Economics, Business Analysis, and Marketing

While the Federal Government tries to stimulate the economy by increasing government jobs, they are killing the economy. Let’s look at the effect of a government job. Jobs in the private sector are necessary not only for the economy, but to fund any federal or public sector jobs. It takes 7 to 10 private sector jobs to fund 1 federal job. Remember this when you hear about funds to save jobs.

Every federal job is paid for by what? The taxes from the private sector. That is, jobs in the private sector must be taxed to pay for any federal job. Well, how many private sector jobs does it take to pay for one federal job. This is far worse than it seems. If the pay for both jobs were the same and taxes were 20% of income, it would take 5 private sector jobs to pay for 1 federal job. However, federal jobs pay a lot more and additionally have a much bigger benefit package.

If the average Federal employee is making over $70,000 plus benefits, while the average private sector job pays about $40,000, that ratio of 5 private sector jobs to pay for 1 federal are much too low. Additionally, the benefit package for the federal employee exceeds the private employee by over $30,000. It may take as many as 7 to 10 private sector jobs to pay for each federal employee.

We should be balancing private enterprise and jobs with any government expansion or jobs. That is, the best outcome would be, you want to expand something, well you need to raise the money. How do you raise the money? You expand the private sector. Anything less than this is increasing a burden on the private sector. So, the stimulus or job bills in congress are killing the balance in the economy, unless you want a government controlled economy.

So, what do you think is happening to the economy right now as we expand the federal government! They are killing the future. Weekly jobs or unemployment numbers may sometimes seem positive, but if we look deeper and there is as large public sector job component, the future is in trouble.

Don’t make any mistake, there will be temporary positive numbers in growth and employment caused by  government expenditures. The media will love much of this as potentially good economic news. Unfortunately, it will be like treating the symptoms not causes of the illness we are currently suffering. Increases in taxes to pay for all this, will not be any incentive for business to expand or new business to take the risk of being a startup. While taxes increase, business must reduce their expenses. That will reduce employment either through direct layoffs or increasing efficiency by replacing manpower.

Cries to save the teachers, firemen and police are really just camouflage to increase taxes. I’ll discuss education and teachers some other time. The public sector already has the police and firemen employed. It is their other public programs that they want to fund.

While everyone is condemning BP and certainly the oil spill is on their backs, contributory negligence by the Obama Administration may be a factor in the assessment of damages.

According to several sources, as many as 13 countries or organizations offered assistance. All of it was refused. Dutch skimmers and Belgian skimmers reportedly have technology that would have greatly reduced the current future damages. The Dutch skimmers were offered 3 days after the spill. (see ..”why did Obama refuse to go Dutch”)

The Jones Act was given as why the Obama Administration did not accept support. However, “On the other hand, waivers of the Jones may be granted by the Administration in cases of national emergencies or in cases of strategic interest.”, according to Dian L. Chu, Economic Forecasts & Opinions.

If the damage caused by the BP oil spill would be greatly reduced had assistance been delivered as offered, is the US through the Obama administration partly responsible for the liability?

How does the bill get split or shared? Does it get split? BP left itself to be the whipping boy and really hasn’t commented on the administration’s refusal of help from the Dutch, Belgian and others. Is the administration responsible for some percentage of the damage caused by the spill, contributory negligence. Is there a reason to, in part, hold the Obama Administration accountable for damages.

Are we creating a dependency society? Are guaranteed minimum supported government incomes approaching?

The problem is not as easy to handle as just adding to or extending a program. Unemployment benefits both help people through tough times while they look for new employment and act as a substantial disincentive to search for work and get a new job. It also prevents people from doing anything that can be considered self employment. There is already a high risk in most areas of self employment, but to take the risk of losing unemployment benefits on top of the risk of running your own business will, very understandably, cause people to resist creating a business.

Current proposed extensions can be dangerous. How long unemployment benefits should be given and how much is a delicate issue. If people become dependent on unemployment benefits at some point the very fact of being unemployed will affect their future prospects, their dependency on government and their self respect. Clearly, unemployment benefits provide no incentive to work, even part time, as there is no sliding scale to allow people to supplement benefits with income while transitioning.

What is the correct balance between how much and how long someone should get benefits to provide resources while searching, which is longer during a recession, but still maintain a motivation to get a job. The decisions are much harder than political arguments. one item for certain, as we are extending them we are Making it a Right to have a minimum government supported income. The arguments are the same as the health care arguments. Current motivation and stimulus is questioned in http://budurl.com/jkw9.

The largest number of people who get benefits do not get a job until they are near the end of benefits or benefits have already run out. This is not the same for all people. People who are the main providers of family income in families with assets and obligations, usually between 35 and 5o years of age, will generally do as much as possible because of their family. Also, as the income increases the damage to a person’s resume just for being unemployed increases their desire to get a quick job that is not perceived as a step down in their career will make them search sooner. Additionally, higher income people are getting a smaller percent of previous income and therefore have higher risk of not paying for their current obligations, mortgage, taxes. As personal income rises, benefits are less likely to cover as much of household costs. Therefore higher income individuals will tend to look for work to cover costs.

So, is it good to extend employment benefits or are we actually harming people’s drive and may even be affecting their future employment outlook at jobs comparable to what they had previously. Nobody wants to see people suffer or families lose their homes while ‘searching’ for a new job. At some point, however, we are actually ruining incentives to search and maybe the careers that people have built over their life. A long recession without a job can destroy a career with a large gap in employment. Often the economic ups and downs are short (click link to prior post discussion on stimulus and recessions ) and certainly not the responsibility of an individual.

Doesn’t the government have a responsibility to lessen the length of recessions and fix whatever is wrong? I would think so. Some of the big questions are how it should do that. It does not mean it should run the private sector as that removes incentives to make profits, but should see that it has the means, incentives and future outlook to motivate the private sector. By golly, motivate it is the definition of stimulus, not control or regulate.

One thing we must ask ourselves is, if a recession is longer than average, why did it take so long to recover. If caused by outside forces, such as OPEC restrictions or the Iranian oil shock, we can understand, otherwise we must ask if government economic policies are correct.

Did the stimulus create and save or lose and postpone jobs?

That’s right, while everyone is asking whether the stimulus had a positive effect or not, I’m arguing that we need to look at potential harm caused by the ‘stimulus’. To say that we have some positive GDP or there are some people whose job was paid for by the stimulus is only anecdotal. If you heard about the person who survived some cancer by drinking green tea, would you do that therapy instead of the therapy the oncologists agreed was best? That is anecdotal.

Three possibilities exist for the effect of the stimulus on the economy. One, the stimulus had no effect on jobs; two, the stimulus increased jobs, that ‘created or saved’ concept.  Lastly, if there never was a stimulus there would be more jobs today.  That is, the stimulus actually caused job losses.   Note this does not even consider what the outcome would be if some of the money spent was used differently.

Since the idea of  ‘saved or created’  has been widely discussed, I’m not going to add further to that discussion.   If the ‘saved or created’ concept can be presented, because of the complexity, we must at least examine the opposite, losses of jobs caused by ‘the stimulus’.  In order to understand the feasibility of this third choice, we need to recognize some of  the other factors affecting the economy and jobs. An economic stimulus can only be successful if it instills sufficient confidence in consumers to feel sufficiently secure to purchase goods and for businesses to feel sufficiently confident in the economy to build inventories and hire employees.

So, if there was no stimulus package, what normally occurs in the economy? How will the people that create jobs react?

(I have to confess why I haven’t been blogging since I said analyzed the effects I expected from the stimulus package. I didn’t want to say things that would be only considered political.  That is hard to do.   Anyway, back to the story and do remember that everything I’m saying is consistent and reinforces my predictions last year,  in February of 2009.)

Recessions since WWII have never exceeded 16 months (http://www.nber.org/cycles.html). There were eleven. As said in my Feb. 2009 blog, the stimulus package had nothing to motivate confidence to neither consumer nor business. While I like being correct, it would be much better for the economy if I wasn’t.  Since the stimulus was enacted, it is now fair to say that consumers and businesses did exactly the opposite of gaining confidence.  Consumers contracted their purchases and reduced their expenses.   In  the cases of businesses, they layed off more employees and looked to increase their employees productivity or hours in order to avoid hiring. Consumers lifted their savings rates from 1% to 5%, indicating a fear of their near term future.

Now, what would the past year look like if we had no stimulus package? Prices do go down as we saw.  Wages would recede and unemployment would increase.   Entrepreneurs  would see and seek opportunities. This is the natural occurrence that would occur.   Personally, I am in touch with and frequently am asked by many entrepreneurs looking at areas of the economy for investment. They have lots of money available, but have not invested in any area until they see something that starts to make sense.  Even in the case of the spiraling down of real estate; prices in places that have been heavily sought, investors are standing on the side line. In other businesses, investors are extremely cautious.  This caution is  increased not only by lack of confidence, but further inhibited by the increased risk and uncertainty caused by unknown government interference, possible new taxes or regulation. All contained in the stimulus package.

At the very least, we can surmise that the stimulus package may have postponed the recovery and hiring. Outside of government hiring and frequently only for temporary jobs, there is little job growth.

So, while the administration is trying to sell the concept of  ‘creating or saving’ jobs, it is very fair to ask the question, ‘how many jobs were actually lost or postponed as a result of the stimulus package’?

Too Funny! You can’t make these things up.

Someone put this up. I leave out the name, xxx, to protect the individual.

–xxx “is a THINKING PERSON and therefore does not Watch FOX News nor listens to RUSH”

I put up a comment/reply, which was deleted. He apparently didn’t like it.

I put up another. He deleted that one, too and added this:

–“BTW guys, I was stating a factoid, not inviting public debate- If you choose to engage me in a debate- I choose to ignore it- as well as any public flogging for the expression of my opinion in my forum.- The same thing that FOX does! I have better use of my intellegence than to make others wrong, or to attempt to change anyone’s thinking to match mine.”

–Definition Factoid – A piece of unverified or inaccurate information that is presented in the press as factual, often as part of a publicity effort, and that is then accepted as true because of frequent repetition.

–He must think that factoid is a ‘small fact’.

Then, he misspells intelligence, while referring to his own.

Logic dictates that either he knows:

a)     He is not a thinking person, or

b)     He does watch Fox News or listens to Rush.

Given his last reply, it appears he does not Watch Fox, which leaves us either:

(a) is true,

or he listens to Rush.

I’ll let you decide. Please, just don’t get it wrong. Or just send him a prescription of Hannity and Glenn Beck. Actually, if Glenn Beck sees this, he’ll explode in laughter or cry. How would you rate the intelligence that this guy is so proud?

A post by a friend gave an Iacocca quote:

“We’ve got to pause and ask ourselves: How much clean air do we need?” –Lee Iacocca

Out of context, it looks mean. Actually, it is a great economic problem. How much do we want? What are we willing to trade, exchange or give up for it? And, most importantly, what is clean? Is it the standard of a ‘clean room’? Great topic!

While we all want clean water, clean air, and many other ‘pure’ products, what are we really asking to get? Most people don’t really know. The study of Economics is usually defined in some way as the study of the allocation of scarce resources. In this way, everything has some limited supply and therefore has an allocation. But, in this case, we are looking at something that most everyone would like.

We can all probably agree that the standard of a scientifically defined clean room is preposterous. We can also agree that the pollution in Beijing today is equally ridiculous. Are today’s standards in the US satisfactory?  To answer that question, people can not just scream for more or less controls on energy or emissions. They need to make the case as to why the tradeoffs are acceptable or not.