The clarity of what we were able to learn watching the combination of bad leadership coupled with corrupt governance systems and misguided economic philosophy makes for easy script. We can all see the problem. But can we fix it? Can we see the solution? Well, we’re not quite ready to reach that far. So today let’s do a bit of analysis based on our observations in the previous essay.
1. The system of representative democracy no longer works when economic growth falters. This is the big one. When things are good, jobs are plentiful and wages are rising, the heavy burden of unneeded public employment; bureaucracies and bureaucrats ruling and burdening everything and special interests siphoning (or sucking to use the parasitical metaphor) a large but unproductive piece for themselves it pretty well masked. Because most are happy that they doing well or, at least, okay.
2. But then economic growth falters. And what happens? Well, we have witnessed exactly what happens. The political leadership cannot bring themselves to lessen the burdens because they are afraid of the outcome(s) which could include losing their own jobs. So, they revert to bad policy using inapplicable justifications. In effect, they hope that things will get better but they do not take the needed steps to assure that they will get better.
3. In the meantime, in our own situation, the dominant private sector (think real source of economic growth) bears the entire burden of the economic decline plus all the costs and requirements of the hefty public sector burden. The private sector employees are unemployed, not the public sector. Even though unemployed they are taxed heavily by the numerous political entities in the US.
4. What normally happens in this situation? Correction occurs. What is correction? A natural occurring event that eliminates excess or other forms of distortion. Why is correction not occurring today? Because nature is not at work; man is. And man can intervene, at least for a while, to prevent needed corrections. Some of these preventions are called stimulus spending; bailouts; extended unemployment payments; public works projects and federal payments to states.
5. When will these needed corrections occur? That is, of course, the $64 question. Over three years have now passed and the corrections have been postponed through rapid debt acceleration and sustained unneeded burdens being placed on the private sector. Why would anyone build a manufacturing plant in this country? You can go to several competing Chinese manufacturers with your product specifications; place your order and take delivery in 6 – 8 weeks. Or send your software specifications to India and receive beta test ready code in 4 weeks. At a lower cost; no unions; no health care concerns; no litigation threats from protected groups of employees; no lawyers; no lengthy rental or bank loan contracts and no requirement to sign personally for anything.
6. What else don’t you have to worry about? Local and state licenses and codes and permits and fees. The local fire inspector or the health department. State unemployment taxes and filings; police unions asking for contributions; workmen’s compensation and property taxes. Property, liability and theft insurance costs. Dealing with OSHA, the EPA and minimum wage laws. Overtime payments and record keeping. Withholding taxes and costly payments for social security and Medicare. These latter two add 7.65% to every US employer’s payroll costs. Oh, you don’t even have to calculate payroll. All you do is pay for the finished product. And some can even borrow at the lowest interest costs in memory. Just think. Because of the Fed, American manufacturers can finance their entire overseas deal at record low interest costs, avoid all the headaches of American business matters and make a good profit.
7. Why do you think most everything we buy these days is not made here? If you can’t answer this question just reread items 5 and 6 above.
8. Have you ever heard Pelosi, Bernanke, Obama, Reid or Geithner even once mention any of the burdens listed above? Have you ever once heard them suggest indirectly that they know the burdens have driven the good jobs overseas? Have you ever once heard them acknowledge that these burdens need to be reduced even a bit, much less significantly, or entirely? The answer is an overwhelming “NO.” They don’t mention it because they do not live in the world of producers. They live in the world of consumers. And consumers don’t create jobs; producers do. They think by creating false demand through government stimulus efforts, jobs will be created here, in the US. They won’t. The jobs will continue to go overseas. Their stimulus payments actually increase jobs overseas. Just think of that. Why do you think the Chinese are willing to buy US bonds? Because it creates employment in China.
9. One last item: S and P and ratings. Obama can blame the tea party; the republicans; the congress; whatever. It still happened on his watch and he will bear responsibility. But this issue, unlike the normal cable news cycle, is not going to go away. There are hundreds of related bond issuers who are going to get their ratings lowered. You will see the fiscally promiscuous states downgraded and a variety of other governmental subdivisions. That ongoing process does not bode well for any current politician and it sure doesn’t bode well for public borrowings.
10. Our analysis is almost complete for today. Lets recap. The private sector is too burdened. It bears the burden of both the economic decline as well as the burden of supporting the public sector and the burden of all the rules, taxes, fees, impositions and requirements placed on it by government. The government adds to this burden with stimulus spending that further exacerbates the problem. The government cannot or will not reduce or eliminate itself. The economy falters even more under the weight of this entire cumulative burden.
11. Will a politician step forward and say no to government burden? Unlikely. Will a politician step forward and say I will fix it and you will hate me for it but I will do it anyway? Unlikely. Will a politician step forward and say I don’t care if you reelect me or my party to anything? I will get this job done. Unlikely. What is likely? Decline, malaise and more government. Dollar devaluation. The message: take your job creation overseas; don’t save money; hunker down for a long malaise with increasing levels of panicked behavior and decrees from know-everything government officials.
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