Obama: “How do we get businesses to start hiring again?”

http://www.usatoday.com/money/economy/2009-12-03-obama-jobs-summit_N.htm

President Obama kicked off the start of his jobs summit at the White House yesterday by challenging participants with the question, “How do we get businesses to start hiring again?”  What he is interested in, of course, is what the government can do to facilitate the process of boosting hiring in the private sector.  (What the government can do itself to boost hiring in the public sector is an entirely different question.) 

He got the predictable responses from business leaders.  Disney’s CEO wants to flood the country with immigrants to boost attendance at Disney World.  To a man, he and other CEO’s want tax breaks.  Only Teamsters’ leader James Hoffa raised the issue of trade policy, a suggestion that surely fell on deaf ears.

Putting all of the self-serving suggestions aside, what really would be an effective way to address the president’s question?  The following is a simple flow chart that explores the various options that would boost hiring by private business:

Hiring Flow Chart

There are two broad approaches.  The first is to boost sales.  The second is to boost hiring without boosting sales – in effect, reducing productivity.  There are four options that could accomplish the goal of the first approach and two options to accomplish the goal of the second.  Those options are high-lighted in green, yellow and red to indicate those actions that would be effective (green), marginally effective (yellow) and either ineffective or counter-productive (red).

The only two highly effective approaches would be to (a) impose tariffs to drive a dramatic boost in sales for domestic businesses (option number “1” on the chart), and (b) to legislate reductions in productivity (things like a shorter work week, more holidays, more overtime pay, etc.) – (option number “6” on the chart).  This latter approach, however, would also have to be combined with the first approach to prevent making domestic manufacturers uncompetitive relative to imports. 

It’s the latter approach that is employed by many developed nations around the world.  The workers of most developed nations enjoy more leisure time than American workers. 

However, presidents who are more interested in being remembered as world leaders and diplomats instead of effective leaders of the American people(and Obama has already proven himself to be one of these by refusing to address our failed trade policy), is unlikely to opt for either of these approaches.  Instead, we continue to pursue option 3 – growing our population, which is perhaps the worst choice of all – while considering only those other options which will be marginally effective and which will all increase the deficit. 

In the end, though, this jobs summit will prove to have been nothing more than political theater.  Nothing will come of it that wouldn’t have been done anyway – more deficit spending, probably the result of tax breaks.  As this morning’s unemployment report has demonstrated, deficit spending has already begun to reverse the unemployment trend and so it is deficit spending that the government will continue to rely upon.  All the while they will say, “We need to get serious soon about cutting the budget deficit, but now is not the time.”  Without fixing our broken trade policy, that time will never come.

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28 Responses to Obama: “How do we get businesses to start hiring again?”

  1. Ben says:

    This should be simple. The fact that Obama is doing this is idiotic. It says he is clueless.

    Cut taxes for businesses and pass legislation demanding banks start loaning to business.

    There is so much uncertainty our there that business leaders are just sitting on the side line waiting for the economy to stabilize. Under these conditions, I wouldn’t jump in either.

    Enticement is the only way to get business running again.

  2. Ben says:

    To expand on the uncertainty thing, business doesn’t know what to expect from Obama’s programs. It’s unsettling to them. They say they don’t yet know the full impact the health care bill will have on their business models. Then there is the upcoming Cap and Trade fiasco waiting in the wings. This creates even more uncertainty about how it will adversely affect their profit margin. So they’re waiting to see while they are trying to cut costs in anticipation.

    So it appears then, the problem affecting the economy is Obama himself. His brand of changes create fear, uncertainty and doubt.

    Fix the economy = since he won’t resign, Obama should sit down and shut up.

  3. ClydeB says:

    We’ve just about passed the point where cutting taxes will produce the needed results. When we have so many folks not working, it makes little difference what the tax rate is. With respect to business taxes, get ready for increases, not reductions.

    The uncertainty of what the insurance regulations, cap and tax lugs plus the planned new war cost surcharges will do to the bottom line are definitely obstacles to hiring more workers.

    Lack of demand is another thing that must be considered. So long as the welcome mat is out for foreign goods, as it is now, the demand for domestic production will be diminished. The range of foreign made products on the shelves is deplorable, as is the corresponding lack of “Made in USA” items.

    Tariffs on imports would raise prices, no doubt, and some of us, such as retirees who would not benefit from the increased employment opportunities, will necessarily have to bear the increased cost. The overal benefit to be derived from the “jobs boom” will greatly offset any short term cost increase.

    Just imagine what the increased flow of earned dollars would do to the local economy in virtually every city and town in the country were we to have the payroll represented by the ship loads of ‘stuff’ coming in to the country every day.

    We’ve been building this monster for 5 decades and it is hugh, but the simple act of eliminating subsidies for foreign payrolls would kill it.

  4. Ben says:

    If Obama were to do anything at this time, it would be to call for a press conference to announce
    1. he will not sign this version of the health care bill,
    2. that he will not sign the American Clean Energy and Security Act and
    3. that he will not sign the Cap and Trade bill.

    In addition, he should announce he will cut taxes for both business and individuals and will support legislation to force the banks to begin loaning to business and consumers.

    • Pete Murphy says:

      Ben, I think you’re placing a bit too much blame on the uncertainty created by Obama’s agenda. Businesses will hire if the sales are there, at which point they won’t give a rat’s behind about Obama’s agenda. As I see it, if Obama wants businesses to start hiring again, the key is to stimulate sales, which means consumers need to buy more American products. Since consumers are already maxed out, the only way to boost domestic sales is to steer sales toward American businesses and away from imports.

      • Ben says:

        Business abhors uncertainty. Right now, it doesn’t know what to expect from Obama’s programs. It finds them unsettling and creating more questions than answers.

        This is exactly what the business leaders at Obama’s summit meeting are telling him.

        Take the concerns of American businessmen like David Taylor. Taylor is a leader of the Pennsylvania Manufacturers’ Association. In an interview with a Pennsylvania newspaper in anticipation of the president’s visit, Taylor delivered a point-by-point repudiation of the White House and the Democratic Congress’ big-government, big-spending, high-taxing plan for the economy.

        Taylor expressed the same concerns heard this week in a series of “Real Jobs Summits” with small-business people and entrepreneurs in Cincinnati, Ohio and Jackson, Miss.: Out-of-control government spending and bureaucratic red tape in the form of Democratic health, cap-and-trade and big-labor legislation are crippling America’s engines of job creation, our small businesses.

        “The government does not create wealth. The government does not create jobs,” Taylor said. “The government’s role is to allow the energy and the initiative of the American people to emerge in the marketplace. That’s where wealth is created. That’s where jobs come from.”

        You can’t get the business engine to perform as required when you constantly threaten to starve it of fuel.

        This means leave business alone. Don’t shackle it with threats of a business unfriendly environment.

        That is exactly what Obama’s policies are doing… ie. threatening that environment.

      • Pete Murphy says:

        Ben, tax policy is really outside the scope of this blog, so I won’t comment on it except to point out that federal revenues, as a percentage of GDP, are at historically low levels. As long as tax rates are anything above zero, business leaders will always complain that they are too high.

        When it comes to “engines” for driving business, tax policy pales in comparison to the demand for products. And right now, nothing stifles the demand for American-made products more than bone-headed trade policy that trades away the American market without getting access to equivalent markets in return.

  5. Mark A. Hall says:

    Nice flow chart Pete…….

    I vote for Plan # 1………

    Unfortunately, our government officials seem to be leaning toward Plan # 2.

    The color coding is nice, but since our government officials also tend to view things through rose colored glasses, an additional rating scale might be required.

    Example:

    Plan # 1 = 5 stars

    Plan # 2 = 1/2 star

    • Pete Murphy says:

      Mark, are there any other options you’d add to the list?

      • Mark A. Hall says:

        Pete:

        It looks like your list of options is pretty much complete.

        I favor import restrictions and/or tariffs because they can be used to establish policy and also be targeted toward the countries that are problems.

        A taxed based solution involving incentives for domestic job creation will also adversely affect countries that are playing the game fairly.

  6. Ben says:

    RE:tax policy is really outside the scope of this blog…
    ??
    I thought we were talking about “How to get business to start hiring again”

    “A taxed based solution involving incentives for domestic job creation will also adversely affect countries that are playing the game fairly.”

    RE:I favor import restrictions and/or tariffs because they can be used to establish policy and also be targeted toward the countries that are problems.
    This has a way of coming back around to bite us. When we initiate this policy against a country, that country responds with the same to us.

    Not a good idea.

    • Ben says:

      RE:tax policy is really outside the scope of this blog…
      FedEx CEO Frederick Smith called for lowering the corporate tax rate — an idea echoed by other CEOs, including Iger. “Our corporate tax rate is simply not competitive,” Smith said. “It advantages financial services at the expense of industry.”

      Cutting taxes is item 2 on the chart.

    • Pete Murphy says:

      Ben, this is the scare tactic used by all free trade cheerleaders. But the fact is that we have an $400 billion trade deficit in manufactured goods, so we hold all the cards. Any nation that tries to play the retaliation game will be cutting off their nose to spite their face. Ultimately, in a total cessation of trade with those nations, the U.S. would come out a big winner. There’s absolutely nothing to fear from the population density-based tariff structure on manufactured goods that I’ve proposed in my book. Of course, you’d have to read the book to understand the plan and the logic.

  7. Donald Bly says:

    How to get businesses to start hiring is really quite simple. Forget government intervention, it simply leads to more problems and then more intervention ad infinitum.

    Kill the health care bill
    Kill the cap and trade bill
    Kill the labor union “card check” bill
    Earmark unspent stimulus money for SMALL business loans.

    The number one killer of business expansion is quite simply uncertainty.

    • Donald Bly says:

      Also… although I am in favor of lower corporate tax rates as a long a haul strategy for attracting investment funds, 70% of new jobs are created by small businesses which are typically sole proprietorships and LLCs.

      Perhaps reducing the corporate tax rate for companies with fewer than 500 employees might be a good idea. Of course we should all know by know that businesses don’t actually pay taxes, they simply act as collection agents for the government as ultimately it is the consumer that always foots the bill for any taxes levied upon business.

      I looked at your “flow charts” and don’t think any of the options listed are viable. Simply more gov intervention.

      • Pete Murphy says:

        Donald, Obama asked the question because he wants to know what government can do to facilitate business hiring. That’s why the chart has government solutions. I was responding to his question.

        Fixing trade policy isn’t government intervention, any more than reducing tax rates on small business is government intervention. Government is a necessity and fact of life. Policies that it enacts have effects. Bad policies need to be fixed. And if “government intervention” is such a bad thing, why is it that countries like China, Japan, Korea, Germany and others with far more government involvement in industrial policy are consistently kicking our asses in international trade?

      • Donald Bly says:

        Trade policies and taxation are both government interventions.

        I am pretty much a free trade purist.

        However, when it comes to corporations i do not view them in the same light as I do the private citizen; it is my contention that since they are constructs of the state they are a different breed and therefore not entitled to the same kinds of protections and liberty that a citizen is guaranteed.

      • Pete Murphy says:

        Don, I hope that you’ll take a little time to read about my theory. If you do, you may change your mind about free trade. To put a whole book’s worth of explanation into a tiny nutshell, free trade in natural resources and free trade in manufactured goods between nations of relatively equal population density is indeed beneficial. However, free trade in manufactured goods between nations grossly disparate in population density is an almost sure-fire loser for the less densely populated nation. A large trade deficit and loss of jobs is virtually assured from the outset – tantamount to economic suicide. May I suggest you read the “free trade?” page of this blog and the “the theory explained” category? It’s a fair amount of reading, but I think you’ll find it to be a real eye-opener.

    • Donald Bly says:

      One other idea…. deport every illegal alien in this country and see how many job opportunities open up. I’d say give them 90 days to sell their assets and to return to their land of origin. Failure to depart within the 90 days would mean that when caught any assests would be auctioned with the proceeds used to pay down the national debt, then they’d be deported.

      In addition any medical bills incurred by illegal aliens while in theis country should be billed to their country of origin.

      • Pete Murphy says:

        We’re on the same page on this one, Don. But you’re more generous than I. I’d confiscate all property not brought into the country with them as ill-gotten gains and give them nothing more than a ride home.

    • Pete Murphy says:

      Kill all that stuff and we’ll be right back where we were before Obama took office – in economic free-fall. That’s not to say that these things are playing a key role in or, conversely, hampering an economic turn-around. They aren’t. And it’s not to say that the economic crash was Bush’s fault. It wasn’t. What I’m saying is that we’d be back where we’ve been headed for decades – in slow, steady economic decline. Small business loans, tax cuts and all the other Mickey Mouse economic fixes we’ve employed for the past three decades haven’t made a bit of difference. Until we address the real root cause of our problems – trade policy that has racked up a cumulative deficit of nearly $10 trillion since our last trade surplus in 1975, the global trade imbalance that was the root cause of the global economic collapse, nothing is going to improve.

      • Donald Bly says:

        If you want to fix a trade imbalance you need something to export other than our manufacturing base. Our “slow economic decline” can be directly traced back to the loss of our manufacturing base.

        The root cause of the recent economic collapse can be traced to Jimmy Carter’s Community Reinvestment Act, which at the time was a rather benign piece of legislation because most banks were local and had an understanding of the enviornment in which they were required to make loans. It was the Clinton administration that modified the CRA requiring hard numbers to prove that loans were being made in disadvantaged areas. This was exasperated by the fact that the banking enviornment had changed and rather than local banks but larger national banks that were unfamiiar with the local economic climate.

        The loans were packaged into mortgage backed securities that were loaded with sub-prime loans whose default rates ran into the 7 to 9% range. Hardly warranting the AAA ratings that they were being given.

        The best policy of all is for government to get the hell out of the way of the american entreprenuer. However, with that said I think there is ample room to “think outside of the box” when it comes to public corporations/global corporations. There was a time when corporate charters were limited to 5 to 10 years. Rockefeller felt these limits were to restrictive for his tastes and they were changed to suit his needs. (Always corrupt politicians around when you need them if you can afford them)

        You’re seeing an evolution here. Civilizations have progressed from tribal to city states to nation states to corporate states and the corporate state has no real concern about the economic viability of the citizens of any particular nation state.

        Since the corporation is an artificial construct of the state many restrictions could be placed upon such organizations that would not apply to sole proprietorships and LLCs. It isn’t often that the small family business uproots it’s factories and moves them to third world enviornments in order to exploit 3 cent per hour wages.

        Perhaps a restriciton on Corporate Executive pay to say 50 times that of the average salary of its employees would make executives think twice about relocating from an area where the avg salary is $15 an hour to an area where the avg wage is 3 cents an hour… but that is thinking outside of the box!

      • Pete Murphy says:

        The loss of our manufacturing base can be traced to the signing of the Global Agreement on Tariffs and Trade in 1947. Prior to that, we made intelligent use of tariffs to build the U.S. into the world’s preeminent industrial power. Now we give every manufacturer on earth free access to the American market without getting access to equivalent markets in return. The problem isn’t our ability to export. The problem is the inability of our trade partners to consume at a level that offsets our imports with exports to them.

  8. ClydeB says:

    Developing a long list of things we could export would be great, but if only we manufactured that which we need, the trade imbalance would disappear in short order. The tariff proposed by Pete would bring this change about, since the market would no longer be flooded with foreign goods. Plus the stuff that did come in would be supporting the trade defecit reduction.

    Prices would likely go up but no where near as much as wages would. I’m talking real wages based on work performed and goods produced, not tax payer funds relabeled “stimulus funds” and used to fake jobs.

    So far as the tax structure changes, I’d eliminate the corporate tax completely, repeal the 16th amendment and institute a consumption tax with appropriate consideration for the poor and low income citizens.

    Secure borders with severe limits on immigration are a must.

  9. Donald Bly says:

    Tomato tomata

    I believe what you are describing as population density I describe as “cheap labor”.

    I have some real life experience in the area of manufacturing base export. I personally handled the paperwork to ship 7 million plus hours of manufacturing/engineering labor to India and Russia through my work with the Global Technologies Group of Boeing. This was done at a time when Boeing had just laid off 65,000 plus workers. Ironically, my last act at Boeing was to ship my own job to India.

    The impetus for this transfer was government intervention through various trade agreements that required the outsourcing of these jobs to foreign workers.

    Nations rich in raw materials have little reason to import much except those materials for which there is no local source. One company I have worked for, bought the entire Westinghouse Electron Vaccuum Tube manufacturing line and then promptly sold it to China then imported the finished goods that we needed while China exported those products to our past clients around the world. We became a net importer when we had been an exporter. In this instance I’m not privy to the nature of the government “deals” that were made that fomented this entire process.

    One can speculate that the development costs had been ammortized and the equipment depreciated to the point that there was little accounting benefit for keeping the manufacture of the products within the US and the retention of the US work force. If this is the case then we again see government intervention at work through the tax laws imposed on our industry, creating incentives to sell otherwise profitable enterprises.

    If we were manufacturing and consuming our own products there would be no need to import them thus lowering our imports and reducing the need for other nations to consume the ever dwindling amount of products we have available for export in order to balance trade.

    Other than our natural resources, manufacturing and innovation is the key to a our wealth creating capacity. We simply cannot consume endlessly without also creating and doing it efficiently.

    I will attempt to peruse your theory in the very near future.

    • Pete Murphy says:

      Don, regarding the “cheap labor” comment, you may be implying that cheap labor is the driving force behind our trade deficit. It is a factor, but a minor factor. It is dwarfed by population density. Of our top twenty per capita trade deficits in manufactured goods, only seven are with relatively poor nations. (The top of the list is dominated by nations like Ireland, Japan, Germany, Denmark, Switzerland, Israel, Austria, Korea and others.) On the other hand, 18 are with nations much more densely populated than the U.S.

  10. Mark A. Hall says:

    TRADE POLICY….

    Let the facts speak for themselves…

    Example: CHINA

    2005

    China Exports to World = $762.0 Billion
    China Imports from World = $660.0 Billion
    China Trade Surplus with World = $102.0 Billion

    China Exports to U.S. = $243.5 Billion (31.96% of total)
    China Imports from U.S. = $41.9 Billion (6.35% of total)
    China Trade Surplus with U.S. = $201.6 Billion (197.65% of total)

    2006

    China Exports to World = $968.9 Billion
    China Imports from World = $791.5 Billion
    China Trade Surplus with World = $177.4 Billion

    China Exports to U.S. = $287.8 Billion (29.70% of total)
    China Imports from U.S. = $55.2 Billion (6.97% of total)
    China Trade Surplus with U.S. = $232.6 Billion (131.12% of total)

    2007

    China Exports to World = $1,127.8 Billion
    China Imports from World = $956.0 Billion
    China Trade Surplus with World = $171.8 Billion

    China Exports to U.S. = $321.4 Billion (28.50% of total)
    China Imports from U.S. = $65.2 Billion (6.82% of total)
    China Trade Surplus with U.S. = $256.2 Billion (149.13% of total)

    2008

    China Exports to World = $1,428.5 Billion
    China Imports from World = $1,133.0 Billion
    China Trade Surplus with World = $295.5 Billion

    China Exports to U.S. = $337.8 Billion (23.65% of total)
    China Imports from U.S. = $71.5 Billion (6.31% of total)
    China Trade Surplus with U.S. = $266.3 Billion (90.12% of total)

    * Information obtained from WTO and U.S. Census Bureau websites.

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