State and local government employees face signficant layoffs and dramatic reductions in their benefit packages. Why? The unions claim that the reason is the stingy taxpayer, who, in most states, makes less average compensation than the employees that the taxpayer is funding. The real problem is excessive promises by the union leadership, encoded into law by governors, state legislatures and local governments. There has never been any realistic chance that these benefits could be paid for...never. This grand plan only worked as a ponzi scheme, providing benefits to the early recipients until the cold hard facts of demographics revealed the fraudulent nature of the promises.
The great tragedy is that all of this fooled the employees. They assumed that they would be provided abundant retirement income and medical benefits. Thus, there was no need to save. They could spend with abandon and they did. Now, the day of reckoning has arrived and there is no money to pay the promises of the past and no savings to make up for it. That is the real tragedy. People believed these false promises of government and thus did not save and prepare for the future. That is the main reason that the US has the lowest savings rate in the developed world. They think they will be bailed out. Now they are learning that there are no resources available to deal with this problem.
False promises abound in the entitlement arena. President Obama's refusal to address this problem in his recent budget demonstrates the cynicism of the modern American political leadership.
Rabu, 16 Februari 2011
The Obama Budget
Apparently the Obama Administration has forgotten the results of the November election. The new Obama budget proposal unveiled this week brings back all of the same, tired, big government plans that the President has been pushing since the day he took office. It no longer matters to the President that the recovery is producing no jobs. He has grown used to that fact, apparently. Now, the President plans new spending initiatives to expand on policies that have few supporters even in his own party. The President is becoming more and more irrelevant. Perhaps that is the plan.
Meanwhile major budget cuts are being pushed by the President's opponents in the House of Representatives and even entitlement cuts are under consideration. While there may be zero presidential leadership, there are some good signs that the House of Representatives is not asleep and may supply the leadership that the White House seems incapable of providing.
The President seems bent on using today's fiscal crisis as an opportunity to force Republicans to make unpopular budget decisions. Then, I suppose, he will defend all of this spending and coast to a second term come next year. So much for Obama's view of "winning the future." His budget proposal is a sham.
Meanwhile major budget cuts are being pushed by the President's opponents in the House of Representatives and even entitlement cuts are under consideration. While there may be zero presidential leadership, there are some good signs that the House of Representatives is not asleep and may supply the leadership that the White House seems incapable of providing.
The President seems bent on using today's fiscal crisis as an opportunity to force Republicans to make unpopular budget decisions. Then, I suppose, he will defend all of this spending and coast to a second term come next year. So much for Obama's view of "winning the future." His budget proposal is a sham.
Sabtu, 12 Februari 2011
Egypt -- Politics and Economics
Now that Mubarak has left, the media is trumpeting that Egypt is now "free." That's not a likely result. The military, who has ousted Mubarek and assumed control, owns a huge share of Egyptian business and industry -- estimates range from one-third to to one-half of the entire Egyptian economy is directly owned by the group that now has power in Egypt. Will they give up that power? Not likely.
What this means is that economic freedom will remain in short supply in Egypt. New politicians will appear and there will be elections, but the things that can make a difference to the lives of ordinary Egyptians will not be on the ballot. Egyptians need economic development. They need the freedom to start new businesses, educate their children and live in an economy that produces jobs.
The fundamental need in Arab countries is economic freedom, not the right to vote themselves into an Iranian-like theocracy or a Venezuelan-like monocracy. This does not mean that Mubarak is better than democracy. Democracy is definitely better than Mubarak. Democracy, without economic freedom does not produce economic growth (even though economic freedom without democracy can produce economic growth -- check out Singapore and parts of modern day China).
The Arab lands need economic freedom for their citizenry. The curse of oil has robbed the Arab countries of a middle class and made every Arab country the land of the rich and poor. Education, economic freedom and economic opportunity are the ticket, not the right to choose between various opportunists looking to cash in on Egypt's new found freedom.
As long as the military is Egypt's savior, the Egyptian people cannot be saved.
What this means is that economic freedom will remain in short supply in Egypt. New politicians will appear and there will be elections, but the things that can make a difference to the lives of ordinary Egyptians will not be on the ballot. Egyptians need economic development. They need the freedom to start new businesses, educate their children and live in an economy that produces jobs.
The fundamental need in Arab countries is economic freedom, not the right to vote themselves into an Iranian-like theocracy or a Venezuelan-like monocracy. This does not mean that Mubarak is better than democracy. Democracy is definitely better than Mubarak. Democracy, without economic freedom does not produce economic growth (even though economic freedom without democracy can produce economic growth -- check out Singapore and parts of modern day China).
The Arab lands need economic freedom for their citizenry. The curse of oil has robbed the Arab countries of a middle class and made every Arab country the land of the rich and poor. Education, economic freedom and economic opportunity are the ticket, not the right to choose between various opportunists looking to cash in on Egypt's new found freedom.
As long as the military is Egypt's savior, the Egyptian people cannot be saved.
Senin, 07 Februari 2011
Obama and the Middle Class
In his speech today before the US Chamber of Commerce, Obama lectured his audience that gains must be shared with the middle class. He points to the eroding take-home income of middle class Americans.
But, there is nothing business can do about the plight of the middle class. That is pretty much determined by Congressionally imposed mandates on businesses. Imagine that you pay an employee $ 40,000 per year and that productivity improves enough to pay that employee $ 50,000 per year. Why wouldn't you do it? Because, in the meantime, Congress has passed a law permitting that employee to sue you for millions of dollars if another employee makes an off-color comment to another employee at the water fountain (or for that matter, off company premises and after hours....it doesn't matter under the law). Now the employee isn't worth $ 50,000 to you. Business has to factor in the potential cost of litigation (and, of course, they do). In fact, the litigation threat may be so costly to your business that you may simply terminate the employee, even though, absent the litigation benefits enacted by Congress, you would have been more than happy to pay the employee $ 50,000 (and hire more of them to boot).
Congress has punished the middle class with employer mandates. Congress has made much of the middle class economically toxic to American business. Obama need look no further than into the mirror to see the group that is responsible for damaging the prospects of the American middle class.
But, there is nothing business can do about the plight of the middle class. That is pretty much determined by Congressionally imposed mandates on businesses. Imagine that you pay an employee $ 40,000 per year and that productivity improves enough to pay that employee $ 50,000 per year. Why wouldn't you do it? Because, in the meantime, Congress has passed a law permitting that employee to sue you for millions of dollars if another employee makes an off-color comment to another employee at the water fountain (or for that matter, off company premises and after hours....it doesn't matter under the law). Now the employee isn't worth $ 50,000 to you. Business has to factor in the potential cost of litigation (and, of course, they do). In fact, the litigation threat may be so costly to your business that you may simply terminate the employee, even though, absent the litigation benefits enacted by Congress, you would have been more than happy to pay the employee $ 50,000 (and hire more of them to boot).
Congress has punished the middle class with employer mandates. Congress has made much of the middle class economically toxic to American business. Obama need look no further than into the mirror to see the group that is responsible for damaging the prospects of the American middle class.
Knocking Down Barriers
President Obama, speaking before the US Chamber of Commerce today, said that he would "knock down" barriers that hamper economic growth.
Well, for starters, how about repealing all of the enacted legislation from the 2009-2010 Congress. That would be a good beginning. In the process, away would go FinReg, Credit Card Reform, and Obamacare among other things.
If the president is serious, then the road is clear. All he needs to do is a complete about face. Anything else is just politics as usual.
Well, for starters, how about repealing all of the enacted legislation from the 2009-2010 Congress. That would be a good beginning. In the process, away would go FinReg, Credit Card Reform, and Obamacare among other things.
If the president is serious, then the road is clear. All he needs to do is a complete about face. Anything else is just politics as usual.
Sabtu, 05 Februari 2011
Unintended Consequences
The economic recovery in the US is stillborn. All the various "initiatives" enacted by the Congress since September of 2008 have virtually guaranteed that the economy cannot have a robust recovery, the kind of recovery that, from previous recessions brought the economy back to full strength. Instead, the new credit rules, the new financial regulations, the new health care mandates, the new tax gimmicks, and the business-demonizing atmosphere of the Obama Administration all serve to slow down economic recovery and to create long term stagnation in employment and economic growth.
The Administration seems truly puzzled by all of this. The lame duck session, extending the Bush tax cuts for two years, simply avoided disaster. The tax cut extension, since it is a temporary two year extension, cannot possibly stimulate the economy in any meaningful way. Changing the rhetoric in the White House is certainly an improvement but is totally inadequate given the enactment of legislation in 2009 and 2010 that shackles businesses and makes adding employees prohibitively expensive.
Businesses can be seen as growth engines and employment generators or they can be seen as purveyors of social causes. They can't do both. More and more,American business is expected to avoid profit maximizing behavior and be good citizens, promoting various social causes. Being good social citizens and promoting social causes inevitably means growing slower, hiring fewer employees and being less dynamic. That's where we are. The "green jobs" rhetoric is nothing more than rhetoric.
It is time to set aside "feel good" rhetoric and create a business environment favorable to jobs creation. So far, the President doesn't seem to get it. He seems genuinely surprised that American business, reeling from the blows of his policies and rhetoric, isn't racing to create jobs and rescue his presidency.
If your main economic banner is "no tax cuts for the rich," then economic stagnation is probably your future. What is needed is the elimination of the numerous barriers to economic prosperity that the Obama Administration and a compliant (and long gone) Congress put in place. What is needed is no less than a complete dismantling of the legislation passed in the last two years by the Congress. Then and only then can a truly vibrant economy take over.
The Administration seems truly puzzled by all of this. The lame duck session, extending the Bush tax cuts for two years, simply avoided disaster. The tax cut extension, since it is a temporary two year extension, cannot possibly stimulate the economy in any meaningful way. Changing the rhetoric in the White House is certainly an improvement but is totally inadequate given the enactment of legislation in 2009 and 2010 that shackles businesses and makes adding employees prohibitively expensive.
Businesses can be seen as growth engines and employment generators or they can be seen as purveyors of social causes. They can't do both. More and more,American business is expected to avoid profit maximizing behavior and be good citizens, promoting various social causes. Being good social citizens and promoting social causes inevitably means growing slower, hiring fewer employees and being less dynamic. That's where we are. The "green jobs" rhetoric is nothing more than rhetoric.
It is time to set aside "feel good" rhetoric and create a business environment favorable to jobs creation. So far, the President doesn't seem to get it. He seems genuinely surprised that American business, reeling from the blows of his policies and rhetoric, isn't racing to create jobs and rescue his presidency.
If your main economic banner is "no tax cuts for the rich," then economic stagnation is probably your future. What is needed is the elimination of the numerous barriers to economic prosperity that the Obama Administration and a compliant (and long gone) Congress put in place. What is needed is no less than a complete dismantling of the legislation passed in the last two years by the Congress. Then and only then can a truly vibrant economy take over.
Selasa, 04 Januari 2011
The Unemployed will Stay Unemployed
As the economy recovers, don't expect employment to improve in the manner of past recoveries. Long term unemployment is here to stay for the US for a similar set of reasons that have made long term unemployment a permanent feature of the European economic landscape. Hiring people costs too much. That is it -- pure and simple.
If you offer an employee a salary of $ 35,000 per year and if $ 35,000 respresented your actual annual cost of the employee, there would be little or no unemployment in the US or in Europe. But, it doesn't work that way. Where to begin?
How about Social Security and Unemployment Compensation? Need we mention health care? How about mandated family leave and mandated paid sick leave (by many states). What about the right to sue your employer if another employee is guilty of .... you name it....racial or sexual discrimination, etc., etc. How does the threat of a multi million dollar lawsuit feel if you are a small business? Especially if the alleged violations of existing law are incidents between employees that are after hours and not on the job site. Employers are still liable for such things.
In essence a $ 35,000 employee now costs $ 60,000 or more if you factor in the liabilities and costs that various levels of government have mandated as part of the process. So, who needs employees at these prices? Hardly anyone.
In the long run, these costs are borne by employees, which goes a long way toward explaining the declining fortunes of middle class America. But, in the short run, these extra costs are impediments to hiring.
The economy will recover and outsourcing and capital equipment will be factors of choice for employers. Forget hiring real live people. They have been priced out of the market by big government.
If you offer an employee a salary of $ 35,000 per year and if $ 35,000 respresented your actual annual cost of the employee, there would be little or no unemployment in the US or in Europe. But, it doesn't work that way. Where to begin?
How about Social Security and Unemployment Compensation? Need we mention health care? How about mandated family leave and mandated paid sick leave (by many states). What about the right to sue your employer if another employee is guilty of .... you name it....racial or sexual discrimination, etc., etc. How does the threat of a multi million dollar lawsuit feel if you are a small business? Especially if the alleged violations of existing law are incidents between employees that are after hours and not on the job site. Employers are still liable for such things.
In essence a $ 35,000 employee now costs $ 60,000 or more if you factor in the liabilities and costs that various levels of government have mandated as part of the process. So, who needs employees at these prices? Hardly anyone.
In the long run, these costs are borne by employees, which goes a long way toward explaining the declining fortunes of middle class America. But, in the short run, these extra costs are impediments to hiring.
The economy will recover and outsourcing and capital equipment will be factors of choice for employers. Forget hiring real live people. They have been priced out of the market by big government.
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