Finance Assistance

Harlan Green: Only the Confidence Fairies Love Austerity

January’s economic numbers are in, so we can say government stimulus spending has worked; there is just not enough of it. The views of those Paul Krugman characterizes as “confidence fairies” don’t work. Austerity and budget cutting during recessions doesn’t boost growth for the simplest of reasons — consumers and private sector businesses can’t spend the money they don’t have.

The confidence fairies somehow believe when budget deficits are reduced that businesses and consumers will invest and spend more. But how when workers are laid off, and salaries cut to achieve that result? This results in lower incomes, so lower spending, hence lower demand for the very goods and services that would spur growth.

The U.S. now seems to be entering a virtuous growth cycle just because we didn’t follow the advice of the confidence fairies. Increased stimulus spending has increased hiring, causing in turn increased demand, which then spurs more hiring, and so on, whereas the Eurozone economies are falling into another recession.

Professor Krugman has been telling Europeans what would happen if EU leaders continued to listen to their confidence fairies:

“Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.”

So it is our experience with the Great Depression and President Roosevelt’s New Deal that has kept us from following the path of austerity economics, even in the face of continued cries for less government involvement in our recovery. That doesn’t work, as “Hoovernomics” proved. In fact, it was GW Bush’s attempts to follow Hoover’s path that led us into the Great Recession. Bush decided on all those tax breaks, instead of using Clinton’s four years of budget surpluses to fix social security and Medicare, resulting in the largest budget deficits since Ronald Reagan, told in telling detail by Bush Treasury Secretary Paul ONeill and Ron Susskind in The Price of Loyalty.

Meanwhile, the U.S. economy continues to grow. Retail sales are one of the best indicators of consumers’ financial health. Excluding autos, retail sales surged 0.7 percent in January after decreasing 0.5 percent in December (due to lower auto sales, said the report). But that may be an anomaly due to a small sampling of auto dealers, because other data show auto sales have been increasing. The Fed’s January Industrial Production report said the output of motor vehicles and parts surged 6.8 percent following an upwardly revised increase of 3.8 percent in December.

Overall industrial production was unchanged in January after a 1.0 percent jump the month before, but the manufacturing component jumped 0.7 percent, following a 1.5 percent comeback in December. In January, utilities dropped 2.5 percent while mining output declined 1.8 percent, was the reason for overall production being flat. The manufacturing sector was strong in several Fed regions. Both the Empire State (New York Fed), and Philly Fed manufacturing regions are booming.

These factors also led the index of leading economic indicators to a solid 0.4 percent gain in January following upwardly revised gains of 0.5 and 0.3 percent in the prior two months. Other areas showing strength in January include credit activity and building permits, gains that underscore the improving outlook for the housing and construction sectors.

What makes me think this is really a virtuous growth cycle, rather than another early-in-the-year spurt that might die later is that the nation’s inventories are lean and well managed — meaning there are no headwinds from excess inventories. Business inventories rose a moderate 0.4 percent in December, below the 0.7 percent rise for sales and pulling down the stock-to-sales ratio by 1 tenth to 1.26. That means demand is keeping up with production, since the stock-to-sale ratio hasn’t increased.

“Now the results are in,” says Krugman, “and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending.”

“Look, I understand why influential people are reluctant to admit that policy ideas they thought reflected deep wisdom actually amounted to utter, destructive folly. But it’s time to put delusional beliefs about the virtues of austerity in a depressed economy behind us.”

Harlan Green © 2012

From:The Blog

Robert Reich: Corporations Don’t Need a Tax Cut, So Why Is Obama Proposing One?

The Obama administration is proposing to lower corporate taxes from the current 35 percent to 28 percent for most companies and to 25 percent for manufacturers.

The move is supposed to be “revenue neutral” — meaning the administration is also proposing to close assorted corporate tax loopholes to offset the lost revenues. One such loophole allows corporations to park their earnings overseas where taxes are lower.

Why isn’t the White House just proposing to close the loopholes without reducing overall corporate tax rates? That would generate more tax revenue that could be used for, say, public schools.

It’s not as if corporations are hurting. Quite the contrary. American companies are booking higher profits than ever. They’re sitting on $ 2 trillion of cash they don’t know what to do with.

And it’s not as if corporate taxes are high. In fact, corporate tax receipts as a share of profits is now at its lowest level in at least 40 years. According to the Congressional Budget Office, corporate federal taxes paid last year dropped to 12.1 percent of profits earned from activities within the United States. That’s a gigantic drop from the 25.6 percent, on average, that corporations paid from 1987 to 2008.

And it’s not that corporations are paying an inordinate share of federal tax revenues. Here again, the reality is just the opposite. Corporate taxes have plummeted as a share of total federal revenues. In 1953, under President Dwight Eisenhower, a Republican, corporate taxes accounted for 32 percent of total federal tax revenues. Now they’re only 10 percent.

But now the federal budget deficit is ballooning, and in less than a year major cuts are scheduled to slice everything from prenatal care to Medicare. So this would seem to be the ideal time to raise corporate taxes — or at the very least close corporate tax loopholes without lowering corporate rates.

The average American is not exactly enamored with American corporations. Polls show most of the public doesn’t trust them. (A recent national poll by the University of Massachusetts at Lowell found 71 percent with an unfavorable impression of big business — about the same as those expressing an unfavorable view of Washington.)

The administration’s initiative doesn’t even make sense as a bargaining maneuver.

Republicans will just accept the administration’s lower corporate tax rate without closing any tax loopholes. House Republicans have already made it clear that, to them, closing a tax loophole is tantamount to raising taxes. And corporate lobbyists in Washington know better than anyone how to hold tight to loopholes they’ve already got.

Big business will fight to keep their foreign tax shelters. After all, it’s almost impossible to distinguish between their foreign and domestic earnings, which is why the U.S. Chamber of Commerce and other business lobbies have spent the past three years trying to make it even easier for companies to defer U.S. taxes on income they supposedly earn outside the country.

Representative David Camp, a Michigan Republican who heads the House Ways and Means Committee, has already proposed a 25 percent corporate top rate and changes that would let companies avoid paying U.S. taxes on even more of the income they say they earn outside America.

Nothing is going to be enacted this year, anyway, so it would have made more sense for the administration to support a hike in corporate taxes — and use it to highlight the difference between the president and his likely Republican challenger.

Mitt Romney wants to reduce the corporate tax rate to 25 percent before eliminating any tax loopholes. Rick Santorum wants to cut the rate to 17.5 percent and eliminate corporate taxes for manufacturers. Newt Gingrich wants to cut the rate to 12.5 percent and let companies write off all capital investments immediately.

It’s discouraging. The President gives a rousing speech, as he did on December 6 in Kansas. Then he misses an opportunity to put his campaign where his mouth is.

Robert Reich is the author of Aftershock: The Next Economy and America’s Future, now in bookstores. This post originally appeared at RobertReich.org.

From:The Blog

Pete Subkoviak: The Millennial Generation and the 21st Century Jobs Economy

Here’s a disconcerting statement to chew on:

“I don’t think any of us know what the future of the American economy is.”

That’s Christina Romer, former chair of the president’s Council of Economic Advisors, when speaking with NPR about the misguided allure of a manufacturing revitalization. In case you need clarification, the “us” refers to our country’s economic and political leadership.

Politicians are quick to devote themselves to the generic cause of “jobs” in an election year, but few have touched on the bigger concern of the Millennial Generation: What does a 21st jobs economy look like in America? The current generation — my generation — of young adults in our teens and twenties are some of the most educated and creative people this earth has ever seen, yet we graduate into a world that can’t use our brains, and so many of us end up serving fair trade coffee or stacking organic groceries.

In the 20th century the economic law of comparative advantage played to the United States’ favor – we were the exporters to the world. We had the infrastructure for companies to produce goods and turn a profit on a scale that no other country could touch; once other nations saw what we had going on they joined the global economy and easily wooed the same companies oversees with their low price points (monetary, ethical and otherwise) for labor and raw materials. Now the United States is losing out to countries in Southeast Asia, the Middle East and Latin America, who are all able to produce goods much cheaper than we are.

So of course manufacturing jobs have moved overseas, and yet our political leaders have spent the last four decades on a failed strategy of asking once-American-now-global companies to turn away from their financial interests in the name of a patriotism that does not exist in the commercial world.

At the same time, American youth are being told that they need a college education in order to compete for jobs in our country; and so they go. Many take out costly student loans for a degree and then enter into a world that not only has fewer manufacturing jobs, but now also fewer professional opportunities (many say we are now in the midst of a higher education bubble). Today the jobs that many college graduates end up taking often require no advanced skill or knowledge — they could probably be done by someone with a high school diploma. While it is true that those who do have financial stability in the 21st century will have at least a four-year diploma, this alone will not guarantee security. Now kids are realizing the limits of a college degree and many are going back for master’s degrees and doctorates, taking on larger debts and hoping that with more education comes better prospects. Unfortunately those prospects are all dependent upon the United States having a plan for creating and retaining enough high-skilled jobs for current and future generations; it’s pretty evident that we don’t have one. Until we create otherwise, this is America’s 21st century jobs economy.

There are a few realities that the United States and its leadership need to face then. First, factory jobs aren’t going to be the basis of U.S.’s economy this century because production is now cheaper in other countries. Second, politicians should not pressure entire generations into debt-financed education in an economy which does not necessitate a college-educated workforce, and in a time where diplomas no longer ensure financial security.

So what should our future economy look like? There may not be simple or convenient answers but our leaders need to do two things: be honest with the American people about the nature of our problem and create a long-term sustainable solution for jobs in the 21st century. We can’t beg manufacturing jobs back into the U.S. but we very well may be able to create new job sectors in order to use the big-brained millennial generation and those that follow.

From:The Blog

Brian Tolle: Why You Don’t Get Invited to Funerals

I actually mean post-mortems but funeral seemed a bit more eye-catching. Now that that’s out of the way, here’s my point. You could be undermining your credibility and trustworthiness by how you take part in post-mortems.

Refresher: post-mortems are those project reviews with the full cross-functional team after a product has launched that are routine at high performing companies. The standard agenda is “what went well, what didn’t, what should we do differently next project.” We add another dimension where the team draws out a timeline as to how the project actually unfolded with all the drama and twists and turns depicted. It usually ends up being quite cathartic.

Whichever format you use, the real value of a post-mortem is the opportunity it provides the team members to get the full story of how the project and product came to be or met an early demise. The process relies on getting the team members’ many different perspectives out on the table (and on paper), usually for the first time to learn everyone’s side of the story. It’s as if the project is this huge floral centerpiece, smack in the middle of the project team, so big that one member can’t see around it or imagine another team member’s view of the project. As you might suspect, criticizing or judging someone’s viewpoint undermines the process. One’s perspective is really one’s reality.

Here is where credibility and trust come into play. Recently I took part in a post-mortem where one of the team members shared their perspective that senior management sent mixed signals about the scope of the project and how it seemed to add unnecessary time and cost. The most senior manager in the room responded by saying, “I don’t think that’s how it happened. What I saw happen was this…” and proceeded to give her perspective. Imagine the chill in the air after she finished.

Is it OK to have a different perspective, in effect, to disagree? Absolutely. There’s a better way though to disagree that doesn’t shut down the discussion. Take the empathy route — seeing the situation through someone else’s eyes (think Being John Malkovich). Try this instead:

I can see how you would see the situation that way. I probably would have as well if I were in your shoes. Let me describe how I saw it from where I was sitting.

The bottom line is this. If you want to be able to influence others to get things done, you need to be at the top of your game when it comes to credibility and trust. And if you’re not aware of the impact your behavior has on others, you’re probably shooting yourself in the foot. Keeping shooting that way and one day the shot will be fatal. Then it’s your post-mortem we’ll be attending.

From:The Blog

Noel A. Poyo: Job Creators: It’s Not Just The 1%

“Job killer!” “Job taker!”  These are epithets that are too often hurled in our present political discussion. The slow pace of the economic recovery, and the persistence of high unemployment, has rightly focused our national dialogue on job creation.  But many politicians have taken to draping the mantle of job creator over almost any policy or project that they want to advance. Putting our nation back to work is too important to allow empty rhetoric to go unexamined; it is too important to overlook effective economic development.

So who are the job creators?   One argument says that it’s the wealthiest 1% among us. While this is partially true – there are job creators among the super wealthy – there are also a great many venture capital investors and titans of industry that slash as many jobs as they create. 
Another argument suggests that it is the elite classes of innovators in sectors like technology that create jobs.  Again, innovative tech companies undoubtedly create jobs, but it’s worth remembering that Facebook, which some would value as high as $ 100 billion, employs only about 3,000 people.

At best, the super wealthy and the super techie make up only a partial picture of who drives job creation in our economy.  Let’s go beyond the shallow sound bite definitions for a moment and examine some facts:

• Data released by Advanced Data Processing (ADP), one our country’s largest payroll service provider, indicates that businesses with fewer than 50 employees made up 45% of non-farm, private payrolls in October 2011 and, in the past two years, these smaller businesses increased payrolls more than companies with more than 50 employees.
• The Kaufman Foundation’s research indicates that nearly all net job creation since 1980 has occurred in firms less than five years old.

So small businesses are a critical source of employment in our economy; and entrepreneurial startups, in particular, are the driving force of job creation.

And who are these entrepreneurs and small business owners?   According to the most recent Census Bureau Survey of Business Owners (2007), Hispanic-owned businesses are the fastest growing segment of the small business sector, expanding at nearly twice the rate of the national average between 2002 and 2007. What’s more, Hispanics owned 2.3 million nonfarm U.S. businesses operating in the fifty states and the District of Columbia in 2007, an increase of 43.7 percent from 2002.

The Kaufman Index of Entrepreneurship found that, even in the face of this economic crisis, the entrepreneurship rate among Latinos has increased.  These rates are higher yet among immigrants.

For example, Kansas City, MO, a city like so many that is experiencing a Latino population boom, is home to family-owned Mary’s Hair Salon. Established last April, Mary’s Salon offers bilingual customer services. Karen Caballero (owner/daughter) and Maria Barron (business administrator/mother) have a mission to provide quality hair salon services at affordable prices. Ms. Caballero and Ms. Barron received technical support and training from the Hispanic Economic Development Corporation of Kansas City (HEDC), a nonprofit organization dedicated to providing bilingual and bicultural support to Kansas City’s small business community. A strong entrepreneurial drive and some strategic support from HEDC, were key ingredients to this small business success. Ms. Caballero and Ms. Barron originally wanted to start with two hair stylists to meet the demands of their clientele but quickly developed the need to hire two more. The business now employs five people.

Nicolas Canales launched Spanish Black Belt in 2004, a Spanish language institute that specializes in high-powered tutoring programs. After being turned down by a major bank for having a fledging business, Nicolas started his business with a $ 30,000 micro-loan from Latino Economic Development Corporation in Washington, DC and has created 20 jobs. Since launching his business, Nicolas has doubled the size of his teaching staff, increased his revenues by 150 percent, and Spanish Black Belt has entered new markets including Denver and New York.

With so many unemployed people turning to small business strategies to earn a living, our political leaders and Federal small business policy should place a greater focus on delivering capital and technical support to micro businesses.

Wouldn’t it be refreshing for Speaker Boehner to balance his vision of wealthy job creators by recognizing the job creating potential of small business owners like Ms. Caballeros? And wouldn’t it be encouraging for President Obama to put more muscle behind making federal agencies – whose job it is to focus on growing small businesses – really work for Mr. Canales and the thousands of other entrepreneurs across the country that are adding people to their payrolls?

So who are job creators?  I’ll offer my own admittedly partial picture – Latinos, that’s who. 

From:The Blog