Saturday, September 24, 2011

Presidential Candidates for 2012, v2

Six months ago I blogged about presidential candidates for 2012. I'm more firmly convinced it's too late for Obama to win reelection, baring an event of near catastrophic proportions. I think President Obama is too narcissistic to step down like Lyndon Johnson did, and I think it's too late for anyone to successfully challenge Obama in the Democratic party primary, even Hillary. Obama controls the Democratic party machinery, and a challenger would not only have to do without that, they would have to overcome it. And no other party can field an electable candidate. If I'm right that Obama will be up for reelection, but cannot win, that means our next president will be a Republican.

That also means whoever wins the Republican primary will be our next president, so pay attention now, folks, because the campaign for the Republican nomination is in full swing. Democrats in States that allow any voter to vote in either primary may want to consider voting in the Republican primary this time around.

Six months ago, there were no declared candidates, and I said that Mike Huckabee was my favorite potential candidate. He decided not to run, but a boat-load of others are in. I'm no expert on any of these folks, but I've heard some positions and noticed some personal failings that have turned me off to several candidates, and I've seen a few things that I like in a few candidates. There isn't a single candidate that I like 100%, but that will always be true. If I ran myself, I'd agree 100% with my positions, but I'd be concerned about how my health might hold up under the rigors of being president, so I wouldn't even be for myself 100% taking everything into account. Nevertheless, I do have some new favorites that I'm willing to share:

My top choice of these folks is a tie between Herman Cain and Newt Gingrich, and my third choice is Mitt Romney. There are things I like and things I dislike about the rest of the pack, but I prefer that none of the others become president for various reasons.

I like Herman Cain for president because he's not a career politician, he has a strong business management background, he's matured enough since he got into this race to stand up to the rigors of the election and the office, and most importantly, I like a lot of his ideas. He understands the importance of fiscal responsibility and simple and stable rules for businesses to be able to risk expanding their workforce and for entrepreneurs to start new businesses. And this isn't a big deal, but I think it'd be cool to have a presidential election between two black guys. Okay, a black guy and a half-black guy that most people refer to as black.

I like Newt Gingrich for president because he worked very well with President Clinton once Republicans controlled the House under Clinton's tenure, and the two of them got a lot of great things done for our economy and our finances, and because Gingrich has a lot of great ideas and stays open to new ideas. He also understands the stability and simplicity of rules that business people need regarding risk management, expansions, and start-ups.

Mitt Romney has answered the complaints against him very well, he has some very good ideas, and he comports himself as a president should.

I'll reveal a personal problem I have with a lot of candidates and elected leaders that I now hold against some of the Republican candidates: Verbal short-circuits. Anyone can make a misstatement or other verbal gaffe, but when a leader of my civil government does so, I cringe. It's embarrassing. Bush Jr. had the most frequent flubs, and Nancy Pelosi has had two of the worst of all time. Obama has had an average crop. It may be a flaw in my character, but  Bachmann and Perry have surpassed my comfort level with their foul-ups. Even though they're reasonably intelligent people (despite how they're portrayed by the media), the sheer number of their gaffes so far leaves me cold. I kind of hope it's not too much to ask for a President that won't embarrass me all the time like Bush Jr. did.

UPDATE (1Oct2011): After watching a bunch of Herman Cain videos, I'm no longer undecided between Herman Cain and Newt Gingrinch. I'm on Hurricane Herman Cain's train.

Saturday, September 17, 2011

The Cost of Gov't Jobs That Are Already Paid For

Contrary to what many people think, a civil government cannot efficiently grow a national economy with centralized planning.

As a case in point, in this article, the Dept. of Energy has been accused of creating only 3,500 permanent jobs with $38.6 Billion in stimulus funds. The DoE defends itself by saying when they're finished it will be 60,000 jobs and many more in the supply chain. For the sake of argument, let's say the DoE is right, and let's say another 60,000 jobs will be created in the supply chain for 120,000 jobs total.

$38,600,000,000 divided by 120,000 jobs is $321,666 per job. That's using the DoE's most optimistic numbers.

$321,666 per job.

Somehow, the President and his administration think their trillion dollar stimulus program has "prevented the collapse of the financial system, saved millions of jobs, and put the economy back in a place where it's creating jobs and growing again," according to White House Communications Director Dan Pfeiffer. Of course, both parties habitually claim their policies are responsible for all the good things in our economy and the other party is responsible for all the bad things, and that's easy to do since reporters rarely challenge them on such claims. But $321,666 of tax money per job? C'mon, only morons could believe that's a good thing.

You know what would have had far better effects on our economy? If they hadn't taken that $38.6 billion dollars from taxpayers in the first place, and instead they embraced "The Stossel Rule": For every business regulation they pass, they must repeal two or more. Stossel's rule is based on the sound idea that "hiring doesn't come from new laws. It comes when government gets out of the way and leaves all of us with simple and predictable rules."

So forget the "PassThisBill, PassThisBill, PassThisBill, IfYouLoveMePassThisBill" mantra. The trillion dollar stimulus didn't work, and another half-trillion dollar stimulus won't work any better. Taking money from companies and families by taxation and spending $321,666, or more, of it to create one job is not a road to recovery.

As to the claim that it's paid for (the President used the present tense in his televised speech), that's a foolish claim. Even a claim that it will be paid for is foolish as long as the Federal budget isn't balanced.

Suppose you loaned me $10,000 at 2% interest to support some essential business ideas I had that were guaranteed to work and benefit you, me, and everyone! At the end of the first year I paid you $200 in interest and you loaned me another $10,000, because the expenses for my essential business ideas kept growing. Except first you loaned me the $10k, and then I paid you back the $200. We repeat it the next year, but I pay you $400 in interest because I now owe you $20k. But I decided I need more money for more essential business plans, so I talk you into loaning me $15,000 the next year. So I've borrowed $10k the first year, $10k the 2nd year, and $15k the 3rd year, for a total of $35,000 borrowed, and my next interest payment is $700. Wow, the interest I owe you keeps going up for some reason. I need to borrow more money from you so I can be sure I have plenty to do everything I want and pay the interest I owe you. Okay, now I want to borrow an extra $5,000 in the middle of the year for an essential new business idea. What? You're getting reluctant to loan me more money? Trust me! I know exactly what I'm doing. I have everything under control. And, most importantly, this new project is already paid for! How is my new project paid for if I still owe you so much and I'm borrowing even more money from you? Simple! It's paid for because I was going to borrow that money from you anyway eventually and use it for something else, but now I've changed my plans and now I'm going to use this extra borrowed money for my newest essential idea. And if you notice my newest essential idea is the same as my old essential idea, well, that proves how good my original idea was.

(For any critics of my analogy who may want to point out that it's not a perfect parallel to life, may I point out that the paragraph above is an analogy, and it's not intended to be a perfect parallel to life.)

Can you think of a huge problem my analogy didn't go far enough to cover? It's this: Compounding Interest. The amount of interest keeps rising if you only pay the interest and none of the principal, and you keep borrowing more money. It will eventually reach the point where you cannot borrow enough new funds to even pay the interest on the debt.

In 2010, we paid $196,000,000,000 (196 billion) in interest on the national debt. In fiscal year 2011, we're paying $205 billion dollars. Just think of all the good things we could have done with that $205 billion dollars if we hadn't had to pay it on interest. These figures are from the White House's Office of Management and Budget (OMB) (see the Summary Tables), which projects the interest over the next ten years:

2012, $240 billion
2013, $322 billion
2014, $421 billion
2015, $505 billion
2016, $584 billion
2017, $661 billion
2018, $730 billion
2019, $798 billion
2020, $863 billion
2021, $928 billion

This is not the amount of our debt, this is just the interest on our debt. And these figures are based on interest rates that are at historic lows. Interest rates will rise. And when they do, the amount of interest we have to pay will go up higher than these projections, unless the morons in Congress stop borrowing more money and dramatically pay down our debt.

Even if interest rates stay flat for many more years (not likely considering Bernanke's historic monetary expansions), if we keep borrowing more and more money, in a few years we will spend more money in interest on the national debt than we spend on Social Security or Medicare, or the military. A decade after that we may be spending more on interest than on Social Security, Medicare, Medicaid, and the military combined.

We are all fools if we continue to elect politicians who think taking your money and borrowing even more money to spend $321,666 of it to create one job will magically make us prosperous.

We don't have to wait for a balanced budget amendment to the Constitution to correct this problem. Find yourself a congressional candidate with personal integrity who will refuse to vote for another dime of deficit spending, and help them get elected in 2012 and in every congressional election after that.

Monday, September 5, 2011

Creating Jobs

Political policies to create jobs is about economic incentives. Here I present two ideas to help create jobs, neither of which will cost a dime in additional tax expenditures.

As a preface, the President and Congress are currently yammering about creating jobs. This concern is long overdue. In my view, any time we have significant unemployment, policies to facilitate the creation of jobs should be a top issue in national politics. That President Obama waited until he was 3 years into office to get serious about this issue is a disgrace. Lest you think I'm just another Obama-basher, I have just as many complaints about Bush Jr. before him. But, I don't merely want to complain, so without further ado, here are my recommendations:

#1. Permanently eliminate or dramatically reduce the corporate repatriation tax.
#2. Have the Securities and Exchange Commission (SEC) change the age-old definition of fiduciary responsibility for publicly-held corporations to put domestic employees on an equal footing with shareholders.


1. Economists estimate there are over a trillion dollars in profits held overseas by U.S. corporations. If every billion dollars brought home eventually resulted in 1,000 new jobs, a trillion dollars brought home would result in 1,000,000 new jobs. If every billion resulted in 10,000 new jobs, it would result in 10,000,000 new jobs. So this is not a trivial suggestion; It would have a large, beneficial impact on our national economy. I say eventually, though, because it takes months for companies to gear up new projects, and a given company can only manage a certain number of new projects at a time.

Most of our overseas profits are held by only a few dozen of our largest companies. If they bring that money back into the United States, it is currently, and normally, taxed at a 35% rate. That's an extremely powerful incentive for these companies to keep that money overseas. Eliminating or dramatically reducing that tax increases their incentive to bring that fortune back into the U.S.

What does this have to do with creating jobs? Well, what do companies do with profits? For the most part, they reinvest them, in a perpetual effort to increase their profits, but job creation depends on how the companies invest those profits: there are both job-creating investments and job-neutral investments. The same is true for how individuals invest, although most people only think about job-neutral investments.

If you take some of your retirements funds (or your pension plan managers do this for you) and purchase some stocks in an established company, that's a job-neutral investment. You and someone else are trading shares of that company's stock. That's a valuable function in society, but it doesn't create jobs. If, however, you  were to invest in a start-up company, or start your own company, that creates jobs. If you start your own company and succeed in it, then you've created at least one job, even if you don't hire anyone else.

There are quite a few job-neutral investments available to corporations if they repatriate their overseas profits, the same as with domestic profits, such as repurchasing shares of their own stock to try to increase their stock prices or issuing stock dividends to directly reward investors.

The corporate repatriation tax has been in effect for many years, with an occasional tax "holiday" that resulted in bringing overseas profits home in big lumps. Some opponents of eliminating or reducing this tax point out that when the holidays have occurred in the past (the last one in 2004), companies put most of that money into job-neutral investments, not job-creating ones. Of course they did! Because they can only manage a certain number of new projects at a time, they invest what they need in those projects, creating jobs, and they invest the rest as wisely as possible. For example, if they repurchase stock now, they are later able to reissue that stock to raise cash when they're ready to start or expand new projects.

The previous paragraph highlights why it would be beneficial to make this change permanent, rather than have unreliable, once-in-a-while tax holidays. It would create stability in those cash flows, allowing corporations to make reliable plans further out into the future, and that is a critical factor to any company considering hiring new employees. In addition, if the change is not permanent, then the remaining tax creates incentives for companies to permanently move jobs overseas, the opposite effect from what we need.

As far as eliminating vs. dramatically reducing, some of the CEO's of the companies holding that trillion dollars overseas have indicated they would have sufficient incentive to bring the money home if the tax rate was lowered to 5% or less, as opposed to eliminating it. I have no strong objection to that, so why do I suggest eliminating the tax? Because permanently eliminating the tax would maximize the incentives to bring the money home, and keep it working here to create jobs on a steady basis. 

It is more than interesting that the United States is almost the only nation in the world to tax repatriated corporate profits. Why did a previous short-sighted Congress create this tax? They obviously thought it would raise revenue. They were wrong. Companies simply hold those profits overseas and wait for the next tax holiday and invest those funds overseas in the meantime. Also obviously, other nations see this tax for what it really is: a counter-productive drain on the national economy. 

2. As long as we've had public-stock companies, the managers of those companies have been legally required to make their decisions in such a way as to maximize benefits to the stockholders. This didn't always result in moving jobs overseas because international shipping and communication used to be far more expensive and far less reliable. However, in the last half-century or so, both shipping and communication have become much less expensive and highly reliable. When this is combined with placing stockholder interest as the exclusive top-priority of corporate managers, of course they've been moving jobs overseas where labor is cheaper: They're legally required to do so if it increases their profitability!

We can permanently reverse this trend with one simple adjustment that won't cost any taxes: Have the Securities and Exchange Commission (SEC) change the age-old definition of fiduciary responsibility for publicly-held corporations to put domestic employees on an equal footing with shareholders. 

This change won't stop all American jobs from ending up in other countries, but it will protect many of them, and will eventually result in many jobs coming back to the United States from overseas. When the needs of domestic employees are given equal consideration to those of shareholders, an existing factory will only be relocated when that factory is completely unsustainable where it is. In that case, the local factory has to be shut down no matter what. The company could, under those conditions, still build a replacement factory in another country, if that's feasible. But no U.S.-based factory would ever again be relocated to another country just to increase profits when that factory could be sustained where it is at marginal profits.