THE ENTERPRISE--AMERICAN SPIRIT IS RISING AGAIN...BUT

THE ENTERPRISE--AMERICAN SPIRIT IS RISING AGAIN...BUT

BLACK FRIDAY AND CYBER MONDAY WERE STRONG, BUT...
Remember when I predicted a BLIP and a DIP for the 4Q 2010, and the 1Q 2011.  Well, here is the start of the BLIP--upward, at levels close to 2007 (pre-crash).  The slowing in spending in the 2Q and 3Q is now allowing consumers to spend for the holidays.  But come New Year's Day, the charge card bills will start arriving and the DIP will come as jobless Americans (still 15-20% unemployed or underemployed) will once again tighten their belts.  They will be hoping that the new group of representatives they elected will do the same.  If they don't, their terms will be short indeed.  If they do, America can start on the long, tough journey back from the Democrats and Obama-messes.  It will be neither fast nor easy/painless.  It must be done. A nation cannot live that far beyond its means for too long without an even worse crisis down the road.

FUD--FEAR, UNCERTAINTY AND DOUBT STILL REMAIN AS OBSTACLES
The recent report on job creation was disappointing, once again falling short of the number of jobs needed just to offset new entrants to the work force.  That is no kind of recovery at all.  In an earlier edition of THE ENTERPRISE, I predicted a BLIP, followed by a DIP.  The BLIP, an upward move in spending and retail activity is happening right now.  Consumers who hunkered down in 2Q & 3Q 2010 are now spending for the holidays--but carefully--and ever alert for the best deals and hottest promotions.  That means retailers need to watch the MIX they are selling carefully.  Volume is likely to be up, but profits may not be up nearly as much.  Then comes Jan. and 1Q 2011, and the credit card bills roll in.  That will create the DIP in spending.  How far down the DIP will go is uncertain, but one thing that can be confirmed:  Fear, Uncertainty and Doubt are still nagging at consumers and companies, and dragging down hiring.  Joblessness is far from over, and the housing crisis is far from over too.  These are still drags on any recovery.

THE CREATION OF POSITIVE RESULTS BY THE EXPECTATION OF NEGATIVE OUTCOMES
I have some news for those who have not given a lot of thought to the budget and deficit problems.  Fixing the budget deficit will make the economy worse before it gets better.  Why?  Because to reduce government spending means cutting jobs or cutting pay for those who remain employed--or both.  Either way, the number of unemployed government workers will go up--you know, those are the ones who are paid 20% more than common folks working in the private sector where competition regulates how much can be paid--not some elected know-nothing who was funded by the Union representing the government workers.  The Unions will scream bloody murder--but they deserve to be damaged--these same Unions are at the core of many American problems.   

DO THE RIGHT THING, AND THE RIGHT OUTCOME WILL RESULT
So, when we do the right thing and cut government spending, there will be a lag in time before people can put their money to work and the economy starts growing again.  Assuming the outgoing jerks in DC don't let the Bush tax levels expire, and that the new group of largely GOPers who now control the House hold their ground and demand at least 2-3 years of those same tax levels, THEN, AND ONLY THEN can the economy get going.  The dip caused by unemployed government workers will be erased as private sector growth kicks in.  Of course these folks are unlikely to find jobs that pay so much for doing so little in the private sectors, but, as an old college roommate always said, "What's fair is fair." 

SOME THING THAT WILL MAKE YOU GRIN
    This is a great story! The radio station America FM was doing one of its "Is Anyone Listening?" bits this morning. The first question was, "Ever have a celebrity come up with the 'Do you know who I am?' routine?"
    A woman called in and said that a few years a go, while visiting her cattle rancher uncle in Billings, MT, she had occasion to go to dinner at a restaurant that does not take reservations. The wait was about 45 minutes; many ranchers and their wives were waiting.
    Ted Turner and his ex-wife Jane Fonda came in the restaurant and wanted a table. The hostess informed them that they'd have to wait 45 minutes. Jane Fonda asked the hostess, "Do you know who I am?" The hostess answered, "Yes, but you'll have to wait 45 minutes."
    Then Jane asked if the manager was in. When the manager came out, he asked, "May I help you?" "Do you know who we are?" both Ted and Jane asked. "Yes, but these folks have been waiting, and I can't put you ahead of them."
    Then Ted asked to speak to the owner. The owner came out, and Jane again asked, "Do you know who I am?" The owner answered, "Yes, I do. Do you know who I am? I am the owner of this restaurant and I am a Vietnam Veteran. Not only will you not get a table ahead of my friends and neighbors who have been waiting here, but you also will not be eating in my restaurant tonight or any other night. Good bye."
    Only in America. Is this a great country, or what?  To all who received this, it is a true story and the name of the steak house is: Sir Scott's Oasis Steakhouse, 204 W. Main, Manhattan , MT 59741 , (406) 284-6929  If you ever get there, give this fellow a sharp salute, buy a steak, and tip the waitress.  Hats off to this restaurant !!

THE CHRISTMAS SPIRIT IS ALIVE: WHAT IF 650 VOCALISTS SHOWED UP AT MACY'S PHILLY STORE AND AT NOON--BEGAN SINGING HANDEL'S MESSIAH?
They did!  Watch and listen. Sort of reminds you of the line, "...America, one country, under God, indivisible...
http://www.philly.com/philly/video/106492678.html


WHY THE RECOVERY IS STILL AN ILLUSION, AND THE MISGUIDED GOVERNMENTAL EFFORTS ARE A DELUSION!

Breaking News Alert—The New York Times
Fri, December 03, 2010 -- 8:37 AM ET
U.S. Economy Adds 39,000 Jobs in November, Fewer Than Expected; Jobless Rate Up to 9.8%
The United States economy added only 39,000 jobs in November, a blow to expectations that a recovery was gathering momentum, the Labor Department said Friday. The unemployment rate rose to 9.8 percent, from 9.6 percent. Included in the latest report were slight upward revisions from previous months. The agency now says that the economy
added 172,000 jobs in October, instead of the 151,000 jobs previously reported.  November's gain was far from enough to help the large ranks of the unemployed. More than 15 million people remain out of work.

HOW TO FIX THE GROWTH ENGINE--"GIVE IT FUEL" ( MONEY, VIA LOWER TAXES) & "RELEASE THE BRAKES" (STOP THE STIFLING REGULATIONS)

I can't explain it any better than this article.  Maybe someone will read this in the White House or in Congress.


There's No Escaping Hauser's Law

Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie.

By W. KURT HAUSER (from the Wall Street Journal, Nov. 26, 2010 p. A19)

         Even amoebas learn by trial and error, but some economists and politicians do not. The Obama administration's budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury.  The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues.

         Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this "Hauser's Law."

         Over this period there have been more than 30 major changes in the tax code including personal income tax rates, corporate tax rates, capital gains taxes, dividend taxes, investment tax credits, depreciation schedules, Social Security taxes, and the number of tax brackets among others. Yet during this period, federal government tax collections as a share of GDP have moved within a narrow band of just under 19% of GDP.

         Why? Higher taxes discourage the "animal spirits" of entrepreneurship. When tax rates are raised, taxpayers are encouraged to shift, hide and underreport income. Taxpayers divert their effort from pro growth productive investments to seeking tax shelters, tax havens and tax-exempt investments. This behavior tends to dampen economic growth and job creation. Lower taxes increase the incentives to work, produce, save and invest, thereby encouraging capital formation and jobs. Taxpayers have less incentive to shelter and shift income.

         On average, GDP has grown at a faster pace in the several quarters after taxes are lowered than the several quarters before the tax reductions. In the six quarters prior to the May 2003 Bush tax cuts, GDP grew at an average annual quarterly rate of 1.8%. In the six quarters following the tax cuts, GDP grew at an average annual quarterly rate of 3.8%. Yet taxes as a share of GDP have remained within a relatively narrow range as a percent of GDP in the entire post-World War II period.

         This is explained once the relationship between taxes and GDP growth is understood. Under a tax increase, the denominator, GDP, will rise less than forecast, while the numerator, tax revenues, will advance less than anticipated. Therefore the quotient, the percentage of GDP collected in taxes, will remain the same. Nineteen percent of a larger GDP is preferable to 19% of a smaller GDP.

         The target of the Obama tax hike is the top 2% of taxpayers, but the burden of the tax is likely to fall on the remaining 98%. The top 2% of income earners do not live in a vacuum. Our economy and society are interwoven. Employees and employers, providers and users, consumers and savers and investors are all interdependent. The wealthy have the highest propensity to save and invest. The wealthy also run the lion's share of small businesses. Most small business owners pay taxes at the personal income tax rate. Small businesses have created two-thirds of all new jobs during the past four decades and virtually all of the net new jobs from the early 1980s through the end of 2007, the beginning of the past recession.

         In other words, the Obama tax increases are targeted at those who are largely responsible for capital formation. Capital formation is the lifeblood for job creation. As jobs are created, more people pay income, Social Security and Medicare taxes. As the economy grows, corporate income tax receipts grow. Rising corporate profits provide an underpinning to the stock market, so capital gain and dividend tax collections increase. A pro-growth, low marginal personal tax rate stimulates capital formation and GDP, which triggers a higher level of tax receipts for the other sources of government revenue.

         It is generally accepted that if one taxes something, one gets less of it and if something is subsidized one gets more of it. The Obama administration is also proposing an increase in taxes on capital itself in the form of higher capital gains and dividend taxes. The historical record is clear on this as well. In 1987 the capital gains tax rate was raised to 28% from 20%. Capital gains realizations as a percent of GDP fell to 3% in 1987 from about 8% of GDP in 1986 and continued to fall to below 2% over the next several years.

         Conversely, the capital gains tax rate was cut in 1997, to 20% from 28% and, at the time, the forecasts were for lower revenues over the ensuing two years. In fact, tax revenues were about $84 billion above forecast and above the level collected at the higher and earlier rate. Similarly, the capital gains tax rate was cut in 2003 to 15% from 20%. The lower rate produced a higher level of revenue than in 2002 and twice the forecasted revenue in 2005.

         The Obama administration and members of Congress should study the record on how the economy reacts to changes in the tax code. The president's economic team has launched a three-pronged attack on capital: They are attacking the income group that is the most responsible for capital formation and jobs in the private sector, and then attacking the investment returns on capital formation in the form of dividends and capital gains. The out-year projections on revenues from these tax increases will prove to be phantom.

    —Mr. Hauser is chairman emeritus of the Hoover Institution at Stanford University and chairman of Wentworth, Hauser & Violich, a San Francisco investment management firm. He is the author of "Taxation and Economic Performance" (Hoover Press, 1996). 

Copyright 2010 Dow Jones & Company, Inc.
============================

THAT'S THE BEST EXPLANATION I HAVE SEEN OF HOW TO CREATE GROWTH
Now let's hope the "Lame Ducks" don't do too much harm before they leave Washington.  John Boehner is right.  Their antics are "Chicken-crap!"  But it is only a preview of the nonsense that we will endure for the next 23 months until we can throw out another bunch of them.  I just hope the American people who came out for this election will expand their influence and get more to come out next time, because Obama will have every minority, welfare case and "community organizer" working to put him back in the White House.  Meanwhile, let's hope the new members of Congress we elected keep their focus on why so many Americans voted them in.  It's time to get America back on track, one step at a time.

Best, John

---------------------------------------------
 PS: SOMEONE FINALLY FOUND THE RIGHT JOB FOR BARNEY FRANK--A TSA PAT-DOWN SPECIALIST




__________________________________

MY NEW NOVEL IS AVAILABLE NOW!   ---  THE  CHINESE CONSPIRACY


(IF YOU READ IT & LIKE IT, PLEASE POST A REVIEW ON AMAZON.COM)

FOR MORE INFO, GO SEE:  http://www.thechineseconspiracy.com
BUY IT AT THESE PLACES:
KINDLE EBOOK: http://www.amazon.com/The-Chinese-Conspiracy-ebook/dp/B00472O93G/ref=sr_1_22?s=books&ie=UTF8&qid=1288189116&sr=1-22
NOOK EBOOK:  http://search.barnesandnoble.com/The-Chinese-Conspiracy/John-Mariotti/e/9781450257916/?itm=1&USRI=The+chinese+Conspiracy

PAPERBACK: http://www.amazon.com/Chinese-Conspiracy-John-Mariotti/dp/1450257895/ref=sr_1_24?s=books&ie=UTF8&qid=1288189301&sr=1-24
OR:  http://search.barnesandnoble.com/The-Chinese-Conspiracy/John-Mariotti/e/9781450257893/?itm=2&USRI=The+chinese+Conspiracy
OR:  http://www.iuniverse.com/Bookstore/BookDetail.aspx?BookId=SKU-000182005

HARDCOVER:http://www.amazon.com/Chinese-Conspiracy-John-Mariotti/dp/1450257909/ref=sr_1_25?s=books&ie=UTF8&qid=1288189301&sr=1-25
OR:  http://search.barnesandnoble.com/The-Chinese-Conspiracy/John-Mariotti/e/9781450257909/?itm=3&USRI=The+chinese+Conspiracy
OR:  http://www.iuniverse.com/Bookstore/BookDetail.aspx?BookId=SKU-000182006
John L. Mariotti, President & CEO, The Enterprise Group, Phone 614-840-0959  http://www.mariotti.net   http://mariotti.blogs.com/my_weblog/

------------------------------------------------------------