Tuesday, September 6, 2011

Betty McCollum Responds to a Marxist Question, Part 2

The previous article covered the constitutional and moral problems with "Which by the way is mostly our money! Its not the money of the rich, and its not the money of the corporations!". In particular, the federalist arguments for controlling and opposing the "violence of faction". "Publius defines a faction as a "number of individuals, whether a majority or minority of the whole, who are united and actuated by some passion or interest adverse to the rights of other citizens and the permanent interests of the community" (Federalist 10)."

There are two points the questioner states about the property of others:
1) "the rich and the corporations have tens of trillions of dollars. Corporations are not investing that money in jobs. The rich are not using it in the trickle down way that we hear from the other side from the right wing, from the radical right wing, is the only good way economically."
2) "Which by the way is mostly our money! Its not the money of the rich, and its not the money of the corporations!"

Altruism is real, and many do provide for fantastic altruistic efforts, but it will always depend on having made enough to be altruistic with, e.g "The Bill & Melinda Gates Foundation" (but then, what else are they going to do with it all?). No profit, no altruism, at least not for long. The solution of increased taxes presented by the questioner and Rep Betty McCollum are their viewpoint, in fact they appear to be the consensus liberal viewpoint. It is also a viewpoint which many believe would have, and does have, a very chilling effect on our economy. In fact this "solution" is one that feeds directly into the issues that contribute to the frozen state of our job market. Its another source of risk and uncertainty.

So why is it that significant "cash" is sitting on the sidelines? The motivation for increasing the cash reserves must be fairly strong for corporations to have excessive money not invested. Cash sitting,represents a significant opportunity loss.
"Sitting on cash can be an expensive luxury simply because it incurs a heavy opportunity cost. Holding onto excess cash that is beyond reasonable liquidity requirement is not only capital inefficient; it also creates a drag on a company’s valuation.

In particular, the massive cash hoards that American corporations have amassed have been a saving grace in ensuring that the financial crisis did not cause additional damage to the economy.

Today, these companies are sitting on US$1.93 trillion in cash and other liquid assets, rather than using this money in rebuilding its battered economy."

So one of the first problems is that his numbers are off by quite a bit. Its not "tens of trillions"?  If you expand the scope so you are looking at all money market funds, like what many people hold in their 401K's, its more like $3.92 trillion in 2009
Sept. 28, 2009 Cash in U.S. money-market funds also rose in the 2008 bear market, reaching a record US$3.92-trillion by mid-January. A broader measure that also includes cash and bank deposits reached US$9.55-trillion this month, based on data from the U.S. federal reserve. That’s more than the combined US$9.22-trillion market capitalization of all the companies making up the S&P500 index.

Jobs are not created simply because there happens to be some cash, even what the questioner considers "excessive", laying around in a financial reserve account. Employers create jobs when they believe the risks of estimating the market having increased demand for their products and services, versus the risk of adding to their workforce swing to the side of growth. Otherwise they would be doing something else. They will not be able to stay in business if their employment costs expand the cost of goods sold to exceed their revenue. Then everyone in the company is out of a job.
"It makes sense to put cash [...] in hiring people if you can make money. It doesn't make sense to take the cash and hire people if you're going to make losses,"
Did you know that it is a requirement of McDonald's that a franchisee must have $500,000 of liquid cash on hand (though they recommend more), and it will consume a total investment between $1-2 million, to start a franchise? They recognize that there are risks involved, and require a certain level of capital as well as expertise. It is not the person of low economic means that starts a business. These are the people in the cross-hairs of the "Tax the top 2%" campaigns. That one entrepreneur will create upwards of 70 jobs in his community.

So what really stands in the way of creating jobs? Managing risk and uncertainty of what will happen if they do invest, is the key to getting money out of the safety of a money market, and into investments like a new business. Giving employers confidence that they can make the change in investment, with risks they believe they understand and can have some assurance of it having the ability to overcome. Here are some of the risks they worry about facing:

1) Uncertainty of costs of employment, one significant part is due to Obama care
Brett Parker, a finance officer for a small business in New York City, noted that ObamaCare has failed to “rein in costs, and instead increased them, while loading job creators with mandates, regulations, new taxes and burdens. Rather than solve the problems in the health care system, PPACA ignores costs and instead redistributes money from producers in order to fund vast new entitlements and expand old ones – this was not an improvement over the status quo, it was a step backwards.
Judge Cites Small Business Owner Struggling With Uncertainty Caused By ObamaCare Posted by Don Seymour on January 31, 2011
In his ruling declaring ObamaCare unconstitutional, U.S. District Court Judge Robert Vinson provided a key example of how the law is - as a group of 200 economists deemed it - "a barrier to job growth."

Judge Vinson references small business owner and plaintiff, Mary Brown, who indicated that the health care law is forcing her to consider “whether she can maintain her business,” or if she will be forced to “lay off employees” or “close her business” altogether.

2) Uncertainty of taxation, to which this budding Marxist questioner and Rep McCollum want to add
The Uncertainty Tax (NY Times, 6/12/2011)
But do not underestimate uncertainty as a silent jobs killer. Congress and the White House seem paralyzed in deciding the future of taxes and spending. Where are we going in these areas? Investors and companies who have to make hiring decisions have no clue. “The economy is paying a high uncertainty premium right now,” says Mohamed El-Erian, the C.E.O. of the world’s largest bond fund, Pimco. “With such uncertainty, people delay as many decisions as possible.”
Click to watch the video:
Uncertainty About Tax Hikes Blocking Job Growth?
Jul 11, 2011 MMI Public Relations President Patty Briguglio argues the uncertainty about potential tax hikes is preventing small businesses from hiring.

3) Uncertainty in energy costs
Obama's video statement "if someone wants to build a coal powered plant they can, its just that it will bankrupt them because they're going to be charged a huge sum"

"When I was asked earlier about the issue of coal, under my plan of a cap and trade system electricity rates would necessarily skyrocket"

He couldn't get the cap and trade plan passed, so now it is being done through regulations at the EPA.
American Electric Power on Thursday announced it plans to shut down several coal-fired power plants, convert or retrofit others, and cut as many as 600 jobs in the next few years to comply with regulations proposed by the U.S. Environmental Protection Agency.
3 plants closing
5 plants closing

Gasoline costs 
Gasoline prices continued to rise across the nation last week, putting the cost per gallon to more than one dollar over this time last year. As rising energy prices threaten economic recovery, Congress has an obligation to examine Obama administration policies that, taken together, reveal the pattern of a concerted campaign to raise the price of energy through blocking, delaying, or revoking project permits and approvals.

If you are a heavy industry, or any industry that depends on energy (and what industry doesn't?) you cannot set forth a reasonable business plan with the tremendous risk of energy costs.

4) Uncertainty in the tangled web of regulations.
Mad Enough to Slam the Brakes on Federal Regulators?
“Even our smallest member companies require one or two staff dedicated full-time to regulatory compliance.”
and we are growing regulations at a fast pace.
Red Tape Rising: Regulation in the Obama Era
These "regulatory taxes" appear on no budget or balance sheet, but are very real--costing Americans an estimated $1 trillion or more each year.
Regulation Business, Jobs Booming Under Obama
Regulatory agencies have seen their combined budgets grow a healthy 16% since 2008, topping $54 billion, according to the annual "Regulator's Budget," compiled by George Washington University and Washington University in St. Louis.
That's at a time when the overall economy grew a paltry 5%
Small Business, Big Regulatory Burden
The regulatory burden is particularly heavy on small business. Crain and Crain calculated that adhering to federal rules cost $10,585 per worker for businesses with 19 or fewer workers, but only 78 percent of that amount for businesses with 500-plus workers.
The Cost of Government Regulation & How Business Strategy Can Be Used to Mitigate Its Impact
What is also interesting is that when you look at the distribution of regulatory compliance by firm size for small business with less than 20 employees, compliance with economic regulations cost $4,120, followed very slightly by environmental regulations at $4,101. Combined these account for nearly 78% of regulatory compliance for small business, contributing to the majority of this cost factor. This major cost factor alone erodes small business growth.
11 Aug 2010 Small Business, The JDA
Regulatory Uncertainty Leaves Small Businesses Reluctant to Hire
Many businesses could hire at this point but have chosen not to simply because they have no idea what sort of financial impact hiring will have on them in the future once new rules are fully written out and implemented.

5) Uncertainty in the economy, will there be enough customers to pay the bills?

Taxpayers Should Be Leery Of Warren Buffett's Faux Noblesse Oblige
So, let's stipulate that Buffett can “afford” to pay more taxes.  But this statement ignores the more important question:  How would the middle class and poor be affected by the higher tax rates that Buffett advocates.  Let's consider what happens when the rich pay more in taxes.  With less disposable income:

They could reduce their consumption.  Although unlikely, this would mean a loss of sales to one or more companies, leading to layoffs;

Or, they could make fewer investments. But that means some company or entrepreneur will be deprived of much needed capital, and would be unable to expand their business and increase employment;

Or they could give less to charity.  But then those in need will have less sustenance, or cultural and social institutions which Mr. Buffet and other rich philanthropists support would have to cut back on their missions and perhaps employment.

Even the authors at HuffPo get this. Though they still think the government does more than just get in the way.  The Huffington Post, Alexander Eichler, First Posted: 8/9/11 10:50 AM ET
Caught between a government unable to agree on the best way to expand the economy, and nervous consumers reluctant to make discretionary purchases, small business owners are feeling the squeeze as much as anyone.

It was an issue thoroughly considered by our founding father, discussed at length in the federalist and the anti-federalist papers about tyranny of the masses, tyranny of the minority, and why property right were a central theme. If you cannot be secure in your property you cannot be secure.

So what will Betty McCollum do when Obama puts forth his jobs plan next week which will almost certainly be centered on yet another major stimulus bill. Increasing debt even more, and recommending even more taxes to offset it. Stimulus in which the government is picking and choosing the winners and losers. A track record of unparalleled failure in doing so. Example is Solyndra.

Rep Betty McCollum said "So what disturbs me about the tax cuts. Is all the tax cuts that are part of the Bush tax cut, every single one of them, even the ones that the middle class are getting, We're borrowing the money for the tax cuts". Will she make the choice not to go along with the Obama Stimulus, say no to more borrowing and deficit, or will she continue to try to "Soak the Rich", when that has been shown not to be able to balance the spending?

We need to fix the five points above. Let's get our economy and jobs back on track.

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