(Originally from: The Motley Fool: Investment Analysis Clubs/Macro Economic Trends & Risks, Post # 340401)
Government actions seem to be frustrated at every turn. In QE1, instead of loaning the money out, they parked it again with the Fed so the Quantitative Easing did little good. http://www.2000wave.com/ (John Mauldin, "Pushing On A String," Sunday September 26, 2010)
A second thing I have thought about is to let companies repatriate money stuck overseas because companies don't want to pay the difference in taxes between where the money is and the U.S. corporate rate.
In an excerpt from: http://stopcontinentaldrift.blogspot.com/2010/09/jobs-disconnect-between-business-and.html This was done in 2005, for example, but: "The danger of leaving this money overseas is that the companies will start wanting to do something with it and build factories and labs overseas rather than in this country. (The fear with encouraging the money to be repatriated is that companies would use the money to buy back stock and increase dividends, neither of which is productive and even more phony acts. This is what happened the last time this was done in 2005 as a result of the “Homeland Investment Act”.****)"**** http://www.nytimes.com/2009/06/05/business/05norris.html
A third thing that might be done is let the taxes on the very wealthy increase on expiration of the Bush tax cuts and lower the taxes on companies. http://stopcontinentaldrift.blogspot.com/2010/05/effectiveness-of-taxes.html But these possible benefits could be circumvented the same way a tax holiday on repatriated profits was in 2005.
So are we in a Catch 21 situation? Companies will not hire until they see signs of consumption picking up, consumption cannot pick up until unemployment is decreased significantly. Lastly, many jobs will go unfilled because workers cannot move to their location so long as they cannot sell their houses which are probably underwater (appraised at a lower value than the mortgage).
Sunday, September 26, 2010
Wednesday, September 22, 2010
JOBS: THE DISCONNECT BETWEEN BUSINESS AND GOVERNMENT
There is a disconnect between companies and politics in bad times. The business of companies is to provide profits (not jobs) whereas the voting public demands that the government provide jobs and will change the Federal management political party when they cannot do so.
Under the present situation, the government is further to provide jobs at no cost to the taxpayer, a very difficult thing to do. There are those who wish to stimulate the economy by lowering personal income taxes; however, this is a very inefficient way to stimulate the economy as I have said elsewhere.*
During good times, everything is fine, companies will tend to provide jobs to increase profits, even more, the politicians get a growing workforce, and nearly everyone is happy (“nearly” because some are always left behind).
Now there are companies that will keep their workforce during bad times, at least for a while, because they feel that the training costs and startup costs outweigh the savings from letting the workforce go and shutting down some of all of their facilities, either selectively or en masse.
There are even a few companies that will keep their workforce for moral reasons and not business reasons.
The workforce is the elastic dimension of capitalism, even though many companies do all they can to minimize the size of the workforce through all sorts of automation. They will also minimize the size of their domestic workforce if they can find cheaper labor elsewhere through outsourcing. Still, it is by increasing and decreasing the workforce that companies mainly regulate their expenses.
A good example of automation eliminating jobs was when the cotton gin was invented which eliminated the need for all sorts of northern slaves to work at picking the seeds out of cotton but an increased need for slaves on plantations growing increased amounts of cotton. Thus the more difficult ones were shipped down the Ohio and Mississippi rivers to Natchez to work at growing cotton. This is where the saying sold down the river came from* * At one time, Natchez was a thriving community but is now just a small tourist town with no other industry to speak of.
There is a move again to cut the taxes on profits from foreign operations that are repatriated into the U.S. (e.g. John Chambers of Cisco).*** Right now companies must pay the difference between taxes paid to the foreign government and the taxes that would be paid if the profits were obtained domestically. It is felt that money would be brought back if the taxes in doing so were eased to the low single digits. I (who, of course, have no influence what so ever) would like to try a 5% tax on bringing foreign earnings back into the country. The danger of leaving this money overseas is that the companies will start wanting to do something with it and build factories and labs overseas rather than in this country. (The fear with encouraging the money to be repatriated is that companies would use the money to buy back stock and increase dividends, neither of which is productive and even more phonier acts. This is what happened the last time this was done in 2005 as a result of the “Homeland Investment Act”.****)
But easing the corporate tax burden on returning profits could enhance the prospect of building factories and labs in this country instead of overseas and thereby encourage some hiring if companies would cooperate. This the government could not only do at no cost to the American taxpayer, but bring in some tax revenue as well. It is felt that there is something like one or two trillion dollars of corporate profits overseas so at 5% we might be talking about $50 to $100 billion dollars of tax revenue. True this is only a baby step regarding our Federal deficit, but I think the solution is to take many baby steps and do so gradually so our system can adjust. And there could be a multiplier as well through construction of factories and labs (both of which involve labor) plus staffing such as mentioned above.
* http://stopcontinentaldrift.blogspot.com/2010/05/effectiveness-of-taxes.html
**http://www.bigsiteofamazingfacts.com/what-does-the-expression-sold-down-the-river-mean-and-how-did-the-phrase-originate
*** http://www.msnbc.msn.com/id/39173765/ns/business-personal_finance/
**** http://www.nytimes.com/2009/06/05/business/05norris.html
Under the present situation, the government is further to provide jobs at no cost to the taxpayer, a very difficult thing to do. There are those who wish to stimulate the economy by lowering personal income taxes; however, this is a very inefficient way to stimulate the economy as I have said elsewhere.*
During good times, everything is fine, companies will tend to provide jobs to increase profits, even more, the politicians get a growing workforce, and nearly everyone is happy (“nearly” because some are always left behind).
Now there are companies that will keep their workforce during bad times, at least for a while, because they feel that the training costs and startup costs outweigh the savings from letting the workforce go and shutting down some of all of their facilities, either selectively or en masse.
There are even a few companies that will keep their workforce for moral reasons and not business reasons.
The workforce is the elastic dimension of capitalism, even though many companies do all they can to minimize the size of the workforce through all sorts of automation. They will also minimize the size of their domestic workforce if they can find cheaper labor elsewhere through outsourcing. Still, it is by increasing and decreasing the workforce that companies mainly regulate their expenses.
A good example of automation eliminating jobs was when the cotton gin was invented which eliminated the need for all sorts of northern slaves to work at picking the seeds out of cotton but an increased need for slaves on plantations growing increased amounts of cotton. Thus the more difficult ones were shipped down the Ohio and Mississippi rivers to Natchez to work at growing cotton. This is where the saying sold down the river came from* * At one time, Natchez was a thriving community but is now just a small tourist town with no other industry to speak of.
There is a move again to cut the taxes on profits from foreign operations that are repatriated into the U.S. (e.g. John Chambers of Cisco).*** Right now companies must pay the difference between taxes paid to the foreign government and the taxes that would be paid if the profits were obtained domestically. It is felt that money would be brought back if the taxes in doing so were eased to the low single digits. I (who, of course, have no influence what so ever) would like to try a 5% tax on bringing foreign earnings back into the country. The danger of leaving this money overseas is that the companies will start wanting to do something with it and build factories and labs overseas rather than in this country. (The fear with encouraging the money to be repatriated is that companies would use the money to buy back stock and increase dividends, neither of which is productive and even more phonier acts. This is what happened the last time this was done in 2005 as a result of the “Homeland Investment Act”.****)
But easing the corporate tax burden on returning profits could enhance the prospect of building factories and labs in this country instead of overseas and thereby encourage some hiring if companies would cooperate. This the government could not only do at no cost to the American taxpayer, but bring in some tax revenue as well. It is felt that there is something like one or two trillion dollars of corporate profits overseas so at 5% we might be talking about $50 to $100 billion dollars of tax revenue. True this is only a baby step regarding our Federal deficit, but I think the solution is to take many baby steps and do so gradually so our system can adjust. And there could be a multiplier as well through construction of factories and labs (both of which involve labor) plus staffing such as mentioned above.
* http://stopcontinentaldrift.blogspot.com/2010/05/effectiveness-of-taxes.html
**http://www.bigsiteofamazingfacts.com/what-does-the-expression-sold-down-the-river-mean-and-how-did-the-phrase-originate
*** http://www.msnbc.msn.com/id/39173765/ns/business-personal_finance/
**** http://www.nytimes.com/2009/06/05/business/05norris.html
Monday, September 20, 2010
WELFARE FOR THE WEALTHY
A recent Wall Street Journal had a major article titled The Estate Tax (Monday, September 20, 2010). In writing for "Get Rid Of It", Ed McCaffery in "It's Unfair, and There's a Better Way" curiously says "It is a simple moral case..." In a country that prides itself on the Judeo-Christian work ethic, it would seem to me that the moral case is that there should be no inheritance, that every generation should start from scratch. Even in this case, the children of the wealthy would have an advantage because of better education and health care. Besides, inheritance, at least a large inheritance, promotes sloth just as welfare for the poor is thought to promote sloth. Inheritance is just promoting sloth for the wealthy. In this regard, I agree with Michael J. Graetz who authored the "Keep It" article "It's Fair, and We Need The Revenue" and who wrote, "On the other hand, large tax-free inheritances do encourage their recipients not to work. People who receive large inheritances are about four times more likely to drop out of the labor force than those who inherit only small amounts."
Still, I realize that deep in people's hearts is a desire to leave something to their children and maybe other heirs, besides debts, even though most families cannot do so. Under the previous inheritance law, the first $3.5 million in inheritance was exempt from taxation (up from $1 million before that), and the tax on the balance was 45% (down from 55% before that). It seems to me that this is very generous. After all, an income of 5% from a $1 million inheritance, a percentage easy to attain, is $50,000/year, a sum actually somewhat above the median FAMILY income of 2009 ($49,777).* It seems to me that the previous law on inheritance tax was more than generous concerning inheritance, and would hardly encourage the wealthy to "spend it all" during their lifetimes and die broke as Ed McCaffrey suggests.
*http://en.wikipedia.org/wiki/Median_household_income
Still, I realize that deep in people's hearts is a desire to leave something to their children and maybe other heirs, besides debts, even though most families cannot do so. Under the previous inheritance law, the first $3.5 million in inheritance was exempt from taxation (up from $1 million before that), and the tax on the balance was 45% (down from 55% before that). It seems to me that this is very generous. After all, an income of 5% from a $1 million inheritance, a percentage easy to attain, is $50,000/year, a sum actually somewhat above the median FAMILY income of 2009 ($49,777).* It seems to me that the previous law on inheritance tax was more than generous concerning inheritance, and would hardly encourage the wealthy to "spend it all" during their lifetimes and die broke as Ed McCaffrey suggests.
*http://en.wikipedia.org/wiki/Median_household_income
Thursday, September 16, 2010
DE-DEVELOPING AMERICA
Well, to de-develop America* sounds like a very Christian goal but unrealistic. Capitalism requires ever more consumption. You can either do this through population growth, though the increased population has to have the money to consume (a problem right now), or through getting the existing population to want always more (the purpose of advertising) or both. Of course there are places in the world that could well use more consumption, but we haven't figured out a way to get them the money to buy things. Capitalism also requires an ever increasing population of low wage workers (thus outsourcing). One would think that automation would decrease the need for low wage workers, and may to some degree, but recent history has shown that the low wage workers abroad can operate such equipment so the need for low wage workers still exists.
Communism as practiced always seems to end up with a dictator and a not benevolent dictator at that. Communism as practiced also does not invoke common ownership of goods and property. The trend has been for Communistic nations to adopt Capitalism (China, Russia) which seems to be raising the standard of living for many, but with very serious pollution problems.
Socialism seems to work in some countries like Sweden (which curiously has a high suicide rate, perhaps as a result of lack of sunshine in the winter) and other Scandinavian states. Socialism is not working so well in the U.S. because we insist on getting government services without paying for them. It is all very nice to cut out the services, but, as soon as some disaster occurs, even people who say they want small government, suddenly want a LOT of government aid and fast (see BP Deepwater Horizon oil spill)!** Canada seems to be able to invoke Socialism and still balance their budget, but they don't have open-ended government services as we in the U.S. do.
So, frankly, I don't know of a solution to this problem. I wish I did.
*White House Science Czar Says He Would Use ‘Free Market’ to ‘De-Develop the United States’ In a video interview this week, White House Office of Science and Technology Director John P. Holdren told CNSNews.com that he would use the “free market economy” to implement the “massive campaign” he advocated along with Paul Ehrlich to “de-develop the United States.”
http://www.cnsnews.com/news/article/51702 September 16, 2010
** http://stopcontinentaldrift.blogspot.com/2010/06/if-it-wasnt-so-tragic-it-would-be-funny.html
Communism as practiced always seems to end up with a dictator and a not benevolent dictator at that. Communism as practiced also does not invoke common ownership of goods and property. The trend has been for Communistic nations to adopt Capitalism (China, Russia) which seems to be raising the standard of living for many, but with very serious pollution problems.
Socialism seems to work in some countries like Sweden (which curiously has a high suicide rate, perhaps as a result of lack of sunshine in the winter) and other Scandinavian states. Socialism is not working so well in the U.S. because we insist on getting government services without paying for them. It is all very nice to cut out the services, but, as soon as some disaster occurs, even people who say they want small government, suddenly want a LOT of government aid and fast (see BP Deepwater Horizon oil spill)!** Canada seems to be able to invoke Socialism and still balance their budget, but they don't have open-ended government services as we in the U.S. do.
So, frankly, I don't know of a solution to this problem. I wish I did.
*White House Science Czar Says He Would Use ‘Free Market’ to ‘De-Develop the United States’ In a video interview this week, White House Office of Science and Technology Director John P. Holdren told CNSNews.com that he would use the “free market economy” to implement the “massive campaign” he advocated along with Paul Ehrlich to “de-develop the United States.”
http://www.cnsnews.com/news/article/51702 September 16, 2010
** http://stopcontinentaldrift.blogspot.com/2010/06/if-it-wasnt-so-tragic-it-would-be-funny.html
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