The American Mind

It’s still the economy, stupid

William Hillman

(4/2016) Don’t listen to all that chatter and misdirection the news media is feeding you. If you want to know what is really going on with this year’s presidential election, it’s simple. It’s the economy. It’s jobs, it’s personal debt, and it’s financial security.

If you spend any time listening to the news you’ll soon be convinced that overnight this nation, which 8 years ago elected its first black president and four years later reelected him; witnessed gays winning their right to marry; emptied its pockets when disaster struck Asia; has suddenly , turned vicious, racist, a hate-filled xenophobic mob with pitchforks and torches roaming the streets at night looking for Mexicans and Muslims.

I don’t believe it and you shouldn’t either. The media is dead wrong.

It is true that people are worried, scared and pissed about their lost jobs and fewer job opportunities, the economy, and their future. Every primary exit poll conducted so far has told us that. The number one reason people are voting is because of the economy. And they are voting in record numbers.

Let’s look at the economic numbers. For the first time since the data has been collected, more business are reported closing than opening. That tipping point occurred in 2008 and it has just gotten worse since then. 30% of American workers have seen their income decline during the last 16 years. Income for the next 20% of workers has not changed. On the surface, unemployment numbers look promising, but a look inside the labor participation rates reveals that the decline is due to workers just giving up, dropping out of the workforce, or taking much lower paying jobs than their skill sets would warrant.

The Bush-Obama economic policies have been a complete failure for the American worker. Hyper-regulations have put a strangle-hold on small business; our U.S. tax code is written to encourage big businesses to keep their money out of our economy and the Federal Reserve has held interest rates so low that banks charge consumers to hold their money. For people in the lower economic tiers of our society, these policies have essentially thwarted their ability to save money and accumulate any kind of wealth. At the same time that money for business start-up and expansion should be cheap, banking regulations make it almost impossible for small business to get it.

Small business always has been the wealth generator for the middle and lower middle class. But, big government, unions, and big businesses do not like small business. Apple, Google, Ford - all the top business - know that their biggest threat is not each other, but some unknown, small business starting up in someone’s kitchen or garage. That’s how these big businesses got their start; they know it’s where innovation is most powerful. And, it is why big businesses love government regulations and the current monetary policies; it helps protect them against those small, unknown innovators. Politicians may give lip service to small business, but they get their campaign financial support from big business and unions. (Unions hate small businesses more than anyone, because small businesses are too small to organize).

What American workers need to maintain and expand personal income is small, highly responsive, and flexible manufacturing that is based on jobs that require cognitive powers and physical dexterity. These are the jobs for workers in the 20% and 30% wage brackets, where wages have fallen or stayed stagnate. And it’s the type of manufacturing where mass production and automation do not excel, because mass production and automation are not flexible, adaptable, or quick to change.

This need for small, highly responsive, and flexible manufacturing has always been true but now with increasingly cheaper automation and the increasing relocation of repetitive task jobs to low wage regions like China, addressing the problem has become more urgent. I should say that there is nothing wrong with lower cost manufacturing - it’s how a cell phone made 30-years ago, was the size and weight of a brick, and costing $2,000, now has more computing power than an Apollo rocket, weighs less then my wallet, and can be obtained for just about nothing.

Our government needs to increase new business start-ups by freeing up our capital markets. As an example of how it currently fails us, consider that the present U.S. tax on foreign profits creates an environment where Apple has $150 Billion sitting "outside" the U.S. because the U.S. tax to bring it in is too high. And since our Federal Reserve’s borrowing rate is so low, it is cheaper for Apple to borrow $130 Billion for a stock buy back than it is to use the $150 Billion they have sitting in their off shore accounts. Another way of thinking about it -- our current tax policies and monetary policies have big businesses burying their profits in their backyards while they suck up all the available credit in our neighborhoods.

These tax and monetary policies leave nothing for the small guys.

We also need to start scrapping regulations - from zoning laws that prevent people from running a business from their home to licensing laws that limit who can cut toenails. The entire health care insurance system that puts the payment burden on employers is regulatory insanity at its finest.

The only way to get out of our current economic predicament is real economic growth - creating of jobs that allow us to take care of our families and give us a sense of self-worth and of being needed.

All the chatter and whining about hate and racism, et cetera might be a manifestation of this economic problem, but it is not the problem. The economy, job income, and job security are the problem. And since our current predicament is the direct result of the monetary, tax, hyper-regulation of the Bush-Obama economic policies, the question to ask yourself is, which candidate will stay the course and which one is most willing and able to take on big government, big business, and the unions, and enact policies to help grow the economy. I’m not sure any of them are.