Tag Archives: Government

Worker Participation Is The Writing On The Wall

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We’ve been a little bit lazy, I think, over the last couple of decades. – Pres. Obama

Pres. Obama was talking about his government’s laziness in attracting foreign investment (hint Mr. President: less government efforts actually attract investment, not more), but he may as well have been talking about the US in general since he took office. Of course Americans are far from lazy, they just respond to market signals like taxes and regulations, and the percent of adults who now work or wish to work portends doomsday.


Worker Participation Rate (%) By Year (1976-present)
Source: Bureau of Labor Statistics

Worker participation is the percent of adults (16 and over) who are either working or are seeking work. As the chart shows, workforce participation drops off during recessions because some people give up on seeking work and either retire or join a shadow unmeasured economy. Significant drops in participation can be seen during the 1980-82 recession, the 1990 recession, and the 2001 recession, but they all pale to the collapse of worker participation over the past three years. In all the years measuring this metric, there has never been such a dramatic collapse in the percent of people who contribute to the measured economy.

The difference between an adult who works and who does not is the story of the US’s recent troubles. Workers pay taxes and consume fewer public resources like Food Stamps, Medicaid, Section 8, and Unemployment Insurance. Workers support the retired through Social Security and Medicare taxes. The arc of worker participation over the past 35 years mirrors the rise and fall of US prosperity and global standing.

The dramatic rise throughout the ’60s and ’70s reflects women joining the workforce, and followed the Regan revolution of unprecedented prosperity, basically paying for an ever growing government budget and runaway entitlement programs. However, worker participation fell off a cliff almost immediately after Obama took office. Possibly a coincidence, but his brutal FDR-like rhetorical assault on private enterprise, his hyper-regulatory legislation, and his partisan pro-union policies sent a message to employers to stop hiring.

This is not to say that people outside of the workforce do not contribute. For example, a dual income family that once used daycare or a nanny for their children might decide that the mother’s after-tax income would barely cover the cost of these services. When the mother decides to leave the workforce, she takes the worthwhile job of daycare or the nanny, but now all of these parties are not reporting income and paying taxes. By burdening businesses with regulation, taxes, and now the mandate to provide health care, many people find a way to get by outside of the workforce system.

The baby-boom generation that brought the US such fiscal gems as Medicare is retiring, creating a powerful drain on worker participation. The boomers are about a quarter of the US’s population, and without their employment, the US simply cannot pay its bills. Either boomers need to work longer or the US needs qualified immigrants in huge numbers over the next decade; without a workforce to support the retirement of the boomers, the US cannot survive as is.

The US’s worker participation rate is falling to that of socialized Europe. What the world generally sees as European laziness may actually be a rational response to socialism that discourages workforce participation. The US federal debt is likewise approaching that of Europe’s failed economies such as Greece and Italy. US debt is as much caused by overspending as it is anemic economic growth, much like Europe. Rather than a warning that anti-capitalism and over regulation lead to ruin, Europe’s example is a role model for Washington and the Obama administration. If the US’s economy ever rights itself, look to worker participation as the key measure of the turnaround.

Everything I Learned In MBA School Was Wrong

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To some, a MBA is a yardstick of business acumen or a launch pad for great accomplishments. While graduate students are expected to exercise increased independent and critical thought, the amount of leftist indoctrination that goes unchallenged is startling. In nearly every department, the MBA curriculum has got it wrong.

Keynesianism:

MBA programs teach that government spending and expansive monetary policy stimulates GDP expansion. Keynesian formulas suggest that recessions can be cured by stimulus spending and money supply growth. Stimulus ‘primes the pump’ of the economy. Well, no, stimulus has never worked, but MBA professors fail to mention this, as they also fail to mention other economists like Hayek, Taylor, and Hazlitt whose theories refute Keynes.

Keynesian stimulus does not work for two real world reasons: 1. When the government stimulates, it almost always procures things nobody needs or wants. The government spends based on political favoritism, and those items are unlikely to stimulate further productive economic activity (e.g. bridge to nowhere); and 2. People don’t measure their wellbeing by GDP growth, they measure their wellbeing by prosperity. The fact that Pres. Obama’s stimulus grew the public sector component of GDP did nothing for regular Americans. People do not really want more money; they really want things like food, houses, cars, and TVs. Stimulus is largely busywork that creates nothing, especially in the short term, to increase real prosperity. Paul Krugman’s recent ludicrous endorsement of government spending on alien invasion preparedness as a way to grow the economy is the perfect example of Keynesianism’s fatal flaw.

Currency Devaluation:

MBA programs teach the IMF mantra that when a country has a trade deficit, or it can’t pay its obligations, it should devalue its currency. The theory posits that after a devaluation, the troubled country’s exports will be more competitive, imports less competitive, and soverign debt more affordable. As Argentina and every other test case has shown, this never works. MBA professors cite a ‘J-Curve’ effect whereby devaluation causes the opposite of its stated goals in the short term, but as consumption and production shift, the devalued economy will reach a balance. The J-Curve must take a long time, because devalued economies continue to suffer for a long time.

Devaluation does not work because, as with Keynes, people do not want money, they want goods. No magic wand increases the real efficiency of a labor force. Further, when a government inflates its currency (devaluation), it makes foreign capital formation less attractive. Without capital formation, modern economies cannot grow, and real prosperity becomes impossible. Currency devaluations are just a form of surprise inflation, which is stealing from those who save to pay off government debt. Only an ivory tower academic can think that is the path to prosperity.

Union Management Partnerships:

MBA academics are big on labor partnerships. True to their socialist instincts, they can’t believe that unions are bad for business. They laud each effort to find a new way to harmonize union and shareholder interests. In the real world, these partnerships never work. UAL gave its unions ownership and board seats, and GM’s Saturn division gave unions decision authorities, but both of these experiments failed, resulting in bankruptcy. The steadily declining private sector union ranks prove that unions cause business failure wherever they take root, otherwise businesses would be inviting unions to form and their ranks would be growing. There is no aligning union and shareholder objectives; shareholders seek to avoid Ch. 11 bankruptcy at all costs, while unions see Ch. 11 as at most a temporary setback.

Efficient Market Hypothesis:

MBA professors hate Wall Street traders because academics think that what they do is impossible. The religion of MBA finance professors is that the markets are efficient (i.e. their prices always reflect true value and that without inside information nobody can make a supernormal profit). Securities’ prices fall along a line that sets their price relative to their risk, so stock picking is a waste of time.

Shout Bits apologizes for the following obscure references, but every assumption underlying the efficient market hypothesis is wrong. Investors are not objectively rational; their decisions are based on needs other than risk adjusted return. Stocks’ returns are not a random walk; returns are auto-correlated. Stock returns’ correlations are not constant; in times of extreme gains or losses, correlations increase. Likewise, betas are not constant and are difficult to predict. Every foundation of the efficient market hypothesis is bunk. The efficient market hypothesis is a classic example of MBA professors living within their walls of assumptions and formulas while those less constrained by theory make a killing.

The list of MBA fallacies goes on (e.g. more regulation creates more safety, the green movement and its economy, strategic reorganization creates value, Japan’s model of government / private partnerships). Of course a lot of smart people earn their MBAs, but they would have been smart without them. As with liberal arts BAs, the hidden price for expanding minds at an MBA program is the indoctrination into left wing and academic fantasies that have no use in the real world. The best business education is getting one’s teeth kicked in by tough competitors who know their trade and know how to win. That is a lesson that no MBA program can teach.

How Much Does Washington Really Need To Cut?

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As of this article’s publication, Washington pols are completing a debt ceiling deal. The fluid negotiations suggest that Pres. Obama will get a debt ceiling extension that will last beyond his reelection bid, Sen. Reid and Rep. Boehner will abdicate their budgetary responsibilities to a faceless committee, and the Tea Party will not have to swallow very many tax increases. Everyone wins, except there are no real spending cuts or plans to keep the US Government solvent for more than perhaps a decade. The US is racking up a frightening debt load, but how much spending must really be cut to prevent the collapse of the US Government?

As Shout Bits mentioned, Federal revenue has returned to nearly its pre-recession levels, only about $100bln short of its all-time high. The $1.5 trillion deficit problem is caused by the fact that Federal spending kept climbing at its normal pace while tax revenues took a three year break. There is no solution to the US Government’s crisis that does not rely on increased economic growth, and that must involve the rich.

Contrary to  Obama’s demagoguery, the US tax system is highly progressive, meaning that the fate of the rich is the fate of the Federal Government. The poor’s income taxes have never been lower in modern times. Tax receipts as a percent of the economy rise and fall with economic growth, but the government’s take has fallen to a level not seen since the 1950′s. Considering the myriad services such as Medicare that have been added since then, tax revenues must return to their historic highs to fund taxpayer expectations. Because the top earners pay most of the taxes, the US needs a resurgence of the rich. The rich need to invest and employ so they can become richer and pay more taxes.

Of course there is no guarantee of such a windfall given oppressive new laws such as Obamacare that are stifling the economy. Still, if tax receipts returned to about 18% of GDP, the Bush era peak, tax revenues would increase by $450bln. Considering that is more than twice the illusory savings from the latest debt talks, Washington’s top priority should be a restoration of the US economy. If tax revenues returned and the economy grew at a rate of 3.5% for a decade, tax revenues would further grow by an average of $460bln per year. The US’s history suggests that when government oppression is relaxed, such prosperity is possible, and often exceeded. Still, that leaves $590bln annually to be cut to balance the budget over a decade, less than half of the current plan.

The US spends $159bln per year on the Iraq and Afghanistan wars, so assuming they end soon, the magic number could fall to $431bln, about the deficit Pres. Bush was running as he left office. It is not curious that bad economic policy amounts to the bulk of Obama’s woes.

As Shout Bits mentioned, wasteful spending and Washington corruption account for a small part of the required cuts – perhaps $90bln. With Sen. Reid defending cowboy poetry, and Rep. Pelosi disallowing any cuts whatsoever, eliminating entire departments such as the DOE and DOC seems impractical. Even assuming the elimination of entire wasteful departments and general bureaucratic belt tightening, the budget must be cut by $330bln per year while capping Social Security and Medicare.

There is no way past substantial military cuts. There is no way past increasing the eligibility ages of Medicare and Social Security. There is no way past cutting welfare entitlements. As every libertarian and realistic conservative has been harping for years, the US must redefine the Federal Government’s role to be a much smaller part of everyday life. The US Government cannot solve every problem, and everyone cannot have everything – a tide change in the Washington paradigm.

The prescription of $330bln in annual cuts to basic government services is more than enough to bring Greek style riots to the streets. Such tough cuts could dissolve the union separating states with economic growth from those that have been declining. Still, these cuts will happen; the only question is whether the US will choose them or they will be imposed when the wolf is at the door. Tea Party voters know this, even if intuitively, and they are unlikely to back down.