Wednesday, September 22, 2010

Reprising Jimmy Chitwood

Job growth is still stalled long after the Administration promised it would be rising again.  It is now clear that the Administration's stimulus plan was doomed to failure from the beginning because it was aimed in the wrong direction.  As a result, the President is reshuffling his economic advisers, Lawrence Summers is the latest to go.  Why am I not more confident that the next band of expert economists will serve the country any better than the last?  The reason is simple:  American small businessmen and woman are completely exasperated with what they have seen coming out of Washington. They are in no mood to hire new employees on the bet that the economy is going to get dramatically better under the current policies.  In my judgment, they will remain in a siege mentality until President Obama and the Democratic leadership show some understanding and appreciation of sound business practices.

This is not a new story.  Indeed, it is remarkable how consistently off the mark the crowd in Washington has been toward business.  The following is a blog I wrote July 14, 2009.  In it I explain why the government's attempt to stimulate the economy will fail and what it will take to create job growth.  I am presenting the blog just as I wrote it 14 months ago, but with just a few brackets [ ] to add additional insight. 

I am also reprising the blog to persuade you to contact your Congressional representatives to advocate that the Bush Tax cuts be extended for at least two years for all income levels, not just those below $250,000.  In addition that the taxes on dividends remain at the same rate as capital gains.  In my judgment, these actions on taxes would go a long way toward the President building a bridge to the business community.  It would signal that the President would be backing off of his "soak the rich" mantra and realizing that this country needs its brightest and best business minds to take the risks necessary to create the jobs that the country and our citizens so desperately need.  It does absolutely no good for our country to take money from the rich and create government jobs.  Surely Greece, Spain, Ireland, and Portugal have clearly shown us that a country dependent on government jobs is a country headed for the rocks.

Here's the blog from last year.

Tuesday, July 14, 2009

Capitalism Means Giving the Ball to Jimmy Chitwood

Whatever your political persuasion, the truth is, capitalistic principles that have served humanity well are currently under attack in the halls of Congress. Yesterday's Wall Street Journal sounded the alarm that the highest tax bracket may soon rise 11%, from 35% to 46% [as high as 58% with state taxes], by the time the Democrats in Congress are done.

"Soak the rich! Soak the rich!" can be heard in stereophonic surround sound if you drive by the Capitol these days. Indeed, the most important allocators of capital are no longer found on Wall Street, they now reside on Capitol Hill.

The Administration and the Democratic leadership have declared war on the business class. In doing so, they are dooming the country's hopes for a strong economic turnaround. Here's why. The very people who know best how to create jobs, the business class, are being tied up in a never ending barrage of new taxes, regulations, and anti-business rhetoric and legislation.

But just as the Law of Gravity still holds, so do the laws of economic growth, even if House Ways and Means Chairman, Charles Rangel, says they don't [Mr. Rangel has other problems understanding laws and is no longer Chairman]. I have no doubts that he will find a return to normal economic growth increasingly difficult to accomplish should his tax hikes become law.

Let me take a different tack to explain the problem, [Professional] basketball, for example. Isn't the objective to win, not just allow every player on the team equal playing time, regardless of their ability? Further, say we're down to the wire with only 10 seconds left on the clock. The object is to win, not to make heroes, not to please parents, or sponsors, or girlfriends. The object is to win. If you are the coach, would you call the team trainer off the bench and set up a play for him to take the last shot because it's his turn to shoot? Or would you get the ball into the hands of the best SCORER on your team? The answer is so simple children can figure this out. Get the ball to the guy or girl on the team who has a demonstrated gift for putting the ball in the basket. Do that and you will have a long career as a coach. Give it to a player with less ability and wins become losses, and you will be out of coaching.

This concept is graphically shown in the movie "Hoosiers." With just a few seconds left, Gene Hackman, who plays Hickory's coach, calls a time out. He wants to run the "picket fence" and that Jimmy Chitwood, the teams prolific scorer, will act as a decoy. The team is stunned and turn away from the fiery coach, but no one says anything. Every guy on the team knows the coach is wrong, but no one speaks. Finally, Jimmy, who has been almost stoic throughout the whole movie, says, "I'll make it." Hackman immediately agrees and says get the ball to Jimmy and give him room. You know what happens. See it here on this link.

Coaches don't win games, trainers don't win games, equipment managers don't win games, and bench warmers don't win games. All these people are important contributors to success, but ultimately it is great players who win games.

As it relates to business, businessmen and women produce economic growth, not politicians, regulators, or tax collectors. Until the Obama Administration grasps this basic truth, the economy will trudge along in low gear.

Over the weekend, Vice President Joe Biden and President Obama were both apologizing for still skyrocketing unemployment, even though they said it wouldn't happen if the Congress passed their $750 billion stimulus plan. After Congress finally passed the measure, I said it was actually 30% a stimulus plan and 70% a welfare plan. The money went to the wrong places and until it gets to the right places, the Administration is going to be apologizing, a lot, about unemployment.

A wide gulf has formed between business people and politicians. All business people are being painted with the ugly brush of the big banks and their subprime destruction. Ninety-five percent of business people had nothing to do with the subprime fiasco and don't deserve to be treated as villains. However, every business person in this country now knows that he or she will be picking up the tab for the health-care plans of the Obama Administration. We know that we will be paying for the Administration's ill-conceived "Cap and Trade" environmental programs. Finally, we know that we will be paying for the huge deficits that the Congress has saddled our country with as far as the eye can see.

Business people, particularly small business people, where most of the jobs have been created over the last decade, know that they are in the gun sights of Congress and the Administration. That will keep a lid on employment gains for the foreseeable future. The main reason for this is that all these new taxes and regulations require that a businessman or woman's first order of business is to cut costs to defend profitability. The truth about costs is that the biggest one is labor. In the back of most entrepreneurs' minds is the fact that, in the stroke of a pen, the government could at some future date make it very costly if not impossible to reduce employment.

The Soviet Union was full of big talk and government-created, five-year economic plans for growth. As the years wore on, the bigger the talk grew the more failures the five-year plans produced.

I would have thought that the complete collapse of the illusory workers' paradise that was the Soviet Union would have been proof enough for almost any politician of what does not work. But, what is going on in Washington [and Europe] today would make Karl Marx smile for the first time in a long time.

If you consider yourself a businessperson, I recommend that you start communicating regularly with your politicians. As the employment news gets worse, they might actually start to listen.

This is what I said a 14 months ago.  If it sounds like the current situation in the country, get used to it, because unless the Obama Administration has an epiphany soon, this is a blog I can repeat each year at about this time and it will sound just as fresh.  Like it or not, Washington is violating economic laws and our citizens will pay for it in a lower standard of living and higher unemployment for years to come.

This is not to say that I am bearish on the US stock market.  US companies realize that the opportunities for sustainable growth are outside our borders.  Company after company in the S+P 500 now produce over 50% of their earnings outside the United States.  Stocks will do fine.  It is Mr. and Mrs. America that I am worried about if the current anti-business environment continues.