Blog Archive

Saturday, June 25, 2011

Help Wanted?

Allow me to paint a picture for you:

There is a small Mom and Pop bakery outside of Baltimore, Jan’s Bakery.  They do well for their size, they have five employees and 80 percent of their business is attributed from walk ins and the rest is from a growing catering business.  Now Jan has been working very hard to grow the business.  She has successfully increased her catering business by 20 percent the past couple years.  Things are going so well that she is exploring the option of opening up another location, strictly for catering.  She is skeptical though, because she keeps hearing stuff on the news about this nationalized healthcare and an inevitable increase in her taxes.  She doesn’t follow politics much, but she understands that a higher cost for each employee erodes her profit margins (i.e. hinders her opportunity for growing the business).

So it is two years later and Jan still hasn’t opened up another location.  Nationalized healthcare is in full effect, and as she expected her personal and business taxes have increased by about fifteen percent.  Not only that, but she was forced to lay off two of her employees because of the increase in her taxes and healthcare premiums.  Jan is still growing the business, but not nearly as much as she should be.  In fact, now she doesn’t know if she can afford to hire more employees if she were able to get the financing for a new location.  For the time being, she has decided to just make her one location as efficient as possible and put aside the hope of growing the business.  The good news is she plans on keeping those remaining three employees.  Assuming her taxes and premiums don’t increase anymore she should be fine just making due with her current situation.

This story is meant to represent the stagnant job growth in the US economy.  Microeconomic information affects us all on a Macroeconomic scale.  Small businesses that are worried to hire new employees affect us all.  It affects us because policies that are enacted in Washington are geared towards forcing job growth in the private sector, these policies are never constructed properly because the government doesn’t have the ability to understand every businesses situation.  The government will not have Jan’s interests in mind.  It comes down to a fundamental difference in motives, social agenda or job growth, nationalized healthcare or job growth, over indulgent spending bills or job growth. 

It hurts to admit this, but we don’t have as much control over things as we would like.  We think we do, but seldom do our thoughts for the future come into fruition.  Do I want to be CEO of a company? Of course.  Do I want to have a beautiful wife and healthy children? Of course.  The question lies, how do I obtain these things.  I like to think I have control over my future, but I don’t.  All I can do is make sure that I stay the course and take the necessary steps to live a successful and fulfilling life.

This will sound silly, but the government needs to understand and embrace this as well.  The government thinks they can facilitate job growth through new programs, bills, and support for a certain economic sector.  The truth of the matter is that they just don’t have the ability to do this well enough to see results in the short term that lead to better results in the long term.  There are just too many variables to try to control in a develop economy.  To many new industry sectors that are growing under the radar, too many industry sectors that are slowly being weeded out because of new technology.  We just don’t know the future.  No politician, republican or democrat, has a crystal ball.  The only thing they can do is support the private sector and pave the road for future economic growth with little government interference. 

As represented in Jan’s story, job growth has been stagnant the past few years because of uncertainty.  Uncertainty on any scale, large or small, will effect the actions we take.  This holds true for a small five person operation like Jan’s or a multi billion dollar corporation.  The problems are all the same, just on a different scale.  An increase in the cost per employee affects Exxon Mobile just as much as it effects Jan.  An increase in corporate taxes affects the local grocery store just as much as it affects General Electric.  Uncertainty will always hinder job growth. 

I don’t like to bash the Obama administration, but in a situation like this they have a choice to make.  Get serious about scaling down the government and give the private sector the opportunity to grow or keep on trying to control the situation.  As I mentioned earlier, we can’t control everything.  I doubt that President Obama is familiar with Jan’s plans for the bakery, I doubt he is aware of her laying off 40% of her workforce due to higher taxes from failed policies.  I doubt that President Obama is familiar with what General Electric, Ford, Wal-Mart, Proctor and Gamble, and Dell plan on doing in the future.  See, here is the link between small business job loss and macro economic data that still represents a recession.  Jan laying off two employees isn’t a big deal on a small scale, but if there are 5000 more small businesses that are laying off two employees than we start to really see the problem.  Then you have large corporations who in times of recession will trim expenses (i.e. lay people off) to become more efficient.  So assume that out of the S&P 500 three hundred of those companies laid off 10% percent of its workforce the past two years, then we have a huge problem.  In fact, that is exactly what we’ve all experienced since the recession hit in late 2007.

It’s not difficult to see the results and raise our eyebrows, and believe it or not it isn’t difficult to provide a solution to the problem.  The solution doesn’t involve complex “job growth bills,” adding confusing tax credits, or choosing one industry over another.  The solution involves a combination of lowering taxes, incentivize hiring, and the nixing of large inefficient social programs. 

Now I’m not a genius, I don’t know the right combination of those three legs of the solution and I certainly don’t know how to put the right combination into action.  My only idea is drop all taxes across the board, add a $500 tax credit for each new employee hired by small businesses with less than 500 employees.  I think small business needs the tax credit to further incentivize hiring.  Mid to Large sized corporations will add so much cash flow to their respective businesses from tax cuts that the tax cuts alone will promote new growth which in turn will lead to new hires.   

We don’t need a PR campaign on how the manufacturing sector has died the past forty years.  In fact we don’t need to make this a priority until we fill current job openings for current growing industry sectors!  Refill the rosters for jobs in the financial sector, energy sector, and any other sector that laid off a considerable number of employees during the recession.  Once we complete that step, then Washington can run as many PR campaigns as they would like on revitalizing the manufacturing sector in the US.

The important part is for Washington to realize they can’t control a developed economy, the government doesn’t have all the answers.  Like I’ve mentioned earlier, the best thing the government can do is pave the road for the private sector to walk down.  Give Jan a reason to expand her business, give General Electric a reason to explore new opportunities.  More to the point, give small businesses and large corporations a reason to hire more people.  Once you do that, you’ll see increased GDP growth, decreased cost of unemployment benefits, and more importantly an end to the recession.

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