Republicans Ideologically Opposed to Job Creation

I saw a segment on the tube featuring Marco Rubio, a potential Vice Presidential candidate and most likely a Presidential candidate in 2016, elected to Congress from Florida with strong Tea Party support. He was featured at a Ragan Library function escorting Nancy Ragan down the aisle. I suspect the honor of escorting the former First Lady could mean that he may be picking up Ronald Ragan’s mantle. At the podium he talked about government’s proper role and admitted there is one and clearly building infrastructure certainly is a valid government function. He quickly added the caveat however, that funding infrastructure is OK in and of itself but not if the purpose is to create jobs. I am surprised that this was not immediately picked up by the media or at least the progressives.
The statement chrystalizes the conservative position regarding jobs and workers and it confirming the conservative belief that any government attempt to interfere with the workings of a liaises-faire market with the aim of improving the prosperity of the general population is anti-American. An action that is very appropriate by any measure is wrong if the purpose of the action is to improve the conditions of wage earners. The benefit to society should never be a goal but a byproduct of commercial enterprise. Seeing Nancy Ragan on his arm confirms, to my satisfaction anyway, that Rubio is speaking for the Republicans. If this is their ideological position, what happens to the Republican promise made at the last election to put jobs at the top of their list of priorities? They can’t! This explains why all of the Republican focus has been on social issues, nothing to do with jobs and spending cuts, counter to job creation.
So expect a lot of noise and opposition from the right when President Obama unveils his “jobs agenda” whatever it is. The only way he stands a “snowballs chance in hell” of getting anything passed is to come up with initiatives that have another purpose, like improving infrastructure, with job creation as a silent byproduct and totally downplay the job benefit. Also their benefit needs to be so clear that it will be politically impossible to go against it. Otherwise whatever the policy proposed, the cry will be that the initiative, will impact the “job creators” ability to create jobs or that it somehow “punishes “job creators”.
The thing that continues to astound me is how many working people who suffer from this conservative position so vehemently support policies and ideologies that really destroy their chance for prosperity. Talk about “cutting off your nose to spite your face”.

Debt Ain't so Bad

Today one sees many comments in the popular medium comparing government finances to household or corporate finances. I won’t go into a detailed discussion on the differences between household’s, business’s and government’s finances and focus on some similarities between them relating to debt.
The first thing to acknowledge is that there are different kinds of expenditures in each that have similarities. In the household there are expenditures for subsistence, convenience and entertainment. These are current expenses, though necessary or at least desirable, their benefits do not accumulate. There are other expenditures such as dinnerware, furniture, household appliances, education, cars and houses whose benefit is felt over a long period of time. These can be considered investments. Current expenses need to be at least matched by income or the household puts itself at great financial risk. Investments, on the other hand, the benefit of which is realized over a period of time can also be paid for over time. Few households are in a position to pay for the larger of these out of current income or savings. And even fewer of us pay for a house or for that matter a car out of savings and borrow money which we pay back to the lender over time, 20 or 30 years for houses and 2 to 5 years for cars and maybe less for furniture and appliances. People who had mortgages or car loans were not looked down on as reckless or irresponsible. It is the normal way to live in modern times. In fact, being credit worthy was a source of pride.
60% to 70% of our GDP consists of consumption and is facilitated to a great extent by credit. The GDP is an indicator of prosperity in a society, and the lot of wage earners, improves as a society prospers with growing demand creating jobs. Until recently, when loans made by one lender began to be bundled with others and sold and re-bundled and sold, the lender had an interest in ensuring that the borrower had the wherewithal to make payments on the schedule agreed to. With the selling and bundling of mortgages, the lender no longer cared about the borrower’s ability to repay since they made their money from the sale of the loan. Requirements for creditworthiness and collateral were all but eliminated and high pressure salesmen, using what could be argued were underhanded tactics, convinced households to assume debt they had no way of repaying. Furthermore, household incomes have been stagnating while costs were going up so beside the poor loans taken out for investments, they started to use debt to pay for current expenses. Debt got a bad name.
Business debt is somewhat different than household debt. Whereas in a household, in most cases the income lags the labor by about a week or in some instance two, in businesses, particularly manufacturing, payment for an item produced can come in one, two, three or more months after it is purchased and the item may have been in manufacturing for weeks or months where it had been collecting costs. It is a common practice for businesses to borrow money to cover the lag between when they start spending and when they receive payment. These expenses, whether financed with debt or not, are part of the cost of a product or service. This is considered a legitimate reason for borrowing even though it is to cover current expenses. Plant and equipment, on the other hand fall into category of investment. From an accounting standpoint, whereas direct costs, (costs that go directly into a specific product or service), indirect cost, (costs that go into things like rent, maintenance of equipment), administrative costs and R&D reduce the profit, (price-cost=profit), investment (and income taxes) comes out of profit and as in the case of the household are paid for over a long term with debt because most businesses do not have enough cash flow. Businesses borrow money for their investments. The ability for a business to borrow money is an asset and is not a sign of weakness.
When it comes to the government, things become somewhat nonsensical. Whereas in households and businesses, investments are considered and treated differently than current expenses, in government accounting all expenses are considered current. Though a bridge, an aircraft carrier or a hospital will be used for decades, all the money spent is treated as a current cost and not differentiated from other costs. So when criticizing government spending, one should really consider whether the expenses and debt are investments or current expenses, even though the accounting doesn’t. Another difference between the government and households or businesses is its ability to print more money and raise revenues. Households and businesses can theoretically increase income as well but it is easier said than done. Governments can do it with a stroke of the pen.
As with households and businesses, there is a level of debt that is perfectly appropriate and works to the benefit of a society. I think that true “current” costs should be paid from revenues, either increasing or decreasing one or the other as appropriate. Investments should be financed with debt to the extent that money can be borrowed. Currently lenders are lending money to us at ridiculously low rates indicating that from their perspective the loans are reasonable with probability of repayment very high. Unfortunately the extreme Right has taken a position that all government expenditures, except defense, are bad and are trying to inhibit the borrowing of money or raising revenues.
There is another “proper” accumulation of debt that is the same for households, businesses and governments. In a period of temporary crisis, all may find themselves in a situation where the current expenses exceed income and need to borrow anticipating a return to normalcy at some point in the future. Our government has done this several times and there is a sharp peak in spending and debt followed by a rapid decline. During bad times lenders will lend but getting a loan becomes more difficult. In the case of households and businesses, there is a stronger demand for collateral, and their interest rates, along with those of governments are higher. There is an old saying that everyone is willing to lend you money when you don’t need it but very few when you do.
As to running the country like a business, a successful business’s credit is one of its major assets. The notion that it would be restricted by arbitrary limits or ratios would greatly inhibit a business’s ability to weather periods of turmoil or maximize potentials during periods of opportunity. I certainly would not want to run a business so constrained. In this respect government is very similar to business. In times of economic crisis that we are struggling to get behind us, increasing competition brought on by globalization and potential shifts in the balance of power throughout the world, we need to be careful of zealotry arbitrarily restricting our investments and debt. Reckless spending without accountability is bad but the notion that any spending and borrowing is bad and should be severely limited is naïve and can destroy a business as well as a country.

The Debt Ceiling Debate

The total distraction of the last several weeks in Washington makes me think of a time before I retired. Back at the beginning of the century, as the dot.com bubble burst our business was collapsing. We laid-off half of our staff, froze pay for the entire company, cut pay for the senior management, delayed paying bills, and met with the bank almost weekly. It was a very difficult time and we were struggling to stay alive. Everyone was under more stress than usual and on edge. There was a young woman who was accused of not pulling her weight and getting away with it because she was romantically involved with one of the managers. With all that was going on I wanted to stay focused on staying alive and did not want to deal with issues unrelated to survival.

We had been having monthly meeting of the entire staff for some time where I presented the financials and talked about where we are and what we are doing to try to weather the storm. At a meeting during the height of the clamor I broached the subject of the young woman with a metaphor.

Imagine I am driving a bus with you as a passenger and we are traveling down a steep, curvy road on a stormy night. There is an annoying person in the back of the bus and people are yelling for me to do something about them. Now, if the yelling continues I will get progressively more distracted and will need to do something. However, if I were a passenger on this bus, given the circumstances, I would want the driver to absolutely focus on the road and would put up with the annoying passenger until we got down to the bottom of the mountain. The yelling stopped and the issue resolved itself before the bus reached the bottom. We survived.

I think the above analogy may hold true today. Our country, and the world for that matter, is in the throws of recovering from a deep recession with a number of world events slowing the recovery. Third word countries are advancing faster than the western countries potentially changing the balance of power and whenever there is a threat to the balance the world is in a precarious position. With this critical phase we find ourselves in, the right wing decided to raise a ruckus in the form of a balanced budget debate and held the debt-ceiling hostage. Unfortunately, unlike the annoying passenger on my bus, the debt ceiling could run us off the cliff. The issue of the debt ceiling has resolved itself. However we are left with potentially negative consequences and much valuable time, energy and credibility has been lost in the process. The scary thing is that we are not down from the mountain yet.

Uninformed and Misinformed Revisited

Talking points are simple phrases that PR people develop for an organization to forward their agenda. The “communications” specialist study what combination of words will have a desired affect on the chosen audience, massage and polish them and then issue them to the members of the organization. Thus are born phrases like “job killing health care”, Medicare killing proposal”, etc. The idea is to inject them into the conversation whenever possible whether totally appropriate or not. So following an event, all of a sudden one hears the exact same phrase coming out of the mouths of many. Some politicians use talking points sparingly and only if they fit very well into the discussion. Others just throw them around without regard for fact or context.

Today I heard an interview of Eric Cantor (I am only 90% sure it was him since I didn’t hear the introduction but heard him referred to as the Republican Whip) in which he made a couple statements that vividly illustrate the idiotic use of “talking points”. In reference to something Harry Reed voted against, he said that the reason Harry voted against it was because the “people wanted” it. The talking point he was injecting was “the people want” which is something often used by Republicans since the 2010 elections. If you stop and think about it, this is totally ridiculous. To think that any politician would go against something that the “people” want just because they want it is ludicrous. There is no benefit whatsoever to them in doing so. They want to be reelected. Cantor could have accused him of voting against something because he didn’t understand what people want (not hearing or understanding what the people want is a common accusation of Democrats) or that it was ideologically inconsistent or that it would offend his contributors or he thought wrongly that it is not good for the country or that he was ignorant or any number of other reasons, though one may disagree with them, that could make sense. But to say that he voted against or, for that matter, for something, just to go against what the “people wanted”, is plain dumb.

In the same interview Eric also said that he has been a businessman since he was twenty and unlike people who sell labor, businessmen try to create jobs. Here the talking point is “businessmen create jobs”. This also is ludicrous. Had he left out the word “try”, though I would disagree with him, it is a point we could debate. Success in business is making a profit. One can increase profit by cutting costs through improvements in efficiency. (read eliminate jobs) or by eliminating competition (also read eliminate jobs). That is what they “try” to do. There is nothing wrong with this. That is how the system works. Jobs are an unintended byproduct of businesses as a whole trying to maximize their individual profits. There is nothing in any business metric that treats increased number of jobs as a positive. Jobs are coincidental. So when Eric Cantor (or whoever) says businessmen try to create jobs he either doesn’t understand or just sees an opportunity to inject the talking point with impunity.

I think in both instances the truth probably is that he is just spouting “talking points” without really thinking about them because his followers on the extreme right will like the sound of these words and really not even consider their merits and as to the others, he just plain doesn’t care. Unfortunately this is the way many, if not most, on both sides of the isle operate. With ‘talking points’ used as broadly as they are today, it is very difficult to hear an intelligent conversation in the popular media. To make matters worse the talking points are picked up by the media favoring one or the other side to support their cause or by neutral media to increase ratings. As a result we the people really don’t get to hear many legitimate discussions and therefore are misinformed or at best uninformed. However, ultimately, in the case of politicians, the blame is with us. We allow, if not encourage, our politicians to continue this nonsense by reelecting them.