Tag Archives: Regulation

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.

Steve Jobs – A Life In Failure

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This week Apple co-founder Steve Jobs passed away after a lengthy battle with cancer. As a household name, people naturally mourned the man most had never met. Like his historical comparison, Thomas Edison, Jobs was a brash provocateur, did little of the hands-on inventing in his shop, enjoyed a non-conventional libation, and he oversaw monumental failures. Jobs’s sometimes nemesis, Bill Gates, has many of the same type-A traits, but Microsoft was essentially forbidden to fail, and that is the reason Apple is worth 25% more than Microsoft today.

Failure is the common thread among all great innovators. Edison’s monumental failure was his DC power grid. Westinghouse won the battle to electrify the nation with AC power – a vastly superior technology, yet Edison remains the greatest inventor of his time. Jobs’s failures were epic – the Lisa, Next Computer, the first portable Mac. Under different leadership, Apple also produced the Newton and other disasters. Unlike anything else, failure focuses the mind, redirects resources, and redoubles creative efforts. Most triumphs rise from the rubble of colossal failure. In Apple’s case, it teetered on the brink of insolvency at the end of 2000, only to become the most valuable publicly traded company today.

Microsoft also had its share of failures – Windows Me, Clippy, a host of failed applications. Microsoft’s early history was that of producing a poor first effort, but constantly improving until it dominated the market. The paths of Jobs and Gates diverged when the Government decided Microsoft was too successful. In 1998, a group of AGs and the DOJ responded by shackling Microsoft’s creativity; Microsoft essentially had to clear each new idea or product with government bureaucrats. Anything that might leverage Microsoft’s strengths in the market was forbidden. Microsoft had become akin to a public utility – profitable, but low growth and no innovation. Without the prospect of success, the risks of failure seem too great, and innovation at Microsoft tailed off.

To be sure, Microsoft employees continued to invent new technologies. Microsoft pioneered the tablet PC, touch screen smart phones, speech recognition built into Windows, and a wealth of patents. But Microsoft never bet the farm on any of these innovations, and they never dominated their markets. Most notably, Apple now dominates the tablet market that Microsoft launched a decade ago. Without the incentive and freedom to risk failure, Microsoft lost its way. Now that government oversight has been lifted, Microsoft is aggressively pursuing the markets it pioneered – smart phones and tablet PCs. The freedom to fail is the power to innovate and make the world better.

Shout Bits has argued against government interference in the creative process before, but the story of Steve Jobs is the promise of US exceptionalism, while the story of Microsoft is the decline of innovation when the government disallows failure. Jobs lead the true American life. He failed over and over; his life took as many turns as his short years allowed. He founded a Fortune 500 company, lost it, and eventually rebuilt it. Along the way, he revolutionized computers, movies, music, and telephony. Whenever Jobs took on an industry, those working for the established norm packed their bags.

On the other hand, while Microsoft started out disrupting industries with aggressive risk taking, later it was ensnared by government dictates on what was ‘fair.’ The careers of Jobs and Gates are a cautionary tale to anyone who might believe the government should allocate investments or somehow decide which ideas are to succeed. Even if Pres. Obama had picked a winner in Solyndra, the heavy hand of government would have foreclosed on someone else with an even better idea. Steve Jobs’s career was a celebration of the US’s unique capacity to tolerate the failures that eventually lead to the innovations that build the modern world.

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If Gibson Is Not Safe, Nobody Is

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Last week, Gibson Guitar made the news as armed agents of the Department of Fish and Wildlife raided its factories in Tennessee. The gist of the federal complaint is that Gibson may have violated the laws of Madagascar and India by importing only partially finished guitar components and then further processing the materials with US labor. The ‘may’ qualifier refers to the fact that the multi-year investigation has yielded no charges whatsoever against Gibson. Whatever the specious merits of the government’s investigation, the broader lesson is that federal regulatory authority is so expansive and vague, it enables corrupt bureaucrats to intimidate and punish nearly any honest business that falls under Washington’s crosshairs.

It’s worth mentioning that Gibson is a successful domestic manufacturer that employs hundreds of people that would normally work overseas. Musical instruments are a labor intensive product, and Gibson could easily reduce its costs by moving its operations to Asia. Like a few iconic brands like Harley Davidson, Gibson trades on its reputation for quality by maintaining US operations. To many professional musicians, Gibson is synonymous with guitars, the USA, and quality. While the US is losing its manufacturing base, especially where labor is a dominant component, Gibson has found a way to prosper, and provide employment to Americans.

Rather than thanking Gibson for its entrepreneurial spirit and being an ambassador for the US everywhere guitars are played, the Obama Administration has used a book of dirty tricks to stymie Gibson. Gibson’s factories were raided two years ago, when government agents seized valuable inventory, yet the government never brought charges and refused to explain why it was still keeping Gibson’s property. When Gibson sued the Federal Government for its right to private property, the Obama Administration responded with last week’s new raid. One theory posits that Gibson is being targeted for retribution after it moved its factories from union friendly Michigan to right-to-work Tennessee – just as Boeing is being sued for opening a factory in South Carolina.

The government’s motivation to punish a US manufacturer for using small amounts of rare woods is open only to speculation, but its tactics are textbook. Unlike any other litigant, the government has enormous advantages when it sets it sights on a victim. The government can confiscate any property it wishes without probable cause, as Gibson has learned. Such victims must sue to prove their innocence, which can take years. Meanwhile, the government’s victim may not be able to continue to earn the profits required to defend itself. The government may time its action to inflict the most damage, as it did with Boeing by suing the airplane manufacturer only after it had invested $750mm in a new factory. Worst of all, the government frequently sidesteps or simply ignores court orders to cease its abuses.

The Gibson story is not a unique case of the government’s capricious attitude toward the rights of businesses. There are so many laws and regulations that any company can become entangled in the web of a crafty bureaucrat. The Gibson abuses call for serious regulatory reform, and Shout Bits has a few ideas to start the process:

  1. Congress should pass a law that requires agencies that seize property to either file a complaint against the alleged violator or return the property within 90 days. This is clearly the intent of the Fourth and Fifth Amendments, but somehow the Executive Branch does not read the Constitution honestly.
  2. Pres. Obama should issue an executive order stating that companies, such as Gibson, that have longstanding non-violent histories may not be subject to violent military-style raids. One of the government’s dirty tricks is to raid the offices of mid-level managers with guns drawn, as was the case with Gibson. This tactic is nothing more than violent intimidation designed to coerce disclosure without the trouble of subpoenas or Miranda rights. The US does not need to resort to Stasi tactics to protect rosewood trees.
  3. Congress should pass a law requiring agencies to publish safe harbor standards for its regulations. Even if Gibson is somehow guilty of misusing rare woods, the Government has never stated how Gibson could legally obtain and use these essential materials. As with many regulations, Gibson is forced to guess what procedures might comply with an ever shifting government interpretation of the law. On its face, the lack of known compliance standards is arbitrary and capricious, as that allows bureaucrats to upend decades old practices without warning.

Of course real Washington reform can only come from denying rogue agencies the free-time to concoct novel prosecutorial theories such as Gibson’s reworking of fret-board wood as a violation of Indian law, or Crocs claim that its shoes are anti-microbial as a violation of pesticide laws. A Congressman needs to ask these would-be Napoleons ‘by how much do we need to cut your budget for these abuses to stop?’