It's now 15 months since my own personal recession started. With the increased amount of time to watch our elected officials pull us out of the recession and the high unemployment rates comes greater clarity.
I remember Ronald Reagan once intoned on his radio commentary " Government in, of, and by itself has no wealth. The only wealth government can have is that which government has taken away from the governed.". In other words those who actually did the work to create the wealth in the first place. The late ex-President's remarks implied that government does not (should not?) create wealth. Further, government does not create anything that brings wealth. Not because it is without collective intellect, not because it is inherantly evil (that can't be true because government is made up of US), not because government is without justification in some form. Government cannot exist without "our" money to spend. Government by itself does not earn a living and pay the bills. It takes from us what it needs to survive.
This protracted recession has been plied with "stimulus" from the public treasury. Banks were propped up when they did not generate liquidiy on their own. Jobs are not being created in sufficient numbers to bring down unemployment. What's going on here?
The House and Senate are wrangling over passing or changing the Bush tax cuts. The biggest issue is what to about the wealthy. In fact, part of that debate revolves around what is wealthy? At least part of the debate of wealthy is how to include profitable existing companies and the small businesses that average Americans start from zero. How much do we tax the very people we all either work for or want to work for?
How about a short business lesson. First, the profit is not a luxury. It's evidence of greed. It's a requirement for any company to survive. That's becauase the legal definition of net income does not include all the spending required for that company to compete in it's market place. Profits go to develop new products, explore and penetrate new markets for existing products. Profit is also what pays for employee raises, cost increases in benefits, cost increases on inputs to the company's products, and the asset base the business requires. Bulldozers, flower delivery trucks, and vertical boring mills don't last forever but niether do they routinely wear in less than a year.
Profit is also what drives the hiring of additional employees, and one facet of convicing management to replace the ones that leave. What else gets paid out of profits? Federal, state, local..........governments, through taxes. Higher taxes mean lower profits, a shrunken pool of resources to continue the business in a healthy state.
Any business has a life cycle, just like its products. They start out as an innovation of some kind and conintue on a rising tide of sales volume. As the product matures (ages) adn competition develops, sales dollars level off. When that happens, other newer products take over the market and the original leader in the market place declines in sales volume. Eventually, the mature product becomes obsolete and sales revenue disappears.
That cycle describles the marriage between companies, profits, and a healthy a healthy job market. The mature comapanies' workforces go through layoffs and at the same time new jobs are created by the newer products and companies in the same economy. Profitable companies that successfully develop replacement products and processes as the maketplace requires maintain a stable or growing employee base. Those that don't, shrink or cease to exist.
Over time, the U.S. has lost jobs, mostly manufacturing, to foreign countries for a variety of reasons. Wage rates are the predominant reason, but also countries that have less developed governmental bureaucracies have been more attractive. Singapore offered a five year tax holiday to companies that would open offices there in the 1980's and 1990's. America has become a population of people trying to sell each other insurance or investments. Nothing against people who work in those pursuits, just a metaphor. We have ceased to be the planets chief innovator.
The debate in Washington is over raising more revenue. The federal government is trapped in to doing this due to the moutainous (even by federal standards) level of the deficit. The above narrative is to say simply this. How do we reduce the deficit? More revenue? Less spending? If government takes more moeny out of the economy (tax rate increases over 2009) less will be available to companies to stay competitve and growing. Are the rates limited to personal income rates? That includes a lot of people who put the self employment income on their 1040's. Those companies will be less likely to grow in to job creating engines.
The foundation of job creation is the relationship between companies on the rise and companies on the decline. Those on the rise come largely from sole propietor's that invest time, talent, and hard work to start what eventually become new enterprises. There is a flaw in the remedy politicans seem want for our economy. That's right, ours, the American citizenry. Just ask Cheter Cadieu Sr. (QuikTrip) or T. D. Williamson Sr. (TD Williamson Inc.) how that works, then pass on what you learn to Washington.
