Wednesday, August 24, 2011

How Do 'Real' Jobs Get Created in the Real World?

You would like to think that someone in Washington must know how to 'create jobs' with all the talk that emanates from the White House and Capitol Hill on a daily basis, wouldn't you?

If you listen to Republicans talk, you would be led to believe that all you got to do is ‘swear on a Bible!’, spit on both hands like someone about to fell a tree with an axe and then ‘cut taxes’ and the unemployment rate will fall to 2%.

If you listen to Democrats long enough, you would be forced to think that all you gotta do is the following  3-part plan led by our esteemed government leaders in Washington: 1) ‘invest in education and infrastructure; 2) pass more stimulus packages; 3) extend unemployment benefits....and then the economy will turn around on a dime and then more people will get hired because the demand will magically rebound!’

President Obama, unfortunately, seems to have spent way too much time in the hallowed halls of academia studying constitutional law and no time in the economics, entrepreneurial studies or business administration classrooms where the basic rudiments of making fundamental business decisions are taught.

Or in the 'School of Hard Knocks' like millions of people who work on the job every day and learn more about 'marginal analysis', ROI and break-even points in practice than others who 'just study it' or 'talk about it.'

Here's a major problem with both of the current major political party-based myopic visions of business creation:
  • They all act like they are the ones who hold the key that unlocks all the job creation in America.
They don't.  Individual Americans do.  Each and every one of us has the power within us to start a business on our own.  Today.  Right now.  Do you feel up to it?  Think about it seriously.  If not, then why not? Your answer has more to do with why we are seeing such anemic growth in the economy than anything you will see or hear out of Washington, DC.

If we already have a business to run, we also have the power within us today to hire people to help sell more products or services.  Are you going to do it today?  If not, why not?  We have record low interest rates and seemingly calm inflation right now.  What is lacking and preventing you from hiring millions of unemployed fellow Americans this morning?

We have had periods of massive economic growth in America way before we had a federal income tax code to manipulate when it was made constitutional in 1913. America experienced periodic boom cycles when the level of government spending from Washington was a mere pittance compared to what it is today.  It was less than 1% of GDP for the vast majority of our 222-year history, believe it or not, and was ‘only' 3% of GDP before FDR took over the White House in 1933.

To assert that our elected politicians in Washington can manipulate job creation through the twin levers of tax and federal spending policy as the 100% sole 'determinative' factors in the process of job creation is specious at best, and merely dumb at the worst.

Look at the extremely low level of interest rates today.  In effect, 'negative' in some respects relative to inflation expectations.  For years, politicians have been railing against the dangers of high interest rates with the implication being that if they were 'lower', all of our economic problems would be solved such as high unemployment.

Well, take a look around you.  Apparently having next to zero real interest rates ain't the sole primary panacea to a burgeoning economy either, is it?

Every single business that has ever been started, or job that has ever been created, has been the result of some enterprising person who has seen the need or the niche and sought to fill it with their intelligence, talents, hard work and intestinal fortitude.

We'll go so far as to say that jobs funded by government spending or loans are the result of a single person or collective group of people who saw a need that could not be fully filled by the private sector and used public taxpayer funds to build something like the Erie Canal in 1817. These are 'real jobs' as well, just not totally sustainable on their own without continued government largess.

The reason why we delegate public sector jobs to a subordinate position vis-a-vis private sector jobs is because they are totally dependent upon private sector taxpayers making enough profit to pay the taxes to support the public sector jobs in the first place.  If you don't believe it, ask any of the hundreds of professors who have been laid off throughout the University of North Carolina system this year due to a lack of taxpayer funds flowing to the state coffers in Raleigh.

A healthy private sector based on free enterprise is the dog that wags the tail of the public sector, not the other way around as so many seem to want to believe nowadays.  (See Paul Krugman, New York Times Nobel prize-winning economist and columnist)

The thought that there is some 'macro'-economic switch that can just be turned on and off when it comes to job creation is just more than a little bit silly to us.  Every investment decision is made by some human being, not some computer or Tinker Bell tapping some building on the head with her wand and presto! milllions of jobs pour out of 'Big Bad Corporate America'.

Massive job creation in the private sector is far more complicated than a campaign slogan bumper sticker could ever convey.

And the sooner our politicians stop talking about simplistic solutions to our very complicated problems, the sooner we will get out of this forest fire of debt and unemployment that surrounds us all.

All of the tax and fiscal factors have some role to play in a complicated economy as large and as diverse as ours in the U.S. Some are more ‘important’ than others, to be sure. If you want to inflict more than a flesh wound on the US economy, raise tax rates precipitously on business and individuals.  The other way to permanently disable and cripple the US economy is to have an uneducated work force and electorate as Jefferson fretted about way back in the 18th century.

But are any of these the ‘main’ reason why certain people start businesses or business executives in charge of corporations hire more people to work for them?

We think the reasons for starting or expanding businesses are far more nuanced than any single reason or factor. We have seen people start and run successful businesses and make millions of dollars under low-tax environments and other people make many millions under high-tax environments. They make money whether the public schools are failing or the federal government is throwing trillions of dollars at the economy 'hoping' that will do the trick.

Our economic well-being and national security is completely dependent upon having entrepreneurs and business people take risks and invest their money into new technologies, products and services so the rest of us will have jobs and can provide for our families. Unless we want to return to the one Jeffersonian ideal that is not practical anymore, that is, living on farms and living off the land.

Based on decades of conversations with business leaders, both of large and tiny businesses, we have learned this cardinal, inviolable rule of business and job creation:

The answer to creating jobs and growing our economy is based on one thing and one thing only: 'Confidence'.  'Confidence' on the part of business leaders and entrepreneurs to see the future and be able to plan with some sort of high degree of expectation and assurance.

They want to know that the costs of inputs will be affordable in the next 3-5 years.   They want to know they can get credit made readily available by banks and financial institutions to be able to fund new research, growth and development of new products and services.  They want the freedom to make as much profit as their marketing and process management skills will allow.

Right now, today, the majority of business executives, both large and small, are essentially 'on strike' and won't invest in or expand their businesses until they do feel much more confident about the prospects for their future.

No matter how much President Obama demeans them or criticizes them or tries to regulate them out of business.

Tax rate levels and funding education and infrastructure are not 'the' determinative factor to whether entrepreneurs or business people borrow against the home equity in their house, max out 10 credit cards and beg and borrow money from family and friends to A) Start a business or B) Expand their existing business.

‘Confidence' is.

Why should anyone take a huge risk today in the face of all this economic turmoil and confusion and higher taxes on the horizon when the 'safest' thing to do is to maintain the status quo and merely try to stay in business at existing levels and ride this storm out?

One other element of entrepreneurship and business development you hardly ever hear anyone talk about is the 'natural' business/job creator.

We don't think the young high school computer geek goober Bill Gates or the young basketball player who was cut as a sophomore from his Laney High School team in Wilmington, North Carolina, Michael Jordan, were pouring over the intricacies of the US tax code circa 1978 before embarking on careers that would bring both fame and fortune that any Roman Caesar would have envied.

Bill Gates wrote computer code and Michael Jordan played basketball.  That is what they were 'born to do', apparently. They both were internally driven to do each activity better than anyone else on the face of the planet at the time.  They probably would have done so had they not been headed towards becoming fabulously wealthy one day in the future because, quite simply, who could have seen the riches that were before them, including both Bill Gates and Michael Jordan?

No, there is just something 'different' about such people who are driven to be the best and do their very best in whatever they choose to do.  That is 'just what they do' and as a result, thousands of others have been able to become gainfully employed in the wake of the Microsoft Miracle and the Air Jordan Phenomenon.

There is probably a young person right now working on some project in their basement or garage that will bring about the 'Next Economic Revolution' in America much like the Internet Boom has transformed everything in the last 2 decades and the Industrial Revolution changed the world in the 19th century.

We sure hope so. Don't you?

We remember hearing the strident and not-so-prophetic words of Republican House Majority Leader Dick Armey predict the ‘Economic Armageddon’ that would erupt if the tax hikes of President William Jefferson Clinton were passed into law in 1993.

It didn't.

Fact is, within a couple of years of passage of the 1993 Dastardly Bill Clinton Tax Hikes that Bush Cut in 2002 and Obama Extended in 2010, the following companies were started:  Amazon, Yahoo and Google.

Some 600,000 new businesses per year are started, even in an economic downturn like the past 3 years and still counting.  Sometimes especially in an economic downturn: people get laid off; disputes happen over how to keep a company alive in tough times and good employees leave to start a new company.  It happens time and time again.

American free enterprise is like a cockroach convention.  If we could just quit trying to kill them all, business, both new and old, will proliferate like mad and people will get hired again by some enterprising nut working out of his garage just like Bill Gates, Jeff Bezos or Sergey Brin did.

That is how you get new jobs created.  Not by having a President pounding his fist on a table in Washington and demonizing the private sector and playing the class warfare card by attacking corporate jet use. Not even by waving a tantalizing tax cut in front of the country and putting our nation even further into debt because tax cuts NEVER are accompanied by commensurate spending reductions.  EVER!

Someone makes those corporate jets here in America.  Ever think of that, President Obama?

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