"Government stimulus applied to a broken private sector can no more spur job creation than can a jockey's whip applied to a race horse with a broken leg. If you ever expect the horse to run again, fix the leg first."
America's job engine is broken and we have only ourselves to blame. We the people have allowed our elected leaders to heap an ever-expanding array of non-business related costs on our private sector economy year after year ever since President Franklin Roosevelt signed Social Security into law in 1935.
After the ravages of World War II, when the manufacturing capabilities of the rest of the world lay in ruin, the United States transformed its relatively unscathed and vastly expanded wartime production capacity into the world’s sole manufacturing super power. Competing for scarce labor and persuaded by the demands of organized labor, American manufacturing successfully absorbed the incremental costs of new employee benefits such as healthcare and pensions.
As America prospered in the 50's and 60's, she had the luxury to reflect on her historic social injustices and the economic imbalances often attributed to capitalism. During the 1960s, a revitalized Social-Progressive movement returned to power and instituted additional programs that applied their vision of social justice through various employer regulations and wealth redistribution techniques. Most notable of these programs were Medicare (health care for seniors) and Medicaid (health care for the poor). Proponents of these programs, like their predecessors, successfully convinced a naïve public that much of the costs of these programs would be borne by "business" and "your employer; not by you." Again, since America was still the world’s production giant, the increased costs did not materially effect profits and America continued to grow.
When globalization began rolling out in earnest some forty years ago, the imbalance between the U.S. production costs and those of our foreign competitors was regarded as little more than a nuisance. However, over the last couple of decades that nuisance has not just cost America a handful of manufacturing jobs but the complete loss of our most profitable industries and our best paying jobs. Some of the lost industries that America once dominated include steel, energy, plastics, electronics, white goods, brown goods, computers, automobiles and apparel.
With unemployment in excess of 8% for almost four years, both political parties claim that their primary
economic objective is to help the private sector job market. Unfortunately, so
far the crux of their proposals has been based on short-term government stimulus programs. Both parties have failed
to recognize the fundamental, long-term problems that confront our job market.
The Democrats' solution is to
increase taxes and government spending. Their theory assumes that increased government
spending would increase the demand for private sector goods and stimulate the
economy. This, they believe, would help the private sector rebound.
The Republican solution would
lower taxes and reduce government spending. By allowing individuals and
businesses to keep more of their money, Republicans assume that the private
sector would spend more of their money on the things they need. This, Republicans
believe, would help the private sector rebound.
Both approaches have been
tried several times over the last dozen years or so with little evidence that either
approach works, yet both parties persist in promoting their respective lackluster
policies as the Holy Grail of job creation.
The time has come for both parties
to recognize that Government
stimulus applied to a broken private sector can no more spur job
creation than can a jockey's whip applied to a race horse with a broken
leg. If you ever expect the horse to run again, fix the leg
first.
To make my point, allow me
to present an absurd example just to establish a baseline for discussion.
Assume hypothetically, that in order to help cover the projected shortfalls in Social Security and Medicare,
Congress passes a new law dubbed the “New Hire Tax”. The new tax is paid by the
hiring business and is equal to the new hire’s first year salary. In essence, doubling the cost for a business to hire a new U.S. based employee. How eager do you think employers would be
to hire under those terms?
The purpose of my absurd
example is to demonstrate how easy it is to concoct scenarios that reduce the
incentives for the private sector to create jobs. It’s so easy in fact that our
government has been concocting these types of policies for decades. Instead of our government trying to “stimulate” the economy with short-term gimmicks, they should identify
and permanently eliminate those things that impede U.S. based private sector hiring.
Allow me to propose a
slightly less but nonetheless still absurd example.
Assume that Congress passes a
new law they call “The Business Paid Safety-Net Tax.” The tax mandates that
businesses pay a 30% premium on top of every employee’s wages to pay for our
national safety net. Such a tax would
not only reduce new hires, it would force many businesses to cut their existing
U.S.
labor force. As American workers struggle to compete for jobs in this global
economy, what are the chances that Americans would support such a law?
Well, apparently most
Americans already do support such laws.
- The business paid portions of Social Security, Medicare and other non-job related payroll taxes amount to a 12% premium on U.S. based jobs.
- Pensions and 401K type retirement plans paid by employers add another 6% to the cost of U.S. based employees.
- Before accounting for the added costs of the PPACA (Obama care), Health care premiums paid by U.S. employers add another 12% to the average cost of every American job.
The above costs amount to a
30% premium on every U.S.
based job and unfortunately only represent the tip of our tax and regulation iceberg.
Beginning with Social Security, every burden that has been placed on our jobs has been
placed there by the very people we elected to represent our interests in our
government. These job-funded safety net programs were enacted with the best of
intentions. But, as the saying goes, “The road to Hell is paved with good
intentions”.
Our elected representatives, led by
our presidents, created these private sector job roadblocks without
consideration for the long-term damage to our jobs. To be fair, before
globalization, the problems were not material. However, globalization is the
new world order. One principle that the
electorate should demand Congress adopt is that it is almost never in any
American’s best interest to add non-job related costs to our private sector
jobs. There is always a better way to pay for the programs we deem we need.
In addition to endangering
our jobs by increasing U.S.
based labor costs to pay for our safety net, lawmakers have created several other
regulatory restrictions on or threats against private sector job creation
incentives.
Regulation Uncertainty:
Excessive uncertainty is devastating to a free market, private capital based system like ours. Uncertainty is risk and decision makers loath any risk they cannot predict, manage or mitigate. Excessive risk of uncertainty paralyzes decision makers and forces them to retrench. They will wait until there is a clearer direction and will hope for a more favorable business climate. Consider the huge amount of private sector risk associated with the unknown regulatory direction of some of our nations most important business policy arenas.
Excessive uncertainty is devastating to a free market, private capital based system like ours. Uncertainty is risk and decision makers loath any risk they cannot predict, manage or mitigate. Excessive risk of uncertainty paralyzes decision makers and forces them to retrench. They will wait until there is a clearer direction and will hope for a more favorable business climate. Consider the huge amount of private sector risk associated with the unknown regulatory direction of some of our nations most important business policy arenas.
·
National Health
Care Policy:
The Supreme Court has ruled that Obama Care is constitutional. Unfortunately, the incremental health care cost estimates are hurting hiring - not helping it . The Secretary of HHS has until 2014 to finalize many of the regulations. When will business be able to estimate the impact of those regulations on their costs?
The Supreme Court has ruled that Obama Care is constitutional. Unfortunately, the incremental health care cost estimates are hurting hiring - not helping it . The Secretary of HHS has until 2014 to finalize many of the regulations. When will business be able to estimate the impact of those regulations on their costs?
·
Financial and
Banking Regulations:
When will the regulators finalize the Dodd-Frank regulations and what will they mean to our private sector? When will the banks start lending again to small businesses?
When will the regulators finalize the Dodd-Frank regulations and what will they mean to our private sector? When will the banks start lending again to small businesses?
·
Tax Policy:
Both parties agree our current tax policy is broken and we desperately need a new one. Will we get a new tax policy and if so, how will it affect the private sector and private sector jobs? What will happen with tax policy issues set to expire by the end of this year and known as “Taxmageddon”?
Both parties agree our current tax policy is broken and we desperately need a new one. Will we get a new tax policy and if so, how will it affect the private sector and private sector jobs? What will happen with tax policy issues set to expire by the end of this year and known as “Taxmageddon”?
·
Energy Policy:
We still don’t have an energy policy and still rely too heavily on unstable and unfriendly governments. Energy is the lifeblood of our economy. Wide-ranging energy price and supply fluctuations outside our control add excessive risk, uncertainty and costs to key energy related and energy dependent industries.
We still don’t have an energy policy and still rely too heavily on unstable and unfriendly governments. Energy is the lifeblood of our economy. Wide-ranging energy price and supply fluctuations outside our control add excessive risk, uncertainty and costs to key energy related and energy dependent industries.
It
is inexcusable for Congress and the Administration to allow any one of these
major economic areas to languish without a cohesive direction let alone all
four. Responsible leadership demands policies that provide our private sector
with the certainty and confidence they need to make reasonable business forecasts.
Regulation Inefficiency
Most
of the burdens Congress has imposed on our private sector jobs have been implemented
with little or no attempt to minimize the compliance costs or other negative
affects these regulations will have on U.S. based jobs.
Our
government should work with stakeholders in each industry to evaluate how to
optimize, replace or eliminate every job inhibiting regulation.
Regulation Inequality vs. foreign
competitors
Many
of our regulations place U.S.
based producers and therefore U.S.
based labor at a competitive disadvantage because our laws apply to U.S. based
employers but not to foreign competitors. For example, regulations are often
designed to protect workers or enhance work life quality. Others are intended
to protect, restore or enhance our environment. Unfortunately, the regulatory
bodies often fail to consider the affect their regulations will have on our
private sector jobs in a global economy. Ultimately, these regulations help
foreign enterprises compete in America
and around the world. We lose our best jobs to foreign competitors who maintain
poor workplace practices and poor environmental controls and thereby negate any
anticipated protections to people or planet the legislation was intended to
provide. Those nations with high work life and high environmental controls
should reconsider free trade arrangements with nations that maintain much lower
work life and environmental standards. It is illogical to impose environmental
controls on a U.S.
based producer but then import the same products from a foreign nation with
much less environmental controls.
Our
government should compare regulations that restrict a U.S. industry against the regulations of foreign
competition and utilize U.S.
trade policy and tariffs when necessary to level the playing field.
Americans should expect their
government to recognize and then unite against regulations that hurt U.S. based
jobs. Yet, instead, Americans must suffer through political gridlock as both
parties promote their ineffective economic policies as they hope beyond reason
for the brighter days promised after the next election. Regardless of which
party wins the presidency or the legislature in our equally divided nation,
unless both parties and most Americans can agree to fix our economic racehorse’s
broken leg, we will continue to wonder why our economy is not producing good
paying private sector jobs.
Americans can have a fair, efficient
and affordable safety net. American labor needs and deserves strong workplace
safety regulations. Every successive American generation deserves environmental
controls that bequeath to them a planet that is at least as safe and pristine
as what was left to us. We can have all these benefits but only if we stop trying to do so at
the expense of our job engine.
To learn how to restore our
private sector job engine and our economy while we simultaneously improve our
safety net, please read our position paper entitled Jobs and the Job Burden.
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