Getting Real with the Economy

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Are we in a recession?   Have we taken the double dip?

Some, such as Federal Reserve Chairman Ben Bernanke and other mainstream economists, argue that the economy is definitely not in recession…yet.

And the proof?

The economy is still growing.

As most of us know, the basic formula or definition of a recession is 2 consecutive quarters of negative growth; that is, contraction in the economic output for two straight quarters.

And, according to economic data, US GDP did grow last quarter…

About 1%.

GDP growth a fraud

Not a lot to write home about, but it was still positive growth…

Or was it?

What was positive about it?

As much as I hate to be a buzz kill about the economy—and I don’t like focusing on the negative all the time—but we have to face reality:

The economy is not working.

Nor is the Federal Reserve’s mystical, magical, eternal money machine…

Something very fundamental is missing in how we view our economic picture.

That is, rather than focus on growth; we should really focus on unemployment.

Here’s why…

Economists tell us that there is such a thing as a “jobless” recovery.

That is, an increase in macroeconomic activity or “growth in GDP,” but without a decrease in the unemployment rate.

But isn’t a jobless recovery really a contradiction in terms?

And for all practical purposes, utter nonsense?

Who cares of XYZ Corporation made profits in China last quarter?

I only care if I’m a stockholder; but who cares about their profit if outsourcing your job resulted in that profit?

To be clear, I am not against corporate profits.

In fact, I am a big fan of the profit motive…

But I am against defining our economic well-being by corporate profits alone.

How those corporate profits were generated, or more precisely, where they were generated is the most important factor.

The fundamental indicator of the nation’s economic health is, in fact, not GDP (corporate growth), but the unemployment rate.

I’m not engaging in rhetorical hair-splitting here…I just think economists have it backwards.

Low unemployment means a higher GDP; but the opposite is not always true…

So let’s call a spade a spade…

A “jobless recovery” is a lie.

It is not an acceptable outcome and fudges reality.

Unemployment the real indicator of recovery

Shouldn’t the real indicator of whether the nation is in recession or not be the unemployment rate?

A better, clearer definition of recession ought to be when unemployment remains above “structural unemployment” for two consecutive quarters.

Why?

The critical indicator of whether the economy is working should be simple:

Are Americans working?

If Americans aren’t working, then the economy is not working.

So, rather than having Ben Bernanke continue to pull trillions of dollars out of his…ear, which is definitely not working…

A better way to preserve jobs

Why don’t we think of a better way to preserve jobs?

Because when you get down to it, there are only 3 kinds of jobs:

The one that left the country…

The one that has yet to be created…

And the one that still remains.

It seems a whole lot more effective—and easier—to focus on keeping jobs that are already here than to create new ones.

How to do that?

In broad strokes, I think we could reward corporations for keeping jobs here…

Reward them for investing in factories here…

And reward them for hiring more, here.

After all, here is a great place to build factories and hire a very productive workforce…

Just ask BMW, Toyota, and numerous other foreign firms that have no problem making it work here…

How?

By linking the corporate tax structure with corporate employment levels.

If done right, there is a smart way to keep jobs here, lower corporate costs, increase the tax revenues and lessen the burden of government.

This is not an anti-business rant; far from it.

This is actually a pro-business rant…

The profit motive is powerful; so let’s use it to our advantage.

We could use the profit motive to keep jobs here…and possibly, to create new ones or even bring a few back onto our shores.

How would this work?

The US corporate tax rate is one of  the highest in the world.

At the same time, many corporations don’t really pay taxes, they just pass the costs along to consumers, or move more of their operations—and jobs—off shore.

When a firm moves its operations offshore, fewer corporate taxes are collected and American jobs are lost.

American workers have less disposable income and so consume less.

Local businesses are hurt by the job losses, and the newly unemployed are now taking unemployment from the government.

So ultimately, the government receives less in taxes and pays more out in jobless benefits…

But, say a firm kept jobs here; they would then pay lower corporate taxes.

If they hire more workers, again, they pay less in taxes and may get other concessions, like a waiver of costly regulations, for example.

The government can recoup those “lost” tax revenues from the individual taxes on the workers, and will not have to pay them unemployment and other social safety net costs.

And the effect on the economy would be…

Well…A working America produces and consumes much more than an unemployed one.

And for those firms that benefit from government contracts?

Again, make it worth their while to keep jobs here; or the contract goes to competitor who will.

But these policies would not just target multinational firms, but all corporations.

Small businesses, after all, provide 65 % of the jobs in the economy…

In a perfect world, corporations would consider the great benefits of goodwill that is generated by hiring their fellow countrymen…

And in a perfect world, Americans wouldn’t lose their jobs to folks on the other side of the globe because they only earn a few pennies a day…

But we don’t live in a perfect world.

We live in an asymmetrical one, where wage rates in a Third World country effectively transfer American jobs and productivity there, and transfer their Third World status to us.

This is happening rapidly, and it must be realized, and dealt with.

Chalkboard free market capitalism

Theoretical free market capitalism is a creature of the classroom chalkboard and of economists with egos larger than their brains.

Free market capitalism mostly benefits…capital.

But there are no free markets; only “somewhat free” markets constrained by the dual needs of social stability and long term economic viability.

There needs to be the understanding in our national dialogue that although corporations compete globally, that they still have an obligation not to move jobs overseas.

Granted, the free flow of labor and capital is the conceptual foundation of capitalism...

But at the same time, an accommodation should be able to be reached between corporations, labor, and government.

There’s got to be a better way to arrange things…

As a rule I don’t like government meddling in the affairs of its citizens…

But rather than regulate our industries out of existence through heavy layers of the EPA and other agencies, I would prefer meddling of this sort instead.

And those are…The Gorrie Details.

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