Growing Business-Builders Essential to Growing Economy

While the president painted a deceptively rosy picture of our economy in his State of the Union address, a more reality-based assessment was delivered recently by Gallup CEO Jim Clifton in Business Journal. He argues that American leaders, having misdiagnosed the cause and effect of economic growth and job creation, are making our economic problems worse.

"This economy is never truly coming back unless we reverse the birth and death trends of American businesses," asserts Clifton. "When small and medium-sized businesses are dying faster than they're being born, so is free enterprise. And when free enterprise dies, America dies with it."

• Approximately 6 million businesses with one or more employees in the U.S.—the real engines of economic growth—provide jobs for more than 100 million Americans and much of the tax base for everything, from military to social safety net spending.

• Since 2008, U.S. business "deaths" (shut-downs) have outnumbered new business "births" (start-ups), and we have fallen to 12th among developed nations in terms of business start ups behind countries such as Hungary, Denmark, Finland, New Zealand, Sweden, Israel and Italy.

• Fewer businesses mean declining revenues and smaller salaries to tax, followed by declining aid for the elderly and poor and declining funding for the military, for education, for infrastructure — in short, for everything.  

Citing Gallup polling data showing Americans believe the economy (59%) and federal spending and budget deficit (58%) are cause for a "great deal" of worry, Clifton argues that ordinary people seem to intuitively understand what America's leaders do not:  that businesses and entrepreneurs are the critical drivers of a strong economy.

Our leadership keeps thinking that the answer to economic growth and ultimately job creation is more innovation, and we continue to invest billions in it. But an innovation is worthless until an entrepreneur creates a business model for it and turns that innovative idea in something customers will buy. Yet current thinking tells us we're on the right track and don't need different strategies, so we continue marching down the path of national decline, believing innovation will save us.

Because we have misdiagnosed the cause and effect of economic growth, we have misdiagnosed the cause and effect of job creation. To get back on track, we need to quit pinning everything on innovation, and we need to start focusing on the almighty entrepreneurs and business builders.

Source: American Entrepreneurship: Dead or Alive?, Jim Clifton, Business Journal, January 13, 2015

Obamacare's Hidden Taxes on Jobs, Wages

Many have already felt the pain of Obamacare's impact on their health insurance coverage and medical care, but that's only half the story. The other half is the negative, long-term impact Obamacare has on jobs and the opportunity for personal career advancement, as University of Chicago economics professor Casey Mulligan explains in the November Imprimis.

The key is Obamacare's "tax distortions," i.e., those changes in behavior on the part of businesses and households for the purposes of reducing their costs (tax burdens) or increasing their subsidies (tax benefits). These tax distortions "create all kinds of productivity problems and will have visible and permanent effects on the economy."

Obamacare effectively creates three new hidden taxes on full-time employment and business expansion via the employer mandate and the federal premium subsidies:

• Since the employer mandate applies to full-time employment, Obamacare effectively penalizes (or taxes) employers who offer full-time employment to workers and rewards employers who offer part-time employment to workers.
• Since the employer mandate applies only to employer with 50 or more employees, Obamacare effectively discourages (or taxes) businesses that grow and expand, hurting employees who would have advanced financially as a small business grew into a larger, more profitable business.
• Since state exchange premium subsidies (tax breaks) are progressive and based on worker earnings — the more a worker earns, the less he/she receives in government tax breaks — Obamacare effectively creates a new hidden tax on wages.

"In conclusion," writes the author, "I can make you this promise: If you like your weak economy, you can keep your weak economy."

Source: Effects of the Affordable Care Act on Economic Productivity, Casey Mulligan, Imprimis.

New Labor Dept Rules Would Hit Working Women Hardest

The Department of Labor's proposed new rules on overtime pay would significantly hurt working women's ability to negotiate workplace flexibility tailored to their personal and family needs, argues economist Diana Furchtgott-Roth.

• The new rules would apply to several million new female workers who are currently classified as executive or professional, many of whom now enjoy highly valued workplace flexibility.
• The new rules would prevent women from negotiating "comp" arrangements in which they take additional time off in exchange for extra time worked.
• The new rules would have a chilling impact on women's opportunity to telecommute and/or work from home, since employers will be required to keep careful track of worker's hours to avoid being sued for overtime violations. Working mothers, in particular, find these flexible work arrangements highly beneficial when a child becomes sick or a babysitter cancels.

A better solution for working women, argues the author, would be to leave undisturbed the workplace flexibility that many millions of women have already successfully negotiated.

As for "comp" arrangements, she argues another proposal — the Working Families Flexibility Act of 2013, which passed in the U.S. House of Representatives last year — would be a more woman-friendly solution:  offering "workers who worked more than 40 hours a week a choice of 1.5 hours of comp time per overtime hour worked, rather than overtime pay." 

Source: Obama's War on Working Women, by Diana Furchtgott-Roth, Manhattan Institute.

CBO: Obamacare To Destroy 2.5 Million More Jobs

"The Congressional Budget Office (CBO) just released its latest analysis of the country's economic and budget outlook, and it's a doozy," writes Sean Davis @ The Federalist.

If you're a Denver Broncos fan who watched in horror as your team disintegrated during the Super Bowl on Sunday, then you'll have some idea of how Obamacare's proponents will feel as they read this report. Yes, it's that bad. ...

As predicted by its conservative opponents, Obamacare has indeed destroyed jobs, increased spending, and made health care less accessible.

Here are 5 facts from CBO’s report that illustrate how the [Affordable Care Act] law’s effects bear no resemblance whatsoever to its namesake’s promises.

1. Obamacare will destroy 2.5 million jobs by 2024 — Report: "The reduction in CBO's projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2 million in 2017, rising to 2.5 million in 2024." 
2. In 2024, there will still be 31 million people in the U.S. without health insurance — Report: "Still, according to estimates by CBO and JCT, about 31 million nonelderly residents of the United States are likely to be without health insurance in 2024, roughly one out of every nine such residents."
3. Millions of people who liked their health plan will lose their health plan — Report: "CBO and JCT project that, as a result of the ACA, between 6 million and 7 million fewer people will have employment-based insurance coverage each year from 2016 through 2024 than would be the case in the absence of the ACA."
4. Obamacare reduces the incentive to find and keep a job — Report: "By providing subsidies that decline with rising income (and increase with falling income) and by making some people financially better off, the ACA will create an incentive for some people to work less."
5. Your paycheck will be smaller thanks to Obamacare — Report: "In addition, beginning in 2018, the ACA imposes an excise tax on certain high-cost health insurance plans. CBO expects that the burden of that tax will, over time, be borne primarily by workers in the form of smaller after-tax compensation ... After-tax compensation will thus fall ..."

Read more:
The Budget and Economic Outlook: 2014 to 2024, CBO
Five Devastating Obamacare Facts from CBO's Latest Economic Report, Sean Davis, The Federalist
CBO Nearly Triples Estimate of Working Hours Lost by 2021 Due to Affordable Care Act, CNBC
Obamacare Will Push 2 Million Workers Out of Labor Market: CBO, Stephen Dinan, Washington Times

Pennington: Millenials Can Do Something About this Mess

Millenial Maura Pennington, writing in Forbes with a followup in Ricochet, laments that millions of her peers "Live at Home and Support the Policies That Keep Them There."  She argues the solution is to "stop supporting anti-growth politicians pushing agendas that strangle the economy, weaken the dollar, and surreptitiously erode civil liberties."

Consider this isn't the first time young people have faced a sluggish economy ... When Ronald Reagan took office, there was double-digit inflation and unemployment.  In December 1982, unemployment hit 10.8%, which is higher than anything we’ve experienced since.  Yet, with a strengthening of the dollar luring investors back to American business concepts, and a decrease of the income tax penalty on productivity, by the time Reagan left office, unemployment was down to 5.3%, the S&P 500 had soared over 200%, and inflation was all but forgotten.  People were working.  For the twenty-somethings who remember their first birthday parties or Christmas mornings in the late 1980s, it was a time of plenty.

Be of Good Cheer, Conservatives

2012 had more than its share of disappointments for conservatives. The twisted logic of the Supreme Court's Obamacare decision—a law forcing people to purchase health insurance isn't constitutional, so we'll make the it constitutional by calling it a tax—was unfathomable. The growth of food stamps and federal welfare payments (to $1.03 trillion annually) was staggering. The U.S.'s precipitous drop out of the top 10 in the world's Prosperity Index was disheartening. The reelection of a liberal-progressive president—whose policies had utterly failed the nation by every economic measure—was shocking.

The country has weathered dark liberal-progressive storms in the past, and it will again. As Amity Shlaes makes clear in her book, The Forgotten Man, Franklin D. Roosevelt (the current president's hero) prolonged the Great Depression in the U.S. long after other industrialized nations were back on their feet. He, too, waged class warfare, persecuted and vindictively taxed business people, regulated the private sector into paralysis, and showered political favors on groups and business cronies that cozied up to him. Many of FDR's failed economic policies left with him, however; and America's economy rebounded, enjoying more than a half-century of innovation, growth and prosperity. The FDR experience serves as a reminder that the present circumstances may be disheartening, but the future still holds promise.

One example of that promise is domestic energy. Today while the White House pursues the fool's gold of green energy policies, trillions of dollars of black gold sit waiting beneath America's feet and just off her shores. Try hard as he may, this president can neither un-invent the technology that is making America's black gold rush possible nor un-discover the vast fields of natural resources available to the nation. He can only succeed in delaying their full potential. (Read more about the amazing energy boom.)

So be of good cheer. America's natural and human resources are her strength, and they still offer a bright future. 

"English Majors Are Exactly Who I'm Looking For"

Michael Moore's article in the WSJ will bring a smile to humanities majors.

A few months back I invited a friend to speak in front of my professional writing class. Santosh Jayaram is the quintessential Silicon Valley high-tech entrepreneur: tech-savvy, empirical, ferociously competitive, and a veteran of Google, Twitter and a new start-up, Dabble. Afraid that he would simply run over my writing students, telling them to switch majors before it was too late, I asked him not to crush the kids' hopes any more than they already were.

Santosh said, "Are you kidding? English majors are exactly the people I'm looking for."

"Trading Caps and Gowns for Mops"

Quentin Fottrell reports on two surveys of 18- to 29-year-old working college grads. An online survey of 500,000 young workers by Payscale.com found that "while 63% of 'Generation Y' workers have a bachelor's degree, the majority of the jobs taken by graduates don't require one." Another survey by Rutgers University reported that "half of graduates in the past 5 years say their jobs didn't require a four-year degree and only 20% said their first job was on their career path."

Worse, employers are hiring older workers over younger ones:

The jobs that once went to recent college graduates are now more often going to older Americans. Over the past year, workers over 55 accounted for 58% of employment growth, says Dean Baker, a co-director of the Center for Economic and Policy Research, a nonprofit think tank in Washington, D.C. Why? Employers think older workers are a safer bet and more likely to stay, he says. Unemployment hovered at 6.2% in July for workers over 55, according to the Labor Department, but was more than double that rate — 12.7% — for those ages 18 to 29. As a result, college graduates are finding themselves locked into lower-paid jobs.

U.S. Energy Promises 3.6 Million Jobs

The U.S. fossil fuel energy news — and its potential for rebuilding our stalled economy — gets better and better. Citigroup Inc. estimated in a March report that a 'reindustrialization' of America could add as many as 3.6 million jobs by 2020 and increase the gross domestic product by as much as 3 percent. Bloomberg's Asjylyn Loder reports:

• U.S. natural gas production will expand to a record this year, and oil output swelled in July to its highest point since 1999.
• A surge in U.S. natural gas development has spurred $226 billion in spending plans on pipelines, storage, processing facilities and power plants, most slated for the next five years.
• The expansion of fossil-fuel production - coupled with a weak economy and increased energy efficiency - has helped the U.S. pare its crude oil imports by 17 percent since the 2005 peak
• Increased production and swelling domestic stockpiles have helped make energy cheaper in the U.S. than in other countries.
• So far, the economic benefits have been confined to states such as Louisiana, Texas, and North Dakota, but there are signs the economic gains have begun to expand beyond the oil and gas fields to industries from steel, aluminum, automobiles, fertilizers and chemicals. Orascom Construction Industries, for example, is investing $250 million restarting an ammonia and methanol plant in Texas, and another Orascom subsidiary may build a $1.3 billion fertilizer plant in Iowa that would create as many as 2,000 construction jobs and 165 permanent positions.

"This is one of those rare opportunities that every country looks for and few ever get," said Phillip Verleger, a former director of the office of energy policy at the U.S. Treasury Department and founder of PKVerleger LC, a consulting firm in Carbondale, Colorado. "This abundance of energy gives us an opportunity to rebuild our economy."

Full story: America's Energy Seen Adding 3.6 Million Jobs Along with 3% GDP.

Tough Love for 2012 Grads

Bret Stephens at the WSJournal delivers a hard dose of reality to the Class of 2012 — one that just might help them beat the odds in today's "lousy economy."

...since you're no longer children, at least officially, it's time someone tells you the facts of life. The other facts.

Fact One is that, in our "knowledge-based" economy, knowledge counts. ... Many of you have been reared on the cliché that the purpose of education isn't to stuff your head with facts but to teach you how to think. Wrong.

To this Stephens adds insight on prospective employers, résumés, and competition in the marketplace. A tough but valuable read.

YahooNews: 1 in 2 New Grads Jobless, Underemployed

"The college class of 2012 is in for a rude welcome to the world of work," begins the Yahoo news story. "A weak labor market already has left half of young college graduates either jobless or under-employed in positions that don't fully use their skills and knowledge." Here are the highlights:

• about 1.5 million, or 53.6 percent, of bachelor's degree-holders under age 25 last year were jobless or underemployed, the highest share in at least 11 years (about half of these were underemployed)
• stronger demand in science, education and health fields, but arts and humanities fields flounder
• more grads were employed as waiters, waitresses, bartenders and food-service helpers than as engineers, physicists, chemists, and mathematics combined
• more grads were employed as cashiers, retail clerks and customer representatives than engineers
• those who majored in zoology, anthropology, philosophy, art history and humanities were least likely to find jobs appropriate to their education level
• those with nursing, teaching, accounting or computer science degrees were among the most likely to find appropriate jobs

Jobs of the Future, Not the Past

Liberal nostalgiacs don't understand jobs of the future, reads a Michael Barone headline. Liberals live in the by-gone era of the lifetime unionized assembly-line manufacturing jobs and white collar mega-corporation careers. That nostalgia shapes liberals' economic policies and thwarts opportunities for today's job-hunting, career-building young people. "The good news," writes Barone, "is that information technology provides the iPod/Facebook generation with the means to find work and create careers that build on their own personal talents and interests."

Barone draws attention to a "brilliant the-american-interest.com blog" post by Walter Russell Mead, who challenges the Left's backward-looking vision of "wealth and celebrity for a handful, hunger games for the rest."

But here, I think, is what they miss. The young people who find that the doors to secure upper middle class lives as lawyers or as members of other safe and respectable professions are closed aren’t going to sit peacefully in their parents’ garages for the next forty years. Some may — more, if marijuana is legalized and prices fall.

But there are going to be a lot of people who are well-educated, ambitious, and expect something more out of life than a beanbag chair, a sound system and a bong. The creativity and enterprise of this generation is the resource that can (and in my view, will) power America’s economic renaissance and lead us into a new kind of economy.

These kids have been raised to point toward bureaucratic, institutional success. Go to school, stand in line, keep your nose clean, get the grade, get into the next good school, and repeat until you get a job offer. At that point, get on the escalator of success — as an associate in a law firm, for example — and if you do your job well, you will have a reasonably smooth ride to the top.

Graduating into a world that looks less and less like the world they’ve been led to expect, these young adults are going to have to figure out new ways to get ahead. They are going to have to become entrepreneurs. Some will go to work as freelance college and educational consultants. There are lots of parents who don’t think their kids are getting all the help they need from their guidance counselors. Some will come up with new products or new services and take advantage of today’s open media and low costs to develop smart niche businesses that haven’t existed before.

Mead also chastises state governments that woo big corporations at the expense of new small business start-ups.

If local, state and federal governments want to prep the country for a brighter future and get us through the transition doldrums into a new era of innovation, growth and full employment as quickly as possible, they need to try to figure out what they can do to help a new and hungry generation of entrepreneurs launch businesses and careers.This is almost always going to be about dismantling barriers rather than creating new “helping bureaucracies.”...

The Mikes (and the Debbies and the Kishawns and the Chantelles and the Maliks and the Fatimas and the Juans and the Marias of this world) do need help. The career paths they’ve been trained for are narrowing and they are going to have to launch out in directions they and their teachers didn’t expect. They were bred and groomed to live as house pets; they are going to have to learn to thrive in the wild.

Yet the future is bright, Mead argues, if the politicians in charge remove the obstacles.

To give them a chance, America is going to have change directions. We have to stop issuing new and more complex regulations every year — and start to tweak, redesign, simplify and in some cases roll back what we’ve got. We have to stop focusing so much on making this country a safe and predictable environment for big business and large corporations, and look to make it a more welcoming place for start ups.

The faster we do this, the faster our future will start to look brighter. The future is filled with enterprises not yet born, jobs that don’t yet exist, wealth that hasn’t been created, wonderful products and life-altering services not yet given form.

It’s time for America to start clearing a path for this brighter future; a cornucopia is headed our way, but we need to demolish the obstacles that stand in its path.

Mead's article, Post Blue Jobs: Part Two is worth a full read.

Trumpeting Capitalism

Under the headline, The Speech That Mitt Romney Should Give, Kyle Smith makes a great case for capitalism, profits, the private-equity business, and jobs:

A private-equity shop is a little like a trauma surgeon in the ER. You don’t want to meet us. Chances are, you’re having a near-death experience. You don’t go to the ER with a headache. A lot of the companies we dealt with were falling apart. Close to bankruptcy. We did our best to save them. Sometimes we didn’t succeed. But I’m happy to report that we had more success than not. Other companies we did business with were like newborn babies—weak, and desperately in need of support. We provided startup capital for them.

Surgeons, if they’re good at what they do, are handsomely rewarded. So are private-equity shops, if they know what they’re doing. But I think if you talked to the average surgeon, he or she’d say they’re not in it for the compensation. They’re in it for the challenge. They’re in it because they’re good at solving problems, and they’re willing to go to work in a high-stress environment every day because they think they’re up to some of the most hair-raising challenges imaginable. They do society a lot of good. Ultimately the people whose lives they save go on to have children of their own, and those children go on to have children of their own. Ultimately a lot of people are alive because of what ER doctors do.

The immediate challenge is to restore the patient to life. The patient may go out and get hit by a bus tomorrow, but the doctor’s focus is on the health of the patient today. They restore life and health. In private equity, that life and health we try to restore is called profitability. Profitability has to come first. Ultimately no business can survive if it’s not making a profit. Unless it’s the government, in which case it just raises your taxes or borrows money from China that your grandchildren will have to figure out a way to pay.

Profit is not a dirty word. Profit means the health of American business. And when American business is healthy, that’s when it can get on with growth. With creating jobs. ...

Using Apple (Steve Jobs), Facebook (Mark Zuckerberg) and Staples, Smith illustrates the free-market system's positive ripple effect on society, what he calls the "blessings of American capitalism."  Worth a full read.

AEI on the Phony 8.3 Percent Unemployment Rate

If you're worried about jobs, don't miss American Enterprise Institute's Why the Official 8.3 Percent Unemployment Rate is a Phony Number. Author James Pethokoukis points out:

• If the US labor force was equal in percentage to when Obama took office, the real unemployment rate would be 11 percent.
• If all unemployment—including the discouraged (i.e., those who've quit looking) as well as the part-time employed who want full-time work—the unemployment rate would be "a sky-high 15.1 percent."
• "Bottom line: The unemployment rate is dropping because economic growth continues to be so anemic that 4 million Americans have quit looking for work and have been disappeared by the Labor Department."

Pethokoukis explains (with graphics) why a further decline in the "official" unemployment rate over the next few months is not likely to be good news for Americans or Mr. Obama.

Barone: Voters Want Growth, Not Income Redistribution

Conventional wisdom holds that Americans favor big government wealth-redistributionist policies during times of economic distress. At least that's what many of us have been "taught by the great and widely read New Deal historians" — a lesson that "has been absorbed by generations of politicians and political pundits."

But, writes political sage Michael Barone:

I believe that historians have taught the wrong lessons about the 1930s. And I believe there is a plausible and probably correct reason why economic distress has apparently moved Americans to be less rather than more supportive of big government...

Barone analyzes election returns throughout the 1930s to buttress his argument. He also points to a recent Gallup poll confirming that today's voters "realize that they stand to gain much more from a vibrantly growing economy than from redistribution of a stagnant economic pie."

while 82% of Americans think it's extremely or very important to "grow and expand the economy" and 70 percent say it's similarly important to "increase equality of opportunity for people to get ahead," only 46 percent say it's important to "reduce the income and wealth gap between the rich and the poor" and 54 percent say this is only somewhat or not important.
 
In addition, by a 52 to 45 percent margin, Americans see the gap between the rich and the poor as an acceptable part of the economic system rather than a problem that needs to be fixed. In 1998, during the high-tech economic boom, Americans took the opposite view by the same margin.

It turns out that class warfare politics isn't the winner some liberals think, and (as Barone notes) "it hasn't produced a Democratic presidential victory in a long, long time.