The Power of Zero

I have about 5 different email accounts and actually 2 separate email boxes and I receive over 200 emails a day. I work very hard to keep up with the email and dispose of them either by responding, filing or deleting as quickly as possible. Having said that up until about 1 month ago I always had between 20 and 40 emails in each box waiting to be acted on. Some of them could be over a month old. It was my electronic to do list.

Then I told my daughter that I was going to get down to ZERO. I worked all weekend and would give her updates. "I'm down to 18, down to 7". Eventually I got to Zero. I responded to those that I could and added some new tasks to my to do list and then filed the emails that I couldn't immediately respond to. It has been liberating. I no longer have this huge pile hanging over me every time I open my email. I am much more productive, I get back to people sooner and I feel better about what I have accomplished. Oh yeah, and things don't get lost.

You should try it.

Economic Freedom

To Increase Jobs, Increase Economic Freedom
Business is not a zero-sum game struggling over a fixed pie. Instead it grows and makes the total pie larger, creating value for all of its major stakeholders, including employees and communities.
By JOHN MACKEY

Is the United States exceptional? Of course we are! Two hundred years ago we were one of the poorest countries in the world. We accounted for less than 1% of the world's total GDP. Today our GDP is 23% of the world's total and more than twice as large as the No. 2 country's, China.

America became the wealthiest country because for most of our history we have followed the basic principles of economic freedom: property rights, freedom to trade internationally, minimal governmental regulation of business, sound money, relatively low taxes, the rule of law, entrepreneurship, freedom to fail, and voluntary exchange.

The success of economic freedom in increasing human prosperity, extending our life spans and improving the quality of our lives in countless ways is the most extraordinary global story of the past 200 years. Gross domestic product per capita has increased by a factor of 1,000% across the world and almost 2,000% in the U.S. during these last two centuries. In 1800, 85% of everyone alive lived on less than $1 per day (in 2000 dollars). Today only 17% do. If current long-term trend lines of economic growth continue, we will see abject poverty almost completely eradicated in the 21st century. Business is not a zero-sum game struggling over a fixed pie. Instead it grows and makes the total pie larger, creating value for all of its major stakeholders—customers, employees, suppliers, investors and communities.

So why is our economy barely growing and unemployment stuck at over 9%? I believe the answer is very simple: Economic freedom is declining in the U.S. In 2000, the U.S. was ranked third in the world behind only Hong Kong and Singapore in the Index of Economic Freedom, published annually by this newspaper and the Heritage Foundation. In 2011, we fell to ninth behind such countries as Australia, New Zealand, Canada and Ireland.

The reforms we need to make are extensive. I want to make a few suggestions that, as an independent, I hope will stimulate thinking and constructive discussion among concerned Americans no matter what their politics are.

Most importantly, we need to radically cut the size and cost of government. One hundred years ago the total cost of government at all levels in the U.S.—local, state and federal—was only 8% of our GDP. In 2010, it was 40%. Government is gobbling up trillions of dollars from our economy to feed itself through high taxes and unprecedented deficit spending—money that could instead be used by individuals to improve their lives and by entrepreneurs to create jobs. Government debt is growing at such a rapid rate that the Congressional Budget Office projects that in the next 70 years public money spent on interest annually will grow to almost 41.4% of GDP ($27.2 trillion) from 1.4% of GDP ($204 billion) in 2010. Today interest on our debt represents about a third of the cost of Social Security; in only 20 years it is estimated that it will exceed the cost of that program.


Corbis
Only if we focus on cutting costs in the four most expensive government programs—Defense, Social Security, Medicare and Medicaid, which together with interest account for about two-thirds of the overall budget—can we make a significant positive impact.

Our defense budget now accounts for 43% of all military spending in the entire world—more than the next 14 largest defense budgets combined. It is time for us to scale back our military commitments and reduce our spending to something more in line with our percentage of the world GDP, or 23%. Doing this would save more than $300 billion every year.

Social Security and Medicare need serious reforms to be sustainable over the long term. The demographic crisis for these entitlement programs has now arrived as 10,000 baby boomers are projected to retire every day for the next 19 years. Retirement ages need to be steadily raised to reflect our increased longevity. These programs should also be means-tested. Countries such as Chile and Singapore successfully privatized their retirement programs, making them sustainable. We should move in a similar direction by giving everyone the option to voluntarily opt out of the governmental system into private alternatives, phasing this in over time to help keep the current system solvent.

In addition, tax reform is essential to jobs and prosperity. Most tax deductions and loopholes should be eliminated, combined with significant tax rate reductions. A top tax rate of 15% to 20% with no deductions would be fairer, greatly stimulate economic growth and job creation, and would reduce deficits by increasing total taxes paid to the federal government.

Why would taxes collected go up if rates go down? Two reasons—first, tax shelters such as the mortgage interest deduction used primarily by more affluent taxpayers would be eliminated; and secondly, the taxable base would increase considerably as entrepreneurs create new businesses and new jobs, and as people earn more money. Many Eastern European countries implemented low flat tax rates in the past decade, including Russia in 2001 (13%) and Ukraine in 2004 (15%), and experienced strong economic growth and increased tax revenues.

Corporate taxes also need to be reformed. According to the Organization for Economic Cooperation and Development, the U.S.'s combined state and federal corporate tax rate of 39.2% became the highest in the world after Japan cut its rates this April. A reduction to 26% would equal the average corporate tax rate in the 15 largest industrialized countries. That would help our companies to use their capital more productively to grow and create jobs in the U.S

Government regulations definitely need to be reformed. According to the Small Business Administration, total regulatory costs amount to about $1.75 trillion annually, nearly twice as much as all individual income taxes collected last year. While some regulations create important safeguards for public health and the environment, far too many simply protect existing business interests and discourage entrepreneurship. Specifically, many government regulations in education, health care and energy prevent entrepreneurship and innovation from revolutionizing and re-energizing these very important parts of our economy.

A simple reform that would make a monumental difference would be to require all federal regulations to have a sunset provision. All regulations should automatically expire after 10 years unless a mandatory cost-benefit analysis has been completed that proves the regulations have created significantly more societal benefit than harm. Currently thousands of new regulations are added each year and virtually none ever disappear.

According to a recent poll, more than two-thirds of Americans now believe that America is in "decline." While we are certainly going through difficult times our decline is not inevitable—it can and must be reversed. The U.S. is still an extraordinary country by almost any measure. If we once again embrace the principles of individual and economic freedom that made us both prosperous and exceptional, we can help lead the world towards a better future for all.

Mr. Mackey, co-founder and co-CEO of Whole Foods Market, is a member of the Job Creators Alliance, a nonprofit devoted to preserving free enterprise.

Crony Capitalism Part 2

Rick Santorum's proposal to eliminate Corporate Income Tax for the Manufacturing sector is a perfect example of Crony Capitalism. Although he says that he isn't picking winners and losers and it seems broad enough that lots of people can get behind it, it's still crony capitalism. He also has logic behind it. In his mind a manufacturing job is how someone without a college degree moves into the middle class so that their kids can go to college and move up the income scale – the American Dream. But is he correct?

I only have two questions with the proposal – Why? and how?

He says that someone trying to get ahead can move into the middle class by getting a job in the manufacturing sector. Get a job, make a good salary, save money, send kids to college, American Dream right? But is he looking in the rear view mirror? That may have been true when the job was with Chrysler with the UAW behind you but is it still today. A "Manufacturing job" does not necessarily pay $35 per hour. Although I have no statistics I would hazard a guess that there are more jobs at $15 per hour than at $35. (I just didn't a google search and found somewhere that said Toyota Jobs in WV pay $21,000 per year - that can't be right can it?) Companies are still out to make a profit and they will pay the minimum that the market will allow. (By the way, that's what we want). Secondly, not all manufacturing is created equal. It might be true that you can do it if you are working in an Intel fabrication plant but it wouldn't necessarily be true if you are screen printing t–shirts. Within any job/field you have to work hard and move up. There is no lottery ticket. Even that t shirt job if you work hard and bust your butt you can use it as a stepping stone to get another better job or you can just do the minimum and keep getting $9 per hour and bitching over your beer at night. No guarantees.

The second question is how? How do you define a manufacturing company? What percentage of the work needs to be in manufacturing to pass muster? Does the tax exemption only apply to the plant that manufacturing takes place? Do I have to develop internal transfer pricing mechanisms to determine profit at that plant? What if I have a distribution center attached to that plant? Does that count? It I put offices there and have my designers there, do they count? What about the accountants doing all of this counting, do they count? I can see a lot of lawyers and accountants getting a lot of fees to make companies into "manufacturing companies".

They only way to move up into the middle class is thru hard work and freedom. A quick story. 17 years ago my wife and I moved into a new house and hired a company to paint it. The crew showed up and they were mostly Brazilian. . At one point during the job he approached my wife and said to her that if she was interested in a cleaning lady his wife did great work. He handed her a card. A couple of weeks later my wife called his wife and hired her. Over the years they were sponsored for citizenship by the painting contractor and got it. The husband went off and formed his own painting company and has a couple of crews working for him. The wife still cleans our house. She has a couple of people working for her and does a great job. They have two kids who have both gone to college. They travel to Brazil twice a year for two weeks and go other places at least once a year. (When my wife sees the pictures on Facebook she asks me why our cleaning lady has been to Egypt (or Alaska or wherever) and we haven't). To me, they are the American Dream. Hard Work, Play by the Rules and the Freedom to succeed or fail on your own.

Crony Capitalism

In the media, there has been lots of reporting about how the Tea Party and Occupy Wall Street are either exactly the same or totally different. Unfortunately, because neither are formal established political parties with National Committees and platforms it is not possible to sit down in a deliberate manner and compare the official policies. What can be understood is that both represent frustrated citizens.

Tea Party members seem to be frustrated with a government that is too big, takes too much of their money and delivers little in return. They see connected parties (Unions and Big Corporations) using the government to funnel tax dollars either directly or through tax credits and deductions into their pockets. The OWS crowd is mad at Wall Street. Mad that Wall Street got bailed out and they didn’t. If you read between the lines it’s not only Wall Street that gets them mad but the government that bailed them out. The interesting thing is that as you peel back the onion for both groups and get to the root of their complaints there are frustrated with large special interests getting free stuff from the government. The difference is OWS wants their cut (free tuition or bailout of student loans) and the Tea Party wants it to stop, but the both are mad about Crony Capitalism.

Crony Capitalism doesn’t solely exist on one side of the aisle or the other. It is independent or maybe codependent is a better word. Both Republicans and Democrats practice it. Anytime a group uses their relationship with a politician to extract a favor (or as economists call it “Rent Seeking”) they are practicing Crony Capitalism. It can take the form of the Teacher Pensions that are sought by the Unions. Or the loan guarantees for Solyndra that were favored by their investors and the Greens. They include Ethanol Subsidies that are endorsed by politicians of both strips. Or Sugar Quotas that are a favorite of Florida Republicans. Pages and pages could be filled listing the myriad of Rents that have been sought. (As a matter of fact the US Tax code covers over 6,000 pages most of which are the result of Crony Capitalism).

Everyone makes excuses for their particular brand of Crony Capitalism. “The mortgage deduction is crucial because owning a home is the American Dream and supports family”. “It’s about educating our Children”. “College wouldn’t be affordable if it weren’t for the student loan program”. “It’s a hand up, not a hand out”. Blah, Blah, Blah. As conservatives we should be against Crony Capitalism of every kind. Every week we experience how bad government is at picking winners and losers, we see the unintended consequences of these decisions, we see power hungry politiciansusing our tax dollars and code to curry favor with certain groups in order to get reelected. What they should be doing is creating an environment where every American has the same opportunity to be successful or to fail on their own merits. As Milton Freidman said “the important part of the profit and loss system is not the profit, but the loss”.

Nice thoughts Dave, but what does this mean. How can this cycle be broken? We need to demand 3 things – 1) transparency in elections. Anyone funding a candidate should be listed on the web within 24 hours. Let the voters decide if the candidate is selling their votes. 2) Simplify the tax code. Those 6,000 + pages are filled with sweatheart deals. If rates are reduced and loopholes are eliminated the incentive to Rent seek is lowered and everyone is on an even keel. 3) Reduce the size of the budget. Why do you rob banks? Because that’s where the money is. When the government spends $3.7 Trillion in one year that is a lot of opportunities for special deals “that no one will notice”.

Keynsian View of Stimulus

This is one of the best explanations of the Keynsian view on the Stimulus that I have ever heard. It also tells you why it doesn't work.

Podcast # 2 - Garret Jones on Stimulus

http://itunes.apple.com/us/podcast/garett-jones-on-stimulus/id135066958?i=97373649

It is an interview between Russ Roberts (host) and Garret Jones from the Mercatus Center at George Mason University.

Some highlights from the Podcast and the research.

Government spending tends to crowd out private spending. So while the economy may grow as a whole, the private economy actually shrinks. So the % of GDP for government spending rises. This is exactly what we are seeing now.

Also any multiplier for growth for stimulus spending (for the non economists - $1 of spending leads to $1 of GDP would be a multiplier of 1) is less than 1. To justify the last spending bill they used a multiplier of about 1.52.

They also found that the multiplier for tax cuts is much higher than the multiplier for spending. One of the key studies that found this was done by Christina Romer the former chair of Obama's Council of Economic Advisors.

Lastly and most importantly, they found that it if you are trying to shrink a budget deficit it is much more effective to reduce spending than to increase taxes. When the government spending shrinks, the private economy actually grows.

The podcast is 60 minutes long but the most interesting stuff is in the first 30 minutes and if you listen at double speed like I do it only takes 15 minutes (or so).

Obama's Jobs Program

I keep thinking about Obama's latest jobs program and it really makes me wonder if anyone in the White House knows anything about economics or creating jobs.

First a Recap of Obama's Plan

Payroll Tax Cut - both the share paid for by the employee and the share paid for by the employer ($240 billion) - This is the biggest element but it is only temporary. So while it gets an additional $12.50 in someone's paycheck it doesn't have the desired effect (remember Bush's $300 checks – people paid off bills). Milton Friedman proved that people make decisions based on permanent incentives not temporary ones. No one is going to hire people based on a small reduction in payroll taxes, it will just add to corporate profits and make the left go crazy.

Extension of Unemployment Benefits ($49 billion) - Although this smacks of compassion, it is exactly the opposite. In general the intensity of someones job search increases when unemployment benefits are about to run out. I actually had lunch with someone this week and that was what they were doing. Benefits were going to run out in December so they were in no hurry. So people purposely stay unemployed longer and the longer they are unemployed the less employable they become. Compassion indeed.

Subsidies for Construction and related projects (highways, airports, school renovation -infrastructure bank) ($90 billion) - didn't our president say "There is no such thing as shovel ready". These projects are guaranteed to be tied up in red tape so the spending will happen sometime in the future. There are also buy American provisions and other rules that can add up to 20% of the cost of a project so we won't get as many of these "essential" projects done.

Aid to State and Local Governments ($35 billion) - we tried this with the last stimulus. It just pushed out the pain and keeps government spending on an unsustainable path. It does nothing to help the private sector which has to support the state and local governments.

Financial Assistance to Homeowners to Refinance their Mortgages ($15 billion) - This is a loser from the get go. Once again trying to bail out people who have made bad choices. Previous efforts have found that they default again within 6 months and in many cases there are legal restrictions on refinancing because they have bad credit.

Tax Credits for Employers who hire persons who have been unemployed for at least six months ($8 billion) - It's obvious that no one in the White House has ever hired anyone in the private sector. If I have a job opening I interview candidates, find the best person and hire them. If it turns out that they are eligible for a tax credit great – free money – but that is not why I hired them.

The aim would be to spend most of the $450 billion between now and the end of 2012. The cost would be recouped by a combination of unspecified spending cuts and unspecified tax increases for upper-income taxpayers—but not immediately The Wimpy plan - "I'll gladly pay you Tuesday for a Stimulus today".

"OK Dave, it's easy to trash someone's plan but do you have anything better."

The Blakelock Job's Plan - Also known as get the hell out of the way.

Most of these can be done immediately with no cost and very little legislation. Which is why Barak would never do it.

Trade Bills – Immediately pass the three trade bills (Panama, Columbia and South Korea) that Obama has been holding on his desk. The International Trade Commission has estimated that these bills would create 250,000 jobs.

Keystone XL – Have the State Department approve Keystone XL – It has been estimated that this would create 118,000 jobs.

Energy Exploration – Immediately stop opposing Fracking, drilling off the east coast and in the gulf and exploration in Alaska. Not only would this have the benefit of creating jobs but it would also reduce the dollars that we would be sending oversees.

Bush Tax Cuts – Businesses are just waiting for the other shoe to drop. Very few are expanding because all they see on the horizon is bad news. Increased taxes that only appear to be going even higher. Make the Bush tax cuts permanent and that uncertainty will be eliminated. At the same time begin a process for redoing the tax code to make it simpler with lower overall rates.

Obama Care – Immediately repeal Obamacare and replace it with common sense reforms like medical malpractice reform, cross state line purchasing, no tax preference for premiums, reduction in mandates to allow for low cost catastrophic plans. This will remove another big unknown that is hanging over businesses head.

This is my start, it could all be done by November 1. After that I would move onto Sarbanes Oxley, Dodd-Frank and Entitlement Reform. The first 3 Obama could do right now. The other two he could do but would never do in a million years. If you want jobs it really isn't that hard. The problem comes when the jobs take a back seat to your basic dogma that carbon based fuels and rich people are bad and need to be eliminated at every turn.