What will we do when the US runs out of money? A few months ago it seemed that the American public may actually grasp the size of the numerical problem, but the elections revealed that people in bulk are not capable of basic math. It only takes the most cursory of reviews to understand that increased taxes will not even dent the overspending, yet somehow that is not a problem. Unfortunately, it takes a slightly larger intellect to understand that more taxes do not always equate to more revenue. It takes still more for people to understand that top-loading the wealthy, dramatically affects the poor.
For myself, as a business owner, it is difficult for me to understand how people think our current situation ‘might’ be ok. It clearly is not, and more of the same will simply destroy our future, as well as that of our children. After this past election, I’m expecting future generations to experience tremendous difficulties in America as well as the world. It doesn’t take much historic review to see where liberal cradle-to-grave policies will take us. There is nothing wrong with wanting to give people everything, except that we require them to create in order to be able to give it. When you incentivize people to stay home and not work, that is exactly what you get.
See, the basic problem with government control of populations is that the people making the rules, don’t focus on the incentives they create. They never will and that is why less government is nearly always beneficial. If you make a rule that allows life-sustaining payment for extended unemployment, the people are incentivized to remain unemployed. Yes, some will seek jobs, but many times they chose unemployment as a reasonable and understandable alternative. In the past two years, I have seen dozens of examples of people who turned down employment in favor of government checks. When you allow “permanent disability” to mean anything from a broken back to emotional harm, a lot of people are suddenly incented to experience serious emotional harm! Duh.. Disability claims have absolutely skyrocketed in recent years and people who really qualify are being left off the list in favor of those who should not. It has been a common theme of this blog that groups of people incentivized to a certain path, are numerically biased to that path. It is no different than the fake Mannian math which preferentially choses data to create hockey sticks. If you bias the population, you skew the “average” result toward the bias.
But tax hikes are still the solution to insane overspending…
Just a little more from the “rich”.
The numbers don’t add up, and worse yet, they are not even close! So…… When a tiny little country like Greece, with less per-capita debt than the US, economically collapses and sends shudders through the global economy, what will the world do when the US does something far worse? I can’t even imagine what it will be like, and at the same time, after this election, I can’t even imagine how we will manage to avoid it.
While the liberals in America make the false argument that the rich don’t pay their “fare share”, whatever that is, it is business owners who are actually being targeted. Of course the truly rich politicians won’t tell you that. When real wages are dropping across the country and a minimum wage job draws a thousand applicants, does it really make any sense to tax business further? Liberals tax cigarettes because they say they want less of them. Obama taxes the rich because he believes that redistribution is the key to happiness. This government has not enacted one single pro-business reform in the last 4 years and we are reaping the benefits in spades. Guess what that means for the workers wages a company hires when high unemployment creates an oversupply of qualified candidates?
In the past decades, regulations and costs have been added to business operations. Business owners have continually pointed out the consequences and are regularly ignored or demonized in return. Higher electric cost, higher compliance cost, higher reporting requirements, hundred page tax filings, higher employment compliance costs, communication taxes, gas taxes, border crossing taxes, foreign business taxes……on and on. These are all added costs. These have continued to increase over the past 20 years, the result has been a herkey-jerkey decrease in real income for the middle class and poor in America. Just like every socialist country in the world, the population is generally poorer, and the separation between those with money and those without is generally larger. Of course the media blames corporate greed rather than the obvious governmental problem.
And on we go, down the same stupid path.
This time though, is very different than any other in history. America holds a huge fraction of the wealth of this planet. An enormous amount of business is controlled by this country, yet these American customers of the globe are about to go flat broke. No amount of tax increase on the wealthy can even dent the over 1 trillion per year deficit. In fact, it is my contention that a further tax increase will result in a reduced net revenue. Of course you have to adjust for inflation and you have to estimate GDP with and without the tax. A second method, which is far easier to understand, is to simply calculate what a manufacturing business would have do to react to higher taxes!
Unlike the fake government economics, business actually has to live within their budget or they go broke. In the current banking environment, often there is literally zero backup.
Below are a hundred individual numbers. 10 rows of 10 representing the income of a 10 million dollar fictitious S corporation manufacturing company.
1234567890
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In this company 40% of the total income goes to pay for product material cost.
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Twenty five percent of the income goes to pay employees including the company contribution to federal taxes.
67890
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Five percent goes to employee benefits.
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Five percent goes to material transport.
67890
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Five percent goes to various utilities, insurance, supplies and materials which support operations
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Two percent more is invested in commissions and sales activities leaving about 18 percent profit after every possible writeoff has been taken. This is the money reported on an S corporations owners personal tax return as income. One point eight million dollars.
34567890
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Currently the Federal government taxes this money at 35% and the state of Michigan taxes it at 5%. Then there are various property taxes and fees which must be paid so the effective rate is about 45% on income.
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So 10 percent is left to invest in growth, savings and profit for distribution. If the company doesn’t invest in growth, it will die.
The company above invests 5% into growth leaving 5 percent for the owners to distribute or save for a less productive time.
12345
Now in a 10 million dollar company, that 5 percent represents 500,000 dollars which is not an insubstantial amount of money. Except that that 10 million dollar company burns through an average of about 40,000 dollars for every weekday it exists, so 500K isn’t much of a cushion for operations. The federal government sees that 18 percent profit as personal income of course, and taxes it as though the owners were professional hockey players who actually took home 1.8 million dollars.
Today these owners are being asked to pay their “fare share” and are looking at a 5% tax hike along with a massive increase in health care costs, as well as increased capital gains tax which will massively limit investment opportunity.
So now assume that the federal portion of our hypothetical company’s taxes went from 35% to 40% as is currently proposed. Then we are looking at about a 50% rate of taxation. If you are an investor in the company who contributes less than 500 hours of work per year, your rate goes up an additional 3.8% from Obamacare, but we will assume you are an active partner and we will ignore the projected twenty to forty percent increase in health care costs.
After tax, you have then:
123456789
Or 9 percent to spare from your 10 million dollar company.
If you invest 5% as before, you only have:
1234
Four percent left from your nice 10 million dollar manufacturing company that just paid 900,000 in taxes. That is actually 20% less take-home income after tax from a 5% increase. What’s more is that your company just paid the federal government 900,000 dollars instead of a measley 800,000, while retaining 400,000 for the owners to either save or distribute. Over two times the money you can actually spend on growth or personal profit is paid in tax.
Something is going to have to give, and my guess is that it won’t be the liberals. After the economy gets worse, they will just blame something else and find a new way to attack business. The media has completely brainwashed the public into believing that this tax hike is about ‘increased revenue’ and paying your fair share, when the propaganda has literally zero basis in reality.
Now while this example does not represent my company, this is a very typical scenario for a manufacturing firm in the United States. Just to add a little more “real world” flavor to the discussion, one of our largest competitors just got bought out by a Taiwanese company. Of course Taiwan only taxes their corporations at 17 percent so it is no surprise to see American business being bought out. This Taiwanese company will manufacture at its own plant and charge the maximum amount of cost to the American branch to limit US tax. Even a mental midget can guess what Obama’s expansion of that tax differential means for American competitiveness with Taiwan in a global economy.
In my case the numbers have worked out such that I will pay 4 times more in taxes to the various United States Governments than my personal take home income in 2012. Not 40% tax but 400%.
The general public is completely ignorant of these things. Consider for a moment though what a business must do to react to this massive cost increase. In our case, price hikes are not possible as it is a global economy, so the cash will have to come from somewhere else in the company. Benefits, pay, number of employees, investment, etc… In the end, investment and growth will necessarily suffer as both our company and our customers have less purchasing power. It is absolutely clear that both the government and employees will actually receive less money from us than they would have in the long run.
If you are an employee in private industry, you will likely continue to watch the un-reported inflation of prices rise faster than your check. This isn’t corporate greed, as the idiots on MSNBC would tell you, it represents the cold fact that evil business owners will have less money to pay out. So when you are asking your boss for a raise in the coming years, don’t be surprised if his answer is – go get it from Uncle Sam.
the Air Vent 
Thanks, Jeff, for your efforts to communicate with the public. The problem is far worse than anyone imagined when Climategate emails surfaced in 2009.
It is the tyrannical Big Brother that George Orwell wrote about in the futuristic novel he wrote in 1948 and entitled “1984”
http://www.online-literature.com/orwell/1984/
I think Fred Hoyle contacted George Orwell shortly after publishing deceptive information about cores of stars in 1946 [1] and warned him of this impending danger to society.
– Oliver
[1] Fred Hoyle, “The chemical composition of the stars,” Monthly Notices Royal Astronomical Society 106, 255-59 (1946); “The synthesis of the elements from hydrogen,” ibid., 343-83 (1946)
Dr. Alberto Boretti and I sent a one-page comment to Nature to try to help reconnect modern science with reality: http://dl.dropbox.com/u/10640850/Yes_the_Sun_is_a_pulsar.pdf
Comments confirm: The destruction of Hiroshima on 6 Aug 1945 was an opportunity for mankind to realize that the RTG (Reality, Truth, God) experienced through experimentation and observation is remarkably like the RTG (Reality, Truth, God) that various religious leaders had experienced through meditation, contemplation and prayer over recorded history.
6 Aug 1945 was a turning point when mankind could either :
a.) Advance by acknowledging that science and spirituality are different paths to the same RTG (Reality, Truth, God), or
b.) Retreat to the Dark Ages with the ego-inflating, false claim that science is the way to control RTG (Reality, Truth, God)
The AGW debate is about returning science and society to Path (a): Sanity, contact with reality. http://omanuel.wordpress.com/about/#comment-1936
Yes. The “Millionaires Tax” will mostly fall on small business the main engine of job creation. Lovely.
A typical Illinois liberal:
http://rockrivertimes.com/2012/11/21/agitate-america-%E2%80%98big-money%E2%80%99-loses-election/
says, “tax the rich”.
Jeff – If I was your editor, I would tell you to rewrite. The numbers and calculations are not clear at all.
Is this a single company with 10 years of revenue and you are calculating the increased cost over the 10 period?
Sorry. It is a single company for a single year that sold 10million in goods.
I thought the whole point of S corps was that the money was only taxed at the shareholder’s level? If the company “invests in growth” (which I presume means spending money on stuff like new machines, advertising, etc.) how does that end up in the taxable income?
A 10 million dollar company works on accrual. You don’t get to expense tooling, machines, inventory etc.. until it is sold or depreciated. For instance, if you buy a building, you get to take that expense over 39 1/3 years. Of course that means that with the time value of money, it isn’t worth much after that time.
Jeff, people learn mostly by experience. So without experiencing the scenario you describe, it means nothing. People also aren’t very good at seeing chains of cause and effect or dependencies. So by the neat little trick of putting some maligned group (businesses, wealthy, Republicans, conservatives, etc.) between the foxes and the chickens, the foxes easily pass off the blame. Only when people experience the pain of having nothing, are unable to get government to provide them something, and finally have nobody to blame but the real culprits, will they learn. There’s little chance of educating with logic when a smack up side the head.is required.
I agree, Gary. It is like beating your own head against a brick wall trying to tell others about the danger ahead.
When their own head hits the wall, they will appreciate your message.
The good news: That will happen soon. That is also the bad news.
Gary,
You are right of course. I needed to vent a little because there are so many pseudo-intellectuals stomping around the internet pretending that the great liberal victory of the election will be something other than a short ride into a brick wall.
On and on about how republicans are out of touch with the electorate in a 2% election when we were inundated with 24 hour pro-Obama media and absolutely insane head-in-the-sand coverage of the disaster the last four years has been. We cannot keep spending like this. Faux-intellectual liberals see European countries that are the size of cities here which rely on completely tiny economic nuances to support huge government and little individual ownership. They cannot grasp that there are great differences in where the money comes from in a massively diversified country like the US.
Mass celebration of ones demise is not the brightest thing I’ve seen and it went on everywhere on the Internet. I wonder if the morons will continue celebrating after the wall is hit?
How long do you think before we hit that wall? I’ve been watching all this since ’08, but it’s hard to gauge exactly the time perspective on something this big, but you have a much better perspective than I.
Good question. If you can find out, let me know.
I always tell people that companies are tough things. A lot of bad stuff can happen and a company can still survive. I suppose a huge government isn’t much different. Ten years, fifteen, five, I don’t know.
The trouble is that social security was always a ponzi scheme that Social security revenue to rest of the government. It worked okay as long as the life expectancy was 60 and most families had 3 or 4 kids. Now days the life expectancy is 78 and our fertility rate has been below ZPG for over 40 years. As the baby boomers retire the social security deduction is going to blow past the income tax withholding. We aren’t going to keep the government solvent unless we have Swedish style tax rates.
(1) RETURN the US$ to the GOLD standard, devaluing by a factor of 10 (to the current price of gold) at the same time. Admit it, the $US is grossly over-valued (relative to a pound of hamburger anywhere on this planet).
(2) ABOLISH the Fed (they don’t know sh**t and never did).
(3) Renounce HUBRIS (aka global imperial hegemony, imperial illusions, christian fundamentalist fantasies, Zionist pandering, liberal posturing, general all round know-it-all-ism etc.) i.e. do it for Ron.
(4) Get back to BIZNESS.
I share your sentiment. Large segments of society now realize something is seriously wrong in the world. Today they need to be reassured that deception will not win.
That is my purpose in this:
a.) Letter to the UN’s Secretary-General on Earth’s climate: http://tinyurl.com/bv8n2tl
b.) Posting on the sixty-year history of fraudulent science: http://omanuel.wordpress.com/about/#comment-1807
“(3) Renounce HUBRIS (aka global imperial hegemony, imperial illusions, christian fundamentalist fantasies, Zionist pandering, liberal posturing, general all round know-it-all-ism etc.) i.e. do it for Ron.”
You might want to look at the Keenan (George) plan for preventing another world war. Churchill thought that if the plan would work for 50 years it was a good one. It is 65 years and counting. Time is up.
BTW any suggestions as to who you would like to fill the power vacuum? And how differences of opinion along those lines might be resolved?
http://www.nationalreview.com/articles/334549/kindly-note-impending-bankruptcy-mark-steyn#
Fun article.
Unfortunately, you also can’t enjoy America sized economy with European sized tax.
Dr. Short,
We renounced global hubris in the 30s. We thought the price of peace exorbitant. We got the 40s in return. We found out war costs even more.
It wasn’t global hubris that opposed Hitler. It was basic necessity.
It was global hubris that opposed the Vietnamese and Saddam Hussein (Ahole though the latter may have been).
It is global hubris which maintains the most massive and expensive conventional warfare instrument on the planet. Who or what are you all waiting for? Hordes of Snotdroids from the Planet Nostril?
Your logic is flawed.
Ah. But had we had hubris in the 30s we might have avoided necessity in the 40s.
Si vis pacem, para bellum
BTW War is not logical. It is the result of ~200 outlaw MC gangs looking for advantage. May I suggest B.H.L. Hart’s “Strategy” to get a better handle on theory and practice. Sun Tzu is also good if you want to go back a ways.
====
Your point of view is gaining the upper hand. I expect a WW in the next 10 years.
Some background: I used to have your opinion. But I came to the conclusion that I could not stop war unless I understood it as well as the generals. So I studied. And the deeper I got the more obvious it was that peace through superior fire power is a necessity. I also concluded that to make the threat of superior fire power stick You had to use it from time to time.
It totally sucks. But that is what I learned.
Of course I have the advantage of having spent 3 years in an outlaw MC gang. I know the mentality. Most people are not so fortunate.
Few read Hart or Sun Tzu for that matter. Nor understand the moral ascendancy wrt war that we have given up slowly over the past 40 years. That is one of the causes of expenses rocketing.
what does “wrt” mean?
wrt = with respect to
High income tax earners have the lowest taxes they’ve had over the past 40 years. You think that letting them go back to the rates of the clinton years will stagnate the economy? Yeah right… We’ve seen this experiment before.
Like most of the leftists who consider themselves intellectuals, you are not considering the external costs that businesses face. Our insurance agent told us to expect a 40% premium hike in 2014 and that is after another 20 percent this year. They hid a 3.8 percent tax on outside investors into S corporations in an economy where the banks are impossible to work with. Employee based lawsuits are up 120 percent, osha is adding huge numbers of enforcement officers while considering elimination of the compliance devision. They already have eliminated the ability to correct a problem and get a fine reversed. Do we care about the increased energy costs created by fake environmental regulations from the EPA? I suppose it isn’t your money and you don’t see it so what does it matter?
Maybe we will just drop insurance and save the cash that way but that is still less money passing through industry. More importantly it is less benefit to our employees. Still, I didn’t say these taxes will collapse the economy, but they sure won’t help it. It will be the spending which stops it.
The economy is far more global today than it was two decades ago and if you recall, the economy was slipping into a recession at the end of Clinton’s term. Of course those who make this argument about Clintonian utopia forget all these things and the internet boom as well. What has also occurred in our market (and many others), is that the Asian companies have grown to a point where they sell successfully directly into markets like Europe and the US. We are no longer competing with other US companies at the same handicap, we are competing with companies at very low governmental load levels.
I am certain that this business unfriendly administration will continue to wreak havoc for another four years. I can’t think of a single pro-business policy in that timeframe. We will probably experience another downgrade in the next couple of years. In the coming decade, the debt will skyrocket to the point where funding cannot be borrowed. SS and medicare will need to be slashed but the liberals will still be screaming for 70 and 90 percent tax – from the wealthy – to pay for 5% of the problem. Those same people never notice that the huge jobless rate, poor economic performance have reduced the net income.
You only get revenue from profit, and the left is cutting heavily into corporate profit from every angle. Nothing could be dumber at this point but it really appears to be far to late to correct.
.
Hi – my comment is not detailed, so take it as you like.
Because of my business I am in contact with lots of people. To a person, no matter what their income, they consider corporations to be evil, and anyone who benefits from such is evil as well (unless it’s them, of course)
The media has done a good job of demonizing all corporations except, of course, their own.
I just wonder how all these angry people are going to feel when everything dries up.
The other day I heard that kids are no longer taught gov’t/economics in high school. Apparently, these subjects are left for junior college (with no guarantee that any of the kids will sign up). No wonder today’s young voters are ignorant.
I have to admit that I was shocked to learn that many people with incomes greater than mine feel cheated. I can’t tell you how many people in the 25-50 age bracket think they are being cheated – and most of them are doing quite well (by my standards). They just want more and think the government should give them whatever they want. As far as they are concerned, the government is getting money from people richer than them (I kid you not about this).
Sadly, they don’t seem to realize that they are the ones who are going to lose in a very big way.
I quit arguing a long time ago; it’s pointless. As I said,these people that I mention are probably going to be the biggest losers under the plans of BO, and the most disappointed.
We’re going to have a major depression; it’s a given. I’m already preparing!
Take care, all!
.
I believe this is a quote from Alexander Fraser Tytler:
“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship. The average age of the world’s greatest civilizations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence:
From bondage to spiritual faith;
From spiritual faith to great courage;
From courage to liberty;
From liberty to abundance;
From abundance to complacency;
From complacency to apathy;
From apathy to dependence;
From dependence back into bondage.”
This is our future if we do not stop out of control federal spending and cut federal taxes. The majority has discovered the keys to the federal treasury, and that the treasury can (should) be funded by “someone else richer than they are”.
Thanks, Phillychuck. The world has been in bondage for sixty-seven years, since the United Nations was established on 24 Oct 1945, and is now awakening to spiritual faith.
The good news is this: The force field from the Sun’s pulsar core acts as a giant internet web, controlling a volume of space that exceeds the volume of ten billion, billion (10^19) Earths !
http://omanuel.wordpress.com/about/#comment-1883
Would-be world tyrants are in fact powerless.
You are of course correct. The global initiative for a one world government is working. The US was the last holdout, until the last election. The only counterbalance is a free, capitalist country and the only way to get this is secession. What the world and Obama are doing to individual freedom is much more egregious that King George inflicted on our founders, but it seems most people are intimidated to keep quiet.
NB: Wikipedia claims the second part of the above Tytler quote does not actually come from him, though it is difficult to be sure since nearly all of Tytler’s written work has been lost. Whatever the source, it seems profoundly appropriate today.
The recent election confirmed that the USA has embraced the “Entitlement Mentality” and the “Politics of Envy”. That is exactly what ruined the UK when we adopted the “Welfare State” over 50 years ago.
It breaks my heart to return to my homeland (the United Kingdom). Every time, there is more evidence of the misery and poverty that follows from a reluctance to work hard.
Clearly the USA is in danger of embracing decadence just as most of Europe already has. I will shed tears for the USA which once astounded the world by daring to believe in government serving the people rather than people serving the government.
“Liberals tax cigarettes because they say they want less of them.”
Actually, while that is the given of taxing them, liberals do not tax them because they want less. They tax them thinking it is a never ending stream of money. If they want less of something, they attempt to ban it (such as sodas, salt and sugar in NYC). That does not work either, but liberals never care about the results of their actions, only the intents of their actions.
We get the same over here in the UK. “Tax the Bankers” “All rich people to pay their fair share”.
Our darling Government taxed higher CO2 emitting cars greater than those emitting less, the populous responds by buying more of the former category, the Government’s tax take declines so now there’s talk of raising the tax on these “Lower polluting” cars.
ie The Government saw a good way to rake more money in, which worked for a time.
Since all good Communists / Socialists / Marxists / etc. believe in the inevitable collapse of capitalism, why would you ever expect them to act in such a way as to avoid that collapse? They work FOR it so as to assure their desired outcome of “The Workers Revolution”…
Once you realize it is a goal, all is much more clear…
You are exactly right, E.M.Smith.
My advice to others who have awakened to this unpleasant reality: The internet was built to facilitate totalitarian control of human civilization on planet Earth:
1. Stay in contact with reality yourself (meditation, contemplation, experimentation, etc.)
2. Limit social networking, reality TV, gladiator sports, video games, distractions from reality. The spider’s web is invisible to the fly.
3. Would-be world tyrants have not yet realized that their Creator built a much larger internet that controls a region of space extending ~120 AU out from the Sun’s pulsar core, engulfing a volume of space larger than ten billion, billion Earths, >10,000,000,000,000,000,000 or (10^19) Earths.
http://judithcurry.com/2012/12/01/open-thread-weekend-4/#comment-273690
Be of good cheer,
Oliver K. Manuel
If you want to know where you are heading if you adopt the European model here is some information.
I am a retired Englishman living in France.
I can live quite comfortably on a net income of about 2500 +- 300 dollars per month depending on the euro/sterling exchange rate. I can afford a morgage and a car loan.
My girlfriend works at a restaurant. The monthly cost for her employer is also about 2500 dollars but after deduction of social charges she is left with 950 dollars.
It is quite impossible to lead an independant life with this pay.
Many people make the decision to rely instead on the pittance given by the state and live with their parents and who can blame them?
Clearly y’all don’t understand Obama economics. The US cannot run out of money and won’t be barred from borrowing it from China. We don’t need foreign lenders any more. We just create the money electronically and then spend it. This is not inflationary if the money is spent on programs approved by Obama.
Increased taxes have nothing to do with revenue. See above, we don’t need revenue. Increased taxes are to reduce the wealth of those with lots of money so they won’t embarrass those on welfare by driving better cars, living in bigger houses, etc.
Here is the logic of Government meddling in the private sector:
We design and build test and assembly lines for the automotive industry including Cummins and other large diesel applications.
We lived through the GM/Chrysler bailout period unscathed as our business leaders saw the train wreck coming and refused to do business with them until after the bankruptcies with guarantee of payment through each process from design to shipment.
More than three years later, we are still seeing bailout money streaming from the government to GM. A ~$4 Million machine is in the process of being finished and shipped. However I was told after it is delivered it will be scrapped and this was known from the start of the program! The government is paying GM to pay us to build an obsolete machine. In a normal world, the work would have been stopped months ago with payment for work completed and ended there, but this is not a normal world.
I see this as an example of the broken window fallacy. If government infusion of cash into the economy were the answer, there should be 0% unemployment (save those who wouldn’t take a job regardless). Yet, some really do believe redistributing wealth in this manner actually does stimulate economic growth.
Of course that can’t hold a candle to the ghost cities in China. The whole damn thing is going crash at some point, but the sheeple think Obama is the Candy Man and will by his sheer presence supply their life’s needs; printing money has no deleterious affect in their minds, only good. I fear for the future of my children.
Just for the heck of it, as a counter note, the wealthiest companies are not in the business of producing “products” in any significant physical sense. Oracle for instance might argue that it has material costs, but much of that cost is only distinguished from employee pay with difficulty, if at all. Paper and media are about the extent of it, and the internet helps to reduce paper costs by placing manuals and other information on line. Software after all, is written, complied and tested. It consists of ideas and knowledge lodged in someone’s head, that is assembled to achieve a task. The real “material” costs are very limited in comparison to drilling an oil well or building a house.
Service companies in general are profoundly successful because they have no product that is not in truth simply the sale of someone’s time. In a small company, say a lone gunman consultancy, you sell your own time, get a little bigger and you still do, but probably charge for an employee or three. The fact remains that you are selling time that would have passed for you anyway.
Banks of course operate on the fractional reserve system and as such, have no costs at all, since they write checks based upon the “projected” incomes of their borrowers’ future incomes. Remember guys that 1) the Fed is not the government in any fashion, 2) the government only prints exchangeable media (cash and coin). The Fed, not the government, decides how much money banks can print as checks.
Small and even mid-sized businesses that have real physical products are indeed behind the eight ball cost wise, but larger companies – say Apple – with real (material) product have “off-shored” their production so they pay profoundly less for a worker’s time than here in the USofA and very likely less for materials and likely less for regulatory efforts as well. Try buying “cost effective” wood working machinery that has been made out side the US. It is hard to find.
Governments are problems because they are not businesses to begin with. They exist – read anthropology if you doubt this – to even out the inequities of existence to a degree among their subscribers. Really small social groups such as simple hunter-gatherers simply share. Large groups form where the biological environment can support them. They consequently have larger group sizes and perforce have to be more organized. Various tactics have been experimented with that ideally are “fair” to the fortunate, while maintaining the less so. In California for instance among the Patwin, this took the form of “professional families” that held monopoly control over certain activities, such as manufacture of specific kinds of baskets. “Regulations” were also present concerning the size of animal that you could hunt and bring home without submitting it to the boss guy to divvied up among your fellow villagers. A lone hunter could take any animal, but if he didn’t want to share, had to limit the take to smaller animals like jackrabbits. Antelope, deer, elk and such had to parted out and shared pretty guaranteeing that the hunter of he came form one of the “poorer” families would get – ah, shafted shall we say. This is how the 1% actually came to be.
Many of our own government spending “problems” would simply disappear if a different accounting model were employed. Various types of properties are treated as “costs” for government in the US, but would be listed as assets on ledgers of governments in other countries. Since both models work equally well (or equally badly), and appear to be subject to the same ups and downs, possibly, like in climatology, the real failure lies in the economics theories being argued. Possibly we know about as much about how an economy works as we do about how climate works.
President Obama is not only economically illiterate, he is also politically inept- see
http://online.wsj.com/article/SB10001424127887323501404578161483449849070.html?mod=WSJ_Opinion_LEADTop
“The inability of this Congress and this president to compromise on anything, now or at any time in the past four years, is itself a problem worthy of some thought.
Here’s one thought: The main reason there isn’t, and may never be, a solution on the fiscal cliff is that Barack Obama doesn’t know how to do a political compromise. Where in his career did Barack Obama ever learn the art of the political deal? Nowhere.
Recall the famous Blair House summit he called early in 2010 amid the legislating over ObamaCare. Lamar Alexander, Tom Coburn, Paul Ryan and other Republicans talked about wonkish compromises. All of it, every single idea, blew right by the president. Naturally the legislation got zero GOP votes. A kid running for high-school president could have gotten more opposition votes than that. ”
The years 2009-2016 are becoming a rerun of t 1930 to 1945 under Roosevelt.
it is cheap and simple minded (and inaccurate) to call either Bush or Obama dumb, illiterate, or inept just because you don’t like their policies and politics. their policies might indeed be bad or sub optimal, but don’t waste space by calling them dumb.
Most people’s position on the global warming debate is dependent upon what group they belong to. These people have all kinds of rationalizations and justifications for their beliefs, but the truth is simpler than that.
So, what’s the truth?
Stated in the first sentence.
What are my beliefs?
As to your beliefs I can only read what you write. But I do have some questions. Why focus on small government when you could focus on sound and effective government? (I can imagine some pretty horrible small governments.) A smaller government would be a natural consequence of effectiveness, not a cause.
You blame high taxes for off-shoring when the removal of tariffs is to blame. So now we must cut programs, cut taxes, lower wages, lower prices and bust labor unions to compete with third world countries. But cutting tariffs is what made it possible for them to compete in the first place. Why not deal with the issue directly? Why focus on indirect solutions (like tax cuts) that will only slow the hemorrhaging at best?
(I’m not necessarily against cutting programs and taxes, just not in some misguided attempt to compete with third world labor costs.)
2 fo 2 on cryptically avoiding answering questions
I will rephrase #1 slightly: The truth is most people’s position on the global warming debate is dependent upon what group they belong to, regardless of whatever rationalizations or justifications they tell themselves.
As to #2, it means “I don’t know, I can only respond to what you write. I wouldn’t presume to know your beliefs.”
James
#1,
We all know that tribalism influences our opinions. I’m conservative and a skeptic. I also realize my opinions are jaded by my core beliefs and associations…. Group think….. I try to compensate for that. I think the question was what is your truth.
#2
Your comments seem to assume something about Jeff’s opinions on GW based on his obvious conservative political views. Do you know them? That seemed to be the question.
I think you came out attacking and when simple questions jeopardized your points you redirected the discussion….. Strawmen. A common and infuriating tactic. Reading your new comments I think there may be hope for you. You may actually want to have a discussion.
Well you made the statement about my beliefs so I’m wondering what they are?
“Why focus on small government when you could focus on sound and effective government? ” — What is the difference? Our government is so massively large and oppressive to business, I don’t really see how slashing any part of it would be a bad deal. Sure I have my preferences, starting with the UN and DOE but I’d take anything at this point.
“You blame high taxes for off-shoring when the removal of tariffs is to blame.”
This is just not true. The economy would still have become global even without removal of tariffs and the differential between tax systems is enormous. We pay a 20% VAT tax to China for importing goods yet we still can’t compete.
There is so much misunderstanding of the economy in this country. What makes you think we have any choice at all whether we compete with third world labor costs? A tariff on top of massive taxation makes nothing but more cost. While it may shift the salary curve back some (it is not a given because of supply-demand), in the end the loss of low cost goods means that you would be able to buy less stuff, not more. Then the still over-bloated government money grinder would take that tariff $$ and throw it away for you anyway.
If you want more salary, then you better make evil business owners like me compete for your services. This would mean our government would have to stop the war against business. This is obviously not likely in the near future, when there are so many confused people in the voting public. Right now, the best people are really cheap and this election just reduced employment and salaries (in real dollars) further.
—–
I actually woke up about two ours ago thinking about what I’m going to tell our employees at year end. We currently pay about $6.50/hour/employee in income tax. With obamacare starting to kick in we will see about 1.50 in additional tax and another $1 in health care costs related to increased costs by Obamacare (next year will be much worse). We pay 100% of the health care costs. In addition to that, our “fair share” tax looks to be another $1/hr. None of this lands in the pockets of our workers and all of it comes from somewhere. So the democrats think they want us to pass $10/hr/employee tax to the federal government through various paths instead of $6.5 to pay our fair share.
I think I’m going to spend a few minutes with them explaining trickle-up economics. I wonder if the liberals get it when it is explained the other way around.
There is a big difference between small vs. effective government. Small government does not preclude corruption and incompetence. Smaller government does not automatically translate to a better business environment. Size is not that important. A bloated government indicates a problem, but it is only an indicator. Can you imagine a doctor recommending liposuction for a case of severe abdominal bloating? Treat the underlying issue and the bloating will go away as a side effect.
Tariffs provide a disincentive for mass off-shoring of jobs and they encourage local production. While I agree globalization is a reality, I disagree that we should therefore open the floodgates.
“Tariffs provide a disincentive for mass off-shoring of jobs and they encourage local production. ”
I don’t agree. They do provide additional financial load which may make it “seem” like it would be better for the American worker, but what you will really get is more global companies distributing through other territories reducing the jobs and tax base here. That would be combined with necessarily higher product costs in the US. Therefore you would lower real wages due to reduced buying power combined with additional labor supply and simultaneously increase product cost.
Thanks for your thoughts on tariffs. Any recommendations for further reading on the subject?
I don’t know what to recommend for reading. I took multiple economic classes in college. There are plenty of books but really getting a hold of economic concepts is the point. We are in a serious mess that has been 100% created by ignorance of business. Until we do things which help business grow, it won’t end. Those in power have already started to call it the new normal, so it is clear to me that some politicians don’t intend for it to ever end.
Look, we start unskilled labor at 8.50/hr, we pay business taxes equivalent to 8.50/hr/person and provide free health, dental, life and disability at about $5/hr/employee. In 2013, we are looking at cost increases in insurance, taxes and compliance due to Obama and Obamacare of approximately 3.50/hr/employee. So outside of the 8.50 for the employee starting wage and the previous $5 for benefits per hour, we will now pay an additional $12/hr/person for government programs. These new “taxes/new costs” were ratified by the public in this presidential election during the worst economy of my lifetime. The employee gets 8.50, the government and government health program gets $17. In 30 years, a portion of that tax would have been a nice house for the employee. It would also have been a customer for our business. Instead the money is confiscated and stuffed into the over-filled pocket of a 200K/year government employee or redistributed to a by-choice non-productive yet healthy individual.
Let’s say you own the business and you understand that your cash is limited. What would your business do to pay these new taxes?
After you make that decision, are the politicians “really” taxing the rich when people are so hungry you receive literally hundreds of applicants for this job?
Understanding that jobs are a competitive market, what will these new costs do for national employment and overall employee wages long term?
Since you have business which exists to beat the efficiencies of other companies, what direction will these new tax increases pressure you to go?
Higher wages?
Hold steady with wages?
Better health coverage?
Lessen coverage?
Require contributions instead of paying 100%?
Slower growth?
etc..
Just tighten our belt.? — Keep in mind that the business is already competing globally and exists to “tighten its belt”. If you can just “tighten” then you are in a very unique position.
The US already has too high of a business tax, and too much government by 10x, yet the electorate has deemed that we will increase it further. If we reduce the income rate dramatically and included small import tarrifs, that would definitely be better than the current extreme taxation, but IMO imports would be the worst spot to tax.
So if you want higher wages, the answer is to make the businesses succeed and force them to compete for everyone’s employment. It is the only real solution.
JamesNV said
“Tariffs provide a disincentive for mass off-shoring of jobs and they encourage local production. While I agree globalization is a reality, I disagree that we should therefore open the floodgates.”
Tariffs DO encourage local production, but in doing so, make the country as a whole poorer. Apply the same logic to your own household. Money you spend on shoes and bread makes you relatively poorer and the shoestore and grocery store relatively richer. So why not raise your own cattle and make your own shoes, grow your own wheat and make your own bread, saving all that money? In reality, self sufficient people are generally POORER than specialists who buy most of their commodities. The same logic as works for countries works for individuals.
See Jevons’ “The Theory of Political Economy”.
http://www.econlib.org/library/YPDBooks/Jevons/jvnPE.html
More on online politics. You can get Adam Smith’s “Wealth of Nations” free at “Gutenberg Press” . Just do a websearch listing gutenberg press and adam smith.
Arguing against the mercantilists, Adam Smith was one of the first to point out that the wealth of nations is not measured in gold, but in all the goods and services that
a nation produces. If a country or region does not produce a lot of wheat, cars, beer, or whatever, raising the wages of workers by government fiat is not going to help make them wealthier.
The next; big influence was David Ricardo. His big insight was that a country richer in everything and a country poorer in everything can both gain wealth by trading. The poor country trades the commodity they produce “relatively” more of in exchange for the commodity that the wealthier country produces “relatively” less of.
http://www.gutenberg.org/ebooks/33310
And of course I previously listed Jevons,, a late 19th century Englishman who was one of the earlier economists to point out changes in MARGINAL utility.
I personally advocate for smaller government simply because my definition of government is as follows:
Government is the sole entity with the self-given “right” to initiate violence against the non-violent”.
We all know that initiation of violence against the non-violent is immoral; therefore advocating for less government is inherently a moral position to hold. Advocating for “sound and effective” government is meaningless, because it is the government itself which will define “sound and effective” and the government’s definition of these terms will not even vaguely resemble _your_ definition, whoever you may be. Government generally tends to do only one thing – grow as big and powerful as it can until it collapses under its own weight. Efficient government is an oxymoron and it can not be a reality under the current theories of government.
Under current theories of government; it is required that you believe that someone else has a better idea of how to run your life than you yourself have. We made a somewhat good attempt in the US here for a brief while at forming a government that recognized that the individual was of paramount importance, and that each individual was endowed with the same unalienable rights, and even the government could not infringe these rights. Unfortunately, it didn’t take long for even this idealistic form of government to succumb and turn into just another tyranny with the some of the trappings remaining from the original design, but not much else unfortunately. The mechanism that was supposed to ensure that the government could not, and would not infringe the rights of the individual was faulty, and failed more and more rapidly over time.
You are throwing out the baby with the bathwater.
Have you never heard of Charles Darwin’s “The Origin of Species”? Living things compete to produce a larger share of the following generation. MOST of that competition is WITHIN a species. You’re competing with every other human to have a larger proportion of your genes in the next generation.
It stands to reason that government officials will naturally use their power and influence to help their friends and relatives at the expense of everyone else when the opportunity arises. By limiting government, you’re limiting the ability of government officials to “cheat” you in an evolutionary sense.
OT, but in keeping with the theme of the cost of excessive government intrusion on business. This is an example of the additional costs imposed on a business that stems from Sarbanes-Oxley. Ironically, this is related to the Obama bailout of General Motors. I was looking into this as the judge who approved the the bankruptcy plan may toss the whole thing out, due to an agreement regarding GM Canada that was not divulged to him at signing. He is not happy.
This filing is from the trustee of the old GM (GUC) asking permission from the judge to raise over $11M, in order to cover unanticipated 2013 costs to meet SOX and SEC reporting requirements due to an unexpected ruling from the IRS. (See Section II). $11M is lot of money just to meet some reporting compliance requirements. Just think about the cost of this document alone. My bet is that this filing document alone cost over $3000 to produce (lawyers are not cheap).
http://www.sec.gov/Archives/edgar/data/40730/000119312512478771/d442803dex991.htm
“I have to admit that I was shocked to learn that many people with incomes greater than mine feel cheated. I can’t tell you how many people in the 25-50 age bracket think they are being cheated – and most of them are doing quite well (by my standards).”
I have noticed that for many decades. I never got it. My standard is this – I want to provide 10X the benefit my salary costs the company. If it goes way above that – lets talk. If it is in the normal range 1.2X to 2X – you could have had an employee do the work – why did you bring me on? Unless you had a time crunch.
I keep hearing, “I made the company a $million, and those jokers lived high off the hog on that and all I got was a measly $75K a year.” I then ask: “Why don’t you go out on your own?” And the inevitable reply: “Too much effort. Too much risk.”