Job - Steps We Need to Take

Last week we began a discussion about jobs; to recap the two most important numbers: we need to create 2,000,000 new jobs per year, and sustain a real economic growth rate of 3% per year, into the far future – at least through 2050. This leads to a simple question with the most complex and far-reaching implications: What must our government do to enable the marketplace to create this many jobs? It goes without saying that the only means to create 2 million jobs per year is found in the market place. It is the task of the Federal government and state and local governments to do all that is necessary for the market place to create those jobs and that growth.

The following represents a short list of the most important steps that the Federal government should take to strengthen the market place and initiate sustained real growth in the economy. The steps are divided into two main thrusts: provide stimulus to the market place to create the necessary economic growth and job growth the nation needs; and placing a rein on government growth – steps which would in turn stimulate the market place. It is not a comprehensive list and each of these steps would in fact be major undertakings of policy and bureaucracy at the federal and later the state level. Further, a great deal of work would need to take place to streamline regulation and provide the level of public safety and oversight required of responsible government, while leaving the market place free to create and develop new technologies and new markets.

Some Steps to Stimulate the Market Place:

1) Eliminate the tax on business and corporate income for all US corporations, leaving that money in the market place where is can create new jobs. As will be discussed below, this is the first and essential step to get the economy moving again, and moving in a vigorous manner. As to the argument that eliminating the corporate income tax would mean runaway deficits, history shows otherwise. Simply put, the economic growth and resulting personal income and personal income tax growth that would follow within two to three years would at more then compensate for this initial revenue loss.

There would a widespread hue and cry about favoritism if this were suggested. But the situation in which the US finds itself no longer is conducive to politically comfortable answers. The economy – the market place – must grow and grow substantially and in a sustained manner. The market place must become the primary focus of the government and the nation as a whole. It is the task of our political leaders to educate those citizens who question this fact.

2) Cut corporate taxes on foreign corporations to a rate that is below that in Europe or Japan. This would provide an incentive for foreign companies to move to the US and establish themselves in the US. Leaving tax rates for US companies at zero would then provide an incentive for these companies to relocate their headquarters to the US.

3) Stabilize personal tax rates. Constant gyration of tax rates makes investment more difficult. If we are to provide small investors more incentive to invest in businesses, there has to be a reasonable ability to forecast real return on investments, that is, returns after tax. That means taxes have to be stable. At the same time, tax rates should not continually penalize people for making smart decisions and thereby making profits. Simple tax laws, with fewer brackets, eventually a single rate for all taxpayers, provides for easier and thus more investment.

4) Eliminate inflation. Inflation’s impact on both savings and capital investments is wholly negative, impacting literally every facet of both private and corporate financial decisions. Even an inflation rate of 2% per year will erode a retirement account in short order. An individual who wishes to retire at age 65, but has a life expectancy that reaches into the 90s will find his effective income halved between his retirement and his death. As life expectancy continues to grow even low inflation rates will increasingly become curses to all of us no matter how much we have managed to save.

Inflation is not a mystery, something that simply ‘happens’ to which we are all simply victims. Inflation is a result of distinct government monetary and fiscal policies. And, the government has demonstrated, for short periods, the ability to manage real growth in the money supply so as to match and enable real growth in the economy, without cycling into periods of inflation. Driving down inflation so that it hovers between 0 and 1% will require real discipline from both the executive and the Congress, but it can be done; it must be done. The citizens must insist on it. The federal government should set as a goal to reach zero inflation within two years and then sustain a zero inflation rate.

5) Eliminate the capital gains tax for all US corporations, leaving that money in the market place as well where it can create new jobs. This would also provide additional incentives for foreign corporations reestablishing themselves as US corporations.

6) Eliminate individual income tax on any income derived from patents or copyrights for US citizens, or for any foreigner who is living in the US and has filed to become a US citizen. This would act as a draw to bring more creative and productive people into the US from abroad.

7) Establish a commission of business executives to review such legislation as Sarbanes-Oxley and other legislation that has generated excessive and costly paper work or otherwise scared business from our shores, to provide recommendations to amend or repeal such legislation.

Controlling Government:

1) Immediately cap all non-DOD spending at the inflation rate, to include Medicare-Medicaid and all other healthcare programs, Social Security and all other entitlement programs.

2) Freeze all non-DOD and non-DHS hiring for three years and then limit any and all hiring to a rate 1% less than real economic growth. (If real economic growth is flat, government should be forced to contract.) Set a definitive goal to reduce the federal workforce (to include all personnel except uniformed military and Federal law enforcement personnel) by 15 percent over the next 20 years.

3) Institute the necessary monetary policies for zero inflation.

4) Balance the budget within 5 years. A balanced budget - spending limits amendment is the surest path to this.

5) Reinstitute the draft.

Other steps.

1) Provide cheap energy. To grow an economy that can provide for a high standard of living for 450 million people means energy supplies must increase and increase substantially. Arguments to the effect that sustained economic growth can be achieved while using less energy work only on blackboards and in policy presentations on Capital Hill. They do not work in the real world. We need more power, lots more power. And that means cheap and abundant electricity. The only path to more power, on the order of 100% more power then we now generate is nuclear power.

Set a goal of doubling the electric power generated by nuclear plants over the next 20 years and doubling it again over the following 20 years. License more plants, begin reprocessing of radioactive waste, put research dollars into nuclear fusion and solve the energy problem once and for all. The Department of Energy (DOE) was established by President Carter with a charter to reduce and eventually eliminate our dependence in imported oil; since then US dependence on imported oil has doubled. A real energy plan is needed, and the money spent on the DOE - to little effect - is a good place to start to fund these new programs.

As a subset of this issue, begin reprocessing of nuclear waste. This would eliminate the contentious issue of storage of nuclear waste, provide a number of high-technology jobs, and provide ready fuel for more reactors. Other countries that have nuclear power generation plants do not have waste storage concerns, only the US. This is not a technology issue, it is a policy mistake. End the mistake, reprocess the fuel and waste, and build more reactors.

2) Space Exploration and Exploitation. In the end, we must expand off this planet if we wish to tap into larger, more economical sources of raw materials and energy. Government must develop an aggressive US space program – not one dependent on foreign participation - in concert with the private sector to move aggressively into the economic and industrial development of the solar system.

Tomorrow: What about Now?

More MDs, More RNs

Several days ago I made the point that no matter what the government is now doing in trying to contain healthcare costs, the effort is fundamentally flawed because there is nothing in the current legislation that will increase the number of MDs, Nurses, Technicians and treatment facilities, and therefore as the number of people who are using the healthcare system increases, there must be a reduction in the amount of healthcare available to any individual.

This leads to a simple question: what might government do to increase the number of doctors, nurses, technicians and facilities across the nation? Before I answer that, let’s look at some simple numbers.

US Population:                                                                   305 million

US Population in 2025 (est.):                                          350 million

Number of people who receive regular healthcare:    250 million

Number of Doctors:                                                           *818,000

Ratio of Doctors per patient

      (for a population of 250 million):                             *1/306

Ratio (for the entire population):                                     1/372

Ratio in 2025:                                                                       1/427

Number of Nurses:                                                            *2,468,000

Ratio:                                                                                    *1/101

Ratio (for the entire population):                                     1/123

Ratio in 2025:                                                                       1/141

* Numbers based on the Statistical Abstract of the US as of Dec 31, 2007

Of course, this doesn’t tell the whole story; for example, many doctors are specialists, so the availability of general practitioners to provide initial care is perhaps a more important figure and that number - a subset of the 818,000 – has been dropping slowly but steadily for quite some time. Higher costs for malpractice insurance and the cost of maintaining an office for a private practice, as well as strong positive public perceptions concerning various specialties has lead more MDs to move away from general practice resulting in a sustained negative trend in general practice. Any solution must address both increases in total numbers and increases in primary care or general practice medicine.

It should be noted that for several decades the American Medical Association argued that there was a glut of MDs in the US and lobbied Congress (it went into effect in 1997) to only fund 80,000 medical Residents per year (through Medicare), with the Veterans Administration funding another 20,000 per year, for a total cost to the taxpayer of roughly $11 billion per year. Several thousand more are funded by states or private organizations.

As of 2007 the 120 US medical schools were conferring 15,730 MDs per year. That number has stayed remarkably consistent for nearly 30 years, with 14,900 MDs conferred in 1980 by 112 medical schools. (As a point of comparison, US law schools produced 43,500 lawyers in 2007.) Roughly 25,000 MDs were entering practice in the US each year, the difference made up of doctors entering the US with degrees from overseas.

Further, the answer must have two parts: what to do in the short term, and what to do in the long term.

In the short term, there are only way two ways to increase the number of doctors and nurses and technicians, and both must be used. The first is to provide encouragement for those doctors and nurses who are thinking of retiring to remain active and in medicine. The most reasonable path to do so is to offer a break on income taxes for those who choose to remain in practice rather than retire.

The second means to increase the number of doctors in the near term is to actively recruit overseas. Hospitals should be encouraged to do so and might be given tax credits to provide for recruiting bonuses. Medicare and the VA might also be provided funds for recruiting in the form of bonuses for qualified MDs and nurses.

Both these programs would need to be sustained for at least 15 years as the second half of the program was developed. That second half is simply put: we need to produce more MDs and Nurses. To be clear, by 2025 we as a nation will need well more than 1 million doctors and 3.5 million nurses. If we are going to be able to provide our own doctors and nurses (assuming an average professional life of 35 years), US medical and nursing schools will need to produce 30,000 MDs and 100,000 Nurses each year. This will require doubling the output of both medical and nursing schools in the next 15 years.

Current medical and nursing schools need to be expanded to their maximum capacity, new schools need to be opened. Doing so without suffering a drop in quality will require a great deal of discipline, but it is possible and there is no other option. Attracting intelligent students into medicine instead of other fields will be a challenge. It will require a change in social dynamics that returns medicine to the top of the cultural ladder for preferred jobs, a matter both of income and, more importantly, social status. It will also require curtailing the negative impact of litigation both on the material cost of medicine (particularly malpractice insurance) and the social cost, the reticence of some to go into medicine, and for those in medicine, a hesitancy to enter into certain types of medicine. This problem and can be successfully addressed, but there is nothing that the federal government is now doing that will do so.

Too Few MDs

The paper this morning announced that the state I live in (Virginia) has too few doctors, then adds that ‘it is a nation-wide problem.’

Amid all the healthcare falderal over the last year and half this point seems to have been lost by the folks in Washington who seek to “lead” us (though, for the record, this blog has pointed this out several times over that same timer period). But it is worth repeating:

If the nation’s healthcare is too expensive, then the one sure way to reduce costs is to increase supply. Any other effort to reduce costs, that is, any efforts that do not include increasing ‘supply’ (the number of doctors, nurses and places to provide healthcare, which I will simply label as ‘beds’ for shorthand, though it includes more than strictly hospital beds) must include rationing, and will also fail.

The current plan, the one passed by Congress and signed by the President just a half year ago, includes no plan to increase the ‘production’ of doctors, nurses and beds.

Ergo, it will fail.

To produce doctors, nurses and beds, what is needed? Enlarged and expanded hospitals and clinics, expanded medical and nursing schools, and more students who want to enter medicine.

So, there needs to be some sort of incentive, some motivation to induce students to switch out of other career fields and into medicine. There are lots of ways to do that, but the most important would be to make it clear that when they become doctors and nurses they are going to be able to practice medicine the way they want, rather than the way a government bureaucrat tells them.

Unfortunately, making a doctor or a nurse takes a good deal of time. Doctors in particular must not only complete medical school, they must also complete an internship and a residency before they enter private practice. For certain specialists this can mean many years of effort. So, how do we fill the gap between today and when a new plan might start producing greater numbers of doctors and nurses? We recruit doctors and nurses from overseas. This already happens without a great deal of government support simply because doctors and nurses want to come to the US to work in our healthcare system which is both leading in technology and techniques and also is more free than most of the healthcare systems in the world. We simply need to be more aggressive in our recruiting.

These two things are needed to address the high costs and shortages of our current healthcare system: a short-term plan to recruit more doctors and nurses from overseas, and a long-term plan to expand the ‘production’ of doctors and nurses by our universities and teaching hospitals. Everything is going to produce other results, but not the desired ones.

(I will continue the discussion on jobs and the economy tomorrow.)

Jobs and the Economy - Sizing the Problem

The debate about jobs is, unfortunately, not addressing the real scope of the issue. There are two major factors, and they are intimately related: the number of jobs and the total national income. Bear with me, but this requires looking at a few numbers.

Problem 1: Jobs

The current population of the US is about 305,000,000. There are approximately 170,000,000 who are employed or want to be employed, or about 55% of the total population.

Currently, government employment – federal, state and local, to include military, teachers, firefighters, police, etc., totals about 13% of the work force, or about 22,000,000.

By 2050, the total US populations will be approximately 450,000,000 (a 1% per year growth rate). Assuming that the same percentages apply, the number of people who are employed or wish to be employed will number about 247,000,000, of which total government employment would be roughly 32,000,000. This means that the private sector must (if we were to have zero unemployment, which should ostensibly be our goal, despite what the economists might say) provide 215,000,000 jobs.

Currently, the private sector consists of roughly 140,000,000 jobs. The simple difference is 75,000,000 jobs. What that means is that over the next 40 years the free market must create 75,000,000 new jobs.

I say ‘simple difference’ because the number is actually a bit larger than that; every year certain jobs go away because of technology and changes in the economy, and those lost job need to be replaced. Technology of the future being still unknown, as are tastes, that number is an unknown, but will certainly run in excess of 100,000 per year. This means that, in rough numbers, at least 80,000,000 new jobs need to be created over the next 40 years, or 2,000,000 per year, every year.

The number is also probably higher than that as life expectancy increases retirement ages slowly work upwards and technological changes continue to accelerate, so 2 million jobs per year, every year for the next 40 years, should be looked on as a lower limit.

Problem 2: Income

The current US per capita income is roughly $40,000. All well and good. Of course, per capita national debt is also approximately $40,000. Unfortunately, that number is insignificant when considered next to the real issue: unfunded government annuities – the Social Security, HealthCare, Welfare, and all the other entitlements that now exist within federal and state governments. Simply put, the amount of money that is going to be paid out to the current US population – by the US and state governments – by YOU the TAXPAYER – over the course of your lives is $130,000,000,000,000. That works out to roughly 425,000 per capita. Add the two together and you get $465,000 per capita. Of course, that number is misleading simply because only 140,000,000 Americans actually are employed right now creating real wealth. So, the real figure is just a hair short of $1 million for each worker-taxpayer in the marketplace. What that means is that each and every worker needs to contribute – over the course of 40 years of work - $25,000 per year to paying off those annuities. If you manage to just do that you will retire with just your Social Security income, an income that everyone acknowledges is supposed to be a supplement, not a primary retirement plan.

Note too that as the population grows the size of the unfunded annuities grows as well. This has major implications when we start to deal with the size of the economy we need to generate over the next 40 years and beyond.

All of this is without any inflation – zero inflation. To put that in perspective, just 2% inflation for 40 years means that the $25,000 paid out in year 1 would grow to $67,000 by year 40, and total payout over 40 years would amount to $1,840,000. (Of course, the argument can be made that as long as everyone’s income keeps growing the inflation doesn’t matter. But that doesn’t account for reality, in which incomes do not grow evenly, people living on retirement accounts are quickly left behind, and expenses for short periods of time can rise faster than incomes, forcing personal crises in the short term that cannot be assuaged by knowledge that ‘in the long run it will all work out.’ People lose their houses in the short term; people can’t pay for school in the short term, etc.)

To compensate for this, real income, that is average real salaries, needs to grow by more than $25,000 per year – assuming that 100% of the increase went directly into addressing these annuities, which is simply not possible. In fact, it is difficult to imagine a situation in which even 50% of any increase would be directed towards national debt and these annuities. But, that at least is possible, if we increase the average employed American’s income by $50,000 by 2050. Further, if we are going to engage in any real planning, we should include as a goal that very taxpayer establish a personal retirement account of there own. How big should that be? Assuming that the average worker-taxpayer lives for 15 years after retirement and wishes to draw $30,000 per year from his annuity, the annuity will need to be funded in the range of $400,000. That means another $10,000 per year per worker.

Where do all these numbers leave us as we look forward to how large the economy needs to be in 2050? To recap, we will need to have 247,000,000 private sector jobs (and 32,000,000 public sector jobs), and we will need to have overall output per worker grow to at least $175,000. In short, by 2050 the GDP must exceed $43,000,000,000,000 in 2010 dollars.

This sounds astronomical. It should be noted that growing from 14 trillion to 43 trillion in 40 years is 3% real growth per year for 40 years. While difficult, this is not impossible. Nevertheless, the implications here are significant. This amount of growth – in a sustained fashion over an extended period of time – is huge. Reasonably speaking, that will be at least six and probably eight presidential administrations. To succeed it would require that we – as a nation – consider it to be all consuming, it must be our prime driver. And so, first and foremost, government needs to develop a long-term perspective on economic growth and job growth. If the government is doing something that does not directly or indirectly support growing the economy, we truly can’t afford it. More to the point, this is a scale of job and wealth creation that is well beyond the scope of any government program. Government cannot ‘create’ this many jobs. What it can, and must, do is to provide the environment that creates these jobs.

The first issue in doing so is a fundamental shift in the perspective of many in government. The free market is the only path to the creation of this many new jobs. The government, and the people in government, must recognize that their real job must be to support and enable the free market in the creation of those jobs. Put another way, it doesn’t matter whether you love the free market or hate it, whether you believe in an agrarian revolution or are a confirmed techno-geek; whether you are a Marxist or a libertarian: the only ‘place’ that can create this many jobs is the market place. This scale of problem was faced by the Chinese Communists 20 years ago. They recognized that they could not create the tens of millions of jobs they needed, that the market place alone could do. And so, irrespective of their Communist leanings, they began to shift to the market. (That the government in Beijing still has a huge role to play in their market, and that it hardly constitutes what we would call a free market is one of the reasons the Chinese have such a large unemployment – underemployment problem. Our committed lovers of big government and government job creation need to take note of those problems.)

Tomorrow: Some Steps We Should Take