate. The person from whom the unemployment funds are taken will find work less rewarding and will work less. The person who is given the unemployment benefits will also find work relatively less rewarding and will therefore work less. Both people in this two-person economy will be incentivized to work less. There will be less work and more unemployment.
Not only will increased unemployment benefits not stimulate the economy, they will at the same time lower the incentives for people to work by reducing the amount people are paid for working and increasing the amount people are paid for not working. It's pretty basic economics.
No one opposes unemployment benefits as a transition aid for people to get back on their feet and find a new job. Unemployment benefits are a safeguard for individuals down on their luck. But to argue that unemployment benefits actually reduce unemployment is disingenuous at best, and could induce our government to enact policies that have the effect of destroying our nation's production base from whence all benefits ultimately flow.
Any government program that would reduce unemployment has to make working more attractive for both employer and employee. Since late 2007 the federal government has spent somewhere around $3.6 trillion to stimulate the economy. That is a lot of money.
My suggestion would have been to take all $3.6 trillion and declare a federal tax holiday for 18 months. No income tax, no corporate profits tax, no capital gains tax, no estate tax, no payroll tax (FICA) either employee or employer, no Medicare or Medicaid taxes, no federal excise taxes, no tariffs, no federal taxes at all, which would have reduced federal revenues by $2.4 trillion annually. Can you imagine where employment would be today? How does a 2.5% unemployment rate sound?
Mr. Laffer is the chairman of Laffer Associates and co-author of "The End of Prosperity: How Higher Taxes Will Doom the Economy—If We Let It Happen" (Threshold, 2008).
-----------------------------------------------------------
The government is supposed to work for the people, not vice versa.
-----------------------------------------------------------
John L. Mariotti, President & CEO, The Enterprise Group, Phone 614-840-0959 http://www.mariotti.net http://mariotti.blogs.com/my_weblog/
------------------------------------------------------------
WHAT DOES A RIGHT-THINKING POLITICAL LEADER SOUND AND LOOK LIKE?
A MUST WATCH VIDEO: http://www.youtube.com/watch?v=VP2p91dvm6M&feature=related
This is how a candidate who would stand up for America sounds when he speaks.
WHAT ARE THE THREE STEPS TO SOLVING ANY PROBLEM?
1) Understand the problem--not the symptoms--the root causes.
2) Define the problem;
3) Solve the problem; (make plans, make decisions, take action.
And remember, "postponed perfection is the enemy of planned progress". A lot of the right small changes may be easier to make that a few big ones.
HOW DO WE GET POSITIVE LEADERSHIP IN PLACE?
We have to go out to the polls and "re-take control of America."
---ELECT PEOPLE TO CONGRESS WHO "GET IT" ...AND GAIN A MAJORITY IN BOTH HOUSES OF CONGRESS,
---AND TELL THESE ELECTED REPRESENTATIVES THAT WE EXPECT THEM TO MAKE THE CHANGES NEEDED TO FIX THEIR PREDECESSORS BROKE (of course President Obama will veto a lot of it, but that will just insure that he doesn't get reelected in 2012).
NOTE: LEADERS GET THEIR ARMS AROUND PROBLEMS AND ENLIST THE HELP OF OTHERS TO SOLVE THE PROBLEMS. (They don't finger point, place blame, threaten and bully (or sue their fellow Americans) while the problems continue.)
WHY IS THE ECONOMIC RECOVERY STUMBLING?
--THE F. U. D. SYNDROME IS HINDERING AMERICA'S ECONOMIC RECOVERY
The F. U. D. Syndrome is what is retarding the recovery of the US Economy. Fear (of what the government will do next--and when, and IF employment will ever come back), Uncertainty (about how an anti-business Washington, DC will derail the best of plans, and WHEN consumer spending will ever come back) and Doubt (about why the words spoken by our governmental leaders never seem to match their actions--and WHO can you believe--if your President talks one way--and acts another?)
WE SAVE OUR WAY TO SURVIVAL BUT WE CAN ONLY GROW OUR WAY TO PROSPERITY
Growth (in America's economy--the "private sector,") is the only answer to dig out of this economic downturn.
In the short term, we can "save our way to survival, but not to growth. More government spending and higher taxes will make things worse. We must Invest in Innovation--it is the one solution that, done correctly, inevitably leads to growth. To grow, changes must be made that are focused, and permanent--not temporary. These must be changes that reduce FEAR, UNCERTAINTY AND DOUBT about the government being "anti-business," at every opportunity.
OBSTACLES: NEW FINANCIAL REGULATIONS--30 TIMES A COMPLICATED AS SARBANES-OXLEY?
I recall an old quote I heard one time: "One fool can ask more questions than a thousand experts can answer." When our Congress routinely passes 2000+ page bills, regulating major parts of American life and business, we are in trouble. The sheer complexity fo interpreting these new laws is mind-boggling. The risk in how they might be interpreted, or mis-interpreted is terrifying. It is little wonder that American businesses--large and small--are afraid of what obstacle government will put in their path next--and thus they are paralyzed by
OBSTACLES: PERSISTENT UNEMPLOYMENT IS DESTROYING AMERICAN WORKFORCE MOTIVATION
Extended unemployment is not a motivator, it is a de-motivator. Unemployment, no matter how rapidly spent, is not a stimulus, it is an anti-stimulus because every dollar given out by the government must be taken (via taxation) from those who earned it. (Read the full text of "why" below.)
RISKS: THE OBAMA LAME DUCK "CRAM DOWN"
There is a likelihood that the "outgoing" Congress will try to cram some pet legislation through during the lame duck session following the election. The watch list includes such favorites as Cap & Trade, Card Check (EFCA), Stimulus II, and what else?
RISKS: OBAMA AND THE CORRUPT CHICAGO MACHINE
Blago, Rambo, and Barack are all part of it. Tony Rezko was part of it. Jesse Jackson was part of it. Bill Ayers was part of it. How much proof do Americans need that this was a "rotten to the core" group?
OPINIONS: OTHER VOICES WEIGH IN:
Eaton Corp.'s CEO Alexander Cutler said it this way: "Our country is racing dopwn an ill-advised path that is destroying competitiveness in the U. S. The challenge: Find leaders with the political courage to take the actions necessary to preserve our competitiveness." Formerly a big Obama "advisor", Jeffrey Immelt, CEO of GE is describing the government as "anti-business."
OPINIONS: BURY HARRY REID--KEEP YUCCA MOUNTAIN
Our government has been spending billions for years to get this facility ready. Now, when we need to use it for nuclear waste and to encourage the construction of more small-scale, highly efficient nuclear plants, "Dirty Harry" Reid says, "Not In My Backyard!" Are you kidding me?
OPINIONS: DEMS CAN'T CALL GOP OBSTRUCTIONISTS--GOP DOESN'T HAVE THE VOTES IN CONGRESS TO STOP ANYTHING
When the GOP is in such a minority in the House that candidates for reelection are "allowed" to vote against ObamaCare to help their campaigns, that's a big majority. The House could still pass the health care bill without dozens of Democratic votes. The Senate had already decided to "cram it through," so even a filibuster was not an issue. Thus, any tag of the GOP being "obstructionist," just doesn't stick.
OPINIONS: OBAMANOMICS HAS FAILED MISERABLY
President Obama will now start campaigning on reducing the deficit. But he doesn't know how! If he knew how, he'd already be doing it. The past stimulus packages were political pork and patronage. The jobs "added or saved" is total nonsense--"mumbo-jumbo" and made-up numbers. Taking money from those who earn it, to give to those who "need it, in the sense of fairness" (while adding the government inefficiency in doing so) is not helping the economy, it's hurting it. Reducing the deficit by raising taxes--especially on business--will stifle growth, and growth rooted in fiscal responsibility, is the only way out of this mess.
OPINIONS: THE PRIVACY CRACKS IN SOCIAL MEDIA ARE SHOWING
A couple of years ago, I wrote a piece titled "10 Reasons I wasn't using Social Media". Now I've dipped my toe in those waters, and the fears I cited are all coming to pass. Facebook is purposely "losing control" of its privacy--for money. Twitter never had privacy; it's the anti-privacy, and Facebook is heading that way. LinkedIn is a little better, but it will cave-in/sell-out if someone waves enough money in its face. Once you put yourself out there, there is no taking it back. Be careful what you put out there and who you let have access to it.
IRONIC STORY OF THE WEEK: UNIONS HIRE NON-UNION PICKETS AT MINIMUM WAGE TO PICKET WORK SITES
The Mid-Atlantic Regional Council of Carpenter is seeking paid demonstrators to march and chant in its picket line outside the McPherson Building, and office complex in Washington, DC. "It's difficult for a lot of our members to get here," explains a union rep, so they hire minimum wage ($8.25/hour) non-union picketers! The union's director of organization says that the extra feet allow them to staff about 150 picket lines in the DC and Baltimore areas.
OPTIMISM? A LITTLE--A RAY OF HOPE--BUT A SLIM ONE--ON THE NEAR TERM FUTURE
Consumer spending is down. Inventories have been rebuilt and are now in danger of being too high, which will require further correction. We have seen a couple of up and down cycles since last fall.
--Last fall was down, then Christmas was up, then the 1Q was down.
--Easter was early and things went up, and then summer was back down.
--Back to School spending is up, but early fall will probably be down.
(Fall spending will get a boost when Washington finally extends unemployment benefits (again!) and that dumps about $4B in back pay into the hands of unemployed consumers. In an election year, there is no way that extension won't ultimately get passed.)
--With fall and winter holidays (Halloween, Thanksgiving and Christmas/Hannukah, etc.) coming, consumers won't save all of that money. They'll spend most of it, thus creating another artificial cycle upward in consumer spending.
--This will be followed by a downturn in 1Q 2011 when reality sets in again.
FOREWARNED IS FOREARMED: TRACK THE CYCLES & IF YOU ARE PREPARED, YOU'LL KNOW WHAT TO EXPECT.
And hope that underlying these short term cycles, there is a slow upward growth trend in which the American economy is recovering. However, unemployment at 9-10% will be here all year (2010) unless even more people give up and quit looking (the downside of extended unemployment benefits) which will give the false impression of improved unemployment.
These are the dog days of summer. Stay cool--in more ways thaN one--the next few months will be a roller coaster ride of ups and downs and a huge mid-term election. GET TO KNOW YOUR CANDIDATE(S) PERSONALLY AND WORK (+$) TO GET THEM ELECTED.
Best, JOHN
====================
FROM THE WALL STREET JOURNAL©, JULY 8, 2010
Unemployment Benefits Aren't Stimulus
Let's not reduce the incentive to find work. A federal tax holiday is a better way to cut the high jobless rate.
By ARTHUR B. LAFFER
The current debate over extending and increasing federal unemployment benefits encapsulates the disagreement between the Democrats in power in Washington and their Republican opponents. What the consequences will be of raising unemployment benefits in today's depressed economy is at issue.
The most obvious argument against extending or raising unemployment benefits is that it will make being unemployed either more attractive or less unattractive, and thereby lead to higher unemployment. Empirical research supports this view.
The Democratic retort is that the economy today is so different from the past that we have to suspend our traditional understanding of economics. With five job seekers for every job opening, the unemployed are desperate for work and increasing unemployment benefits will have very little if any disincentive effect. This view hinges on a total change in employee behavior from "normal" times to the current period of "the Great Recession."
On the face of it, the idea that higher unemployment benefits won't lead to more unemployment doesn't make much sense. Imagine what the unemployment rate would look like if unemployment benefits were universally $150,000 per year. My guess is we'd have a heck of a lot more unemployment. Common sense and personal experience indicate higher unemployment benefits will make unemployment less unattractive and thereby increase unemployment even in the Great Recession. As the chart nearby clearly shows, since the 1970s there's been a close correlation between increased unemployment benefits and an increase in the unemployment rate. Those who argue that things are different today don't have the data to back up their claims.
The Democratic argument also ignores the impact of unemployment benefits on employer costs. Employers don't usually hire people to assuage their consciences. They hire people to make after-tax profits. And if workers require more pay because of higher unemployment benefits, employers will hire fewer employees. Whether increased unemployment benefits incentivize workers to work less or disincentivize employers from hiring more workers, the effect will be the same—higher unemployment.
The second point made by the Obama administration is that unemployment benefits are a great way to stimulate demand. Increased unemployment benefits operate quickly and the recipients spend what they get, which makes these stimulus funds the best bang for the buck.
Here again the facts are in dispute. Studies have shown that previous stimulus spending—much of which was also targeted for the poor and unemployed—was to a large extent saved and not spent. But I'm not going to rest my case on the obvious failure of Washington's prior stimulus packages. Based upon the above logic (as described in the January 2009 white paper co-authored by White House economists Christina Romer and Jared Bernstein) the administration forecast that the unemployment rate would be a little above 7.3% in the third quarter of this year. That isn't going to happen.
The flaw in their logic is that when it comes to higher unemployment benefits or any other stimulus spending, the resources given to the unemployed have to be taken from someone else. There isn't a "tooth fairy," or as my former colleague Milton Friedman repeated time and again, "there ain't no such thing as a free lunch." The government doesn't create resources. It redistributes them. For everyone who is given something there is someone who has that something taken away.
While the unemployed may spend more as a result of higher unemployment benefits, those people from whom the resources are taken will spend less. In an economy, the income effects from a transfer payment always sum to zero. Quite simply, there is no stimulus from higher unemployment benefits.
To see this, imagine an economy that produces 100 apples. If 10 of those apples are given to the unemployed, then people who otherwise would have had those 10 apples now won't. The stimulus of 10 apples for the unemployed is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken.
Given the massive inefficiencies the government creates in securing resources from the private sector, there may also be a large negative income effect over wide ranges of stimulus spending. This is the proverbial "toll for the troll." These massive inefficiencies could lead to lower output.
To see these effects clearly, imagine a two person economy in which one of the two people is paid for being unemployed. From whom do you think the unemployment benefits are taken? The other person obviously. While the one person who is unemployed may "buy" more as a result of unemployment benefits, the other person from whom the unemployment sums are taken will "buy" less. There is no stimulus for the economy.
But it doesn't stop there. While the income effects sum to zero, the substitution effects aggregate. The person from whom the unemployment funds are taken will find work less rewarding and will work less. The person who is given the unemployment benefits will also find work relatively less rewarding and will therefore work less. Both people in this two-person economy will be incentivized to work less. There will be less work and more unemployment.
Not only will increased unemployment benefits not stimulate the economy, they will at the same time lower the incentives for people to work by reducing the amount people are paid for working and increasing the amount people are paid for not working. It's pretty basic economics.
No one opposes unemployment benefits as a transition aid for people to get back on their feet and find a new job. Unemployment benefits are a safeguard for individuals down on their luck. But to argue that unemployment benefits actually reduce unemployment is disingenuous at best, and could induce our government to enact policies that have the effect of destroying our nation's production base from whence all benefits ultimately flow.
Any government program that would reduce unemployment has to make working more attractive for both employer and employee. Since late 2007 the federal government has spent somewhere around $3.6 trillion to stimulate the economy. That is a lot of money.
My suggestion would have been to take all $3.6 trillion and declare a federal tax holiday for 18 months. No income tax, no corporate profits tax, no capital gains tax, no estate tax, no payroll tax (FICA) either employee or employer, no Medicare or Medicaid taxes, no federal excise taxes, no tariffs, no federal taxes at all, which would have reduced federal revenues by $2.4 trillion annually. Can you imagine where employment would be today? How does a 2.5% unemployment rate sound?
Mr. Laffer is the chairman of Laffer Associates and co-author of "The End of Prosperity: How Higher Taxes Will Doom the Economy—If We Let It Happen" (Threshold, 2008).
-----------------------------------------------------------
The government is supposed to work for the people, not vice versa.
-----------------------------------------------------------
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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