Christina Aguilera and the National Anthem

Christina Aguilera flubbed the national anthem at the Super Bowl. She’s not the first and she won’t be the last. The list of folks who have had difficulty singing the anthem is long and filled with quiet a few notable performers: Robert Goulet at the Ali – Norton fight 4+ decades ago seems to stand out in my mind (I’m a fight fan), but take a short sojourn into the world of YouTube and you will find scores of botched anthems saved forever on film. 

I also seem to recall a noted Broadway song and dance man standing up and singing the anthem once at a major championship of some sort and getting halfway through and completely losing the words, humming through to the finish then walking off the stage looking like he was trying to find a place to slash his wrists.

And you’ll also find one of the best stories that ever came off the sports page, when Maurice Cheeks saved the day when he helped a young woman – Natalie Gilbert - who was singing the anthem. She forgot the lines and started to freeze up and Mr. Cheeks stepped forward and helped her finish – and showed his true self. (If you have never seen it, search for ‘maurice cheeks national anthem,’ it will pop right up.)

The point is this: no performer wants to put on a poor performance. At the same time there is no song that receives more scrutiny then the anthem. Literally, everyone is staring at you. The Super Bowl means an audience of 100 million or more. And that means more pressure still. Everyone is trying but sometimes even the best fumble under pressure. Ask Ben Roethlisberger about producing a perfect performance under the scrutiny of 100 million viewers and the pressure of a Super Bowl. So let’s give her a break.

Truths?

There were several articles in the paper the other day that discussed some of the thing we need to learn from what is happening in Egypt. One made the point that truth will always win out and that dictators can’t keep people suppressed. Oh, that it were true.

The fact is that history is overcrowded with countries that have suffered under one autocrat after another, for generations on end; despots who, in the name of this or that dynasty and this or that ideology have suppressed freedom and truth. Even in the case of most of the nations in history that have claimed to be democracies, the governments in question have used and abused their powers, limited the freedom of their people, manipulated the truth and denied basic rights. Even in the last 100 years the examples of elected governments running amok is long and sullied.

Hitler was elected and rose to power through manipulation of parliamentary procedure and Mussolini was elected to the Chamber of Deputies before leading a coup that installed him as Prime Minister, nominally the legal and selected leader of the country. For decades the various communist regimes held elections in which their leadership was elected by the people, and the list of ‘guaranteed’ rights under the Constitution of the USSR made the US Bill of Rights look cheap by comparison.

Many of the oppressive regimes currently oppressing their own people are in power based on manipulated elections. Whether Iran or Zimbabwe or Venezuela or a host of other nations, duly elected officials – in truly twisted elections – continue to abuse power and grind the people under their boots. But still they stand up and say that they are democracies. Even North Korea has an elected parliament.

So what are the real truths to be drawn from Egypt? And Tunisia?

1) The world is a dangerous place. After the collapse of the Warsaw Pact and the Soviet Union there were many in the west who began to voice opinions that ‘everything had changed,’ that mankind had entered into a new era, that peace and prosperity would reign forever, and that mankind could now start enjoying an age of brotherhood and comity.

Those who felt otherwise and dared to voice their perspective that the Cold War had simply allowed us the perverse luxury of focusing on a single major problem and ignoring most of the others were labeled as cynics and worse yet, purveyors of ‘old think.’ However, the wishful thinking of those who believed that we were entering a utopian humanist age has yet to materialize into anything real. The world remains a very dangerous place, and perhaps less stable now then it was 30 years ago.

2) Democracy can be dangerous, particularly in either of the following cases: a democracy in a country with an enduring tradition of strong central rule – as in Russia (think of Putin) or Iran (the Shah, then Ayatollah Khomeini, then Ayatollah Khameni) – it lead to de facto dictators claiming to rule in the name of the people; or two, democracies in countries with constitutions that do not both provide for the rights of the individual and at the same time limit the scope of the government itself – this leads to denial of individual rights in the name of the people and the tyranny of the majority; where Algeria was headed in 1992 before the Army threw out the elected leaders, where Venezuela is right now, and Cuba.

3) Supporting democracies around the world is, all other things being equal, the right thing to do. And I fully support the effort to make Iraq a true, liberal democracy. But such efforts are both long and difficult. Nor should we be adamant that we would never reject the government of such democracies. US interests must come first. And if a duly elected government of some nascent democracy turns against the US and its interests the US must be prepared to seek US interests first and eschew support for democracies for democracy’s sake, to the detriment of our own interests.

4) The Internet and Facebook and Twitter and all the other social media do not and will never equal truth. Nor does 24-hour news coverage. Whatever is happening on the streets of Cairo, it is a certainty that there is more going on then meets the eye. It is also true that what people send around on e-mails and tweets and photos from cell-phone are, at best narrow, and often hasty, poorly thought out, views of very wide problems; more often they are biased and self-serving. They can be of great value in sharing news of a given event. But they should never be confused with truth.

5) All of which leads to one painful conclusion: despite hopes for being able to spend less on our security, the fact remains that the US safeguards democracy – liberal democracy – around the world. If we don’t do it, no one will. We also provide security for the global market place, for the international trade routes that make possible the improved standards of living world-wide. If we fail to protect those trade routes, others with less magnanimous and less gracious foreign policies will eventually take our place. And the world will be even less stable – and less pleasant. Investing in national security – the military, the intelligence community, and tailored support to key allies – is the primary – that is first and before all else - responsibility of our government because it is the primary guarantor of both our safety and our way of live. Other expenses must take a second seat to national security needs.

Four centuries ago Oliver Cromwell – himself a fairly brutal dictator – advised his army to ‘place your trust in God, but keep your powder dry.’ The advice remains as sound now as it did then. If there is one truth to be learned from what is going on in Egypt, that is it.

Egypt: Iran Redux?

As we watch Hosni Mubarak’s regime unravel, the image of the riots in Tehran and the collapse of the Shah’s government more than 30 years ago once again comes to mind. While the recent events in Tunisia were dramatic, they were both more spontaneous and of less importance to the US. What is worrisome about Egypt is the seeming presence of a plan, the orderly, un-armed rioters, the police and army who seemed to be playing a role in a well written play, appearing and disappearing, for the most part showing remarkable restraint.

It leads us to ask the question: if there were a plan, who were the planners? If Mubarak is being forced from office, who is behind the forcing?

While the obvious villains are the Muslim Brotherhood, it is probably not quite that simple. Are they involved? Certainly. But there must also have been orchestration from within, from the Egyptian Army, from the national police, and from key senior politicians who have yet to surface. Is Muhammed El Baradei involved in the scheme? Probably, though he may also be a pawn. Will a new government bring the Muslim Brotherhood into a power-sharing arrangement? Possible.

What is also possible is that this entire crisis was orchestrated by elements in the army that were concerned that Mubarak’s planned transition of power placed their power base at risk. The option therefore was to force him out through a ‘people power’ revolution. The plan probably entailed using the Muslim Brotherhood, wittingly or unwittingly. If they – the planners - are clever, the Brotherhood will be given some apparent elements of power in the new regime but no real authority. Mubarak and his erstwhile heir Gamal will be out of the way, a transition to a new regime will have been affected, and the Muslim Brotherhood will be neutralized, at least for a few years. There is of course a risk that someone misplays it and the plotters lose control. But the Egyptian army has been the de facto power base of the government for 68 years and they are not likely to give up that position.

What will all this mean to US interests? That, of course, is the ‘$64,000 question.’ Two key issues are central to those interests: the Camp David Accord, and the Suez Canal. The first, the Camp David Accord, has provided more than 30 years of peace between Egypt and Israel and has been the foundation for the belief that a negotiated settlement is possible. Anything that threatened that agreement would have dire consequences, stretching well beyond Egypt and across the entire Mid-East.

The second issue is the Suez Canal, a spot recognized as one of the few key strategic spots on the planet (convincingly argued as such by Mahan in 1900). The Suez Canal is a waterway of importance not simply to the West, but to the entire world. While more than 2 million barrels of oil move through the canal every day headed for Europe and the US, tens of thousands of tons of grains and foods move south through the canal, feeding the people of Arabia and East Africa. Interruption of food transport or even a brief price hike in food caused by concerns over access to the canal could cause more political damage to countries in that region then the hike in oil prices will cause either political or economic damage in the West. (Spikes in food prices were key to the unrest that brought about the regime change in Tunisia last month.) That kind of instability could threaten other governments and lead to even more regional unrest.

What is certain is that, despite the use of the word ‘democracy,’ we are not going to see anything like a Western democracy spring up along the Nile. We are likely to see another Army backed dictator, wrapped in the guise of someone bringing power to the people; less likely, we may see the rise of a radical Islamic democracy, similar in many ways (though different as well) to the one in Iran – though Sunni not Shia; least likely we may see an interim bureaucracy/kleptocracy rise to power during a ‘behind-the scenes’ power struggle.

Nevertheless, two points need to be kept in mind:

1) We could not have changed this outcome. Could we have applied pressure to Mubarak over the last 30 years to change the nature of regime? Certainly. And we did – both positive and negative pressure. But that pressure always had to take a back seat to other needs, in particular overall regional stability and the security of US interests. It is no good to say ‘yes, but in the long run that policy works against US interests in the long run’ simply because we would never get to the long run if we had been forced out of Egypt 5, 10, 15 or 20 years ago. Presidents must play with ‘the cards they are dealt’ and Egypt has been one of those cards since World War II.

2) We cannot dictate who comes to power next. There are various ways that the US can try to apply pressure – openly or quietly, diplomatically, using both carrots and sticks. But in the end the internal machinations of the various factions – to include the Army and the Muslim Brotherhood – will decide who rules in Egypt.

So, what can we do? We can and must send a clear signal that we support the people of Egypt in their desire to move toward a real democracy. We need to continue to send the signal that we support true democracy and the rise of real freedoms, not pseudo democracy providing a cloak in which to wrap an oppressive regime, as is currently the case in Iran. And we need to take every opportunity to support pro-Western, pro-liberal democracy movements in the Mid-East and around the world. At the same time we need to remember that US interests come first. If that means we need to support governments that behave in ways we don’t necessarily like, then that is what we need to do. Egypt may soon find itself under another de facto dictator straight out of the Egyptian army. If he guarantees the Camp David Accord and the security of the Suez Canal, and isn’t engaged in over-the-top suppression of his people’s rights, then we need to grit our teeth, quietly apply pressure where we can, and move on.

In Memoriam

Following the ceremony in Tucson last night, I am left with the sense that something that should have been said was left unsaid. The President did a good job in recounting the lives of those lost in that Southwest city on Saturday, and was right in calling for us to make the nation better. And the powerful words of Isaiah and Paul stand on their own. But, nevertheless, something is missing. The following is offered to fill that gap.

xxx

Simply put, what lesson can we draw from the deaths of these people, people who, by their whole lives and by their actions on Saturday, showed themselves to be good in the truest sense, serving others and even shielding others with their bodies and being killed as a result?

Whenever people die in such a seemingly senseless manner we all ask ourselves why such things happen? Why would any God allow such things to happen to such good people? How could a God of mercy and love let such terrible things happen to an innocent child?

The answer is simple but profound, simple but difficult, simple but painful. For God’s ways are not our ways, God’s time line is not our time line, God’s plans are not our plans. And from that we must draw hard lessons, the ones that have been pointed out before whenever good people die: one lesson is that we never know the time or place, and therefore we must live our lives recognizing that today may well be our last; that there is no time to put off those things that we must do; that if we are to change the world, today must be the day. We must wake every morning and, recognizing that today may be our last, act to make that last day an important one.

But let us not forget that even out of the most horrid of evils God can and does bring good; that from wars and oppression have sprung deeper understanding of our relationship with God and with one another, and that in the wake of great evils people have been freed from their chains – both physical and spiritual, knowledge has grown, nations have risen. Yet in all these things we must remember that we are God’s instruments. These things don’t just happen. Rather, the actions of men and women, and yes, children, have brought God’s plans to fruition.

We must make certain our family knows we love them, our friends know we care, and our nation knows we are committed. The immediate lesson that these tragic and untimely deaths teaches is that we must not wait for a better time to do what we must, we must not wait for ‘one more day’ before we act, we must not wait for some better opportunity to do the things we know we need to do to make our lives better, to help our families, to improve our nation, and to bring ourselves closer to our God. We do not know the future; we do not what happens next or what will happen to us tomorrow. We only know that we must act now or potentially lose our opportunity.

Those who died are now in God’s hands and nothing we can offer can change this reality. But, let us all say a prayer of thanksgiving to God that we knew such good people, and another for those who were wounded, both those wounded by bullets and those families and friends who suffer from loss and the fear of loss. And then let us get up off our knees and decide that today we really are going to make a difference, that we are going to be the people and the nation that we were meant to be.

God Bless America.

Creating Jobs - Is it Possible?

Several weeks ago I provided a short discussion on the real issues facing the nation and the economy. The key numbers to remember are these: the US economy needs to create at a minimum 2 million new jobs every year into the far distant future (for all intents and purposes, from now until 2050, when that number – 2 million per year - needs to start to climb), and the economy needs to provide 3% real growth every year – that is growth above any inflation rate or increase in size due to a larger population. Which leads to a simple question:

Is this growth rate possible?

In light of the fact that we was a nation have been hovering at 9.5% unemployment and 16.5% underemployment for a year and a half, and that job growth rates have been essentially flat or negative for much of the past two years, it is hard to believe that this kind of growth is possible.

History shows, however, that the nation did in fact sustain these types of numbers – on average – for its first 185 years. In short, this kind of growth is possible. That being said, has anything changed that might prevent that? The short answer is yes. Through most of the first 185 years of this nation the federal government was rarely more than 10% of GDP (with the exception of periods of war and shortly after the wars). In the early 1930s Federal spending rose above 20% and has climbed steadily since then, and since 1970 has been above 30% of GDP. (Totals of state and local government spending have averaged between 5 and 10%.)

What is the reason for this huge increase in government spending during the last 70 years? Predominantly it has been the rise of the so-called entitlement programs, which now comprise more than 2/3rds of the federal budget. Any successful program to grow the economy will require reducing the percentage of the GDP that is consumed by government (Federal, state and local), and that will mean paring back the entitlement programs.

There is also a ‘slight of hand’ here that is being played by the bureaucracies: those in favor of the entitlement programs insist that they are necessary because the economy is unable to provide for the individuals who are covered. Any reduction in the entitlement program would therefore mean people would be left ‘outside’ of society, as was the case of the poor of the depression of the 1930s.

But this misses two key points: first, it was a host of government decisions to increase Federal spending and Federal meddling in the economy that were the causes of the depression, and second, and most importantly, Federal entitlement programs of today, if transferred back in time with 1930’s technology, would have provided scarcely more aid then did those soup lines. Entitlement programs benefit today from a wide range of technological advancements that have materially improved everyone’s standard of living, mainly despite rather than because of government activities.

At the same time these government programs have a real negative effect – slowing job creation and leaving people – 3% of the working population – almost 5 million people – permanently unemployed.

Reducing the size and scope of entitlement programs necessarily entails some risk, and will inevitably cause pain to those who transition from the entitlement program to a newly created job. The immediate transition becomes the heart-wrenching, bad news story that makes the evening news. But just as lawyers will tell you that difficult cases result in bad law, heart-breaking situations result in bad economic policies. The fact is that sustaining the entitlement programs at their current size (10% + of the Gross Domestic Product) is to not only place a millstone around the necks of today’s workers, it is to drag down the future growth of the economy.

This nation will increase in population by nearly 140 million people in the next 40 years; 80 to 90 million new jobs are needed. (This does not include the tens of millions of new jobs that must be created as industries change and old jobs fade, requiring new jobs to replace the old). The Federal government, as well as state and local governments, must recognize that creating the stage for that job creation is their primary function, and all other functions must be subordinated to that function. Security, economic and monetary stability, and infrastructure are the key roles of government in stimulating the economy. It is to these tasks the government must devote its efforts.

Whither North Korea?

North Korea is once again in the news. And that is exactly where Kim Jong Il wants it. There are many who say he is crazy. He is, in fact, many things: horribly evil, manipulative, maliciously calculating and cold-blooded. But crazy he most certainly is not. In fact, in the sense that every move he makes is thought out well in advance and designed to fit into a well-knit master strategy, I would suggest that he is the single most rational actor on the international scene today, and for most of the last two decades.

Kim Jong Il was elevated to the number two position in North Korea by his father more than two decades ago. At the time North Korea had already entered into a period of economic decline – from which they have yet to emerge (more later). The country, a nation of more than 20 million people, had a GDP of roughly $20 billion and a per capita income of less than $1000 (though it must be recognized that the economy is completely controlled by the central government and thus equating their economic statistics to the outside world is difficult at best and certainly overstated.)

At the same time the nation spends nearly half of that GDP on the military. That military includes an army of well over 1 million, but one that uses equipment that is from 10 to 50 years old, most of their tanks having been obsolete for three decades or more, and their airmen are flying aircraft that, for the most part were obsolete by the time of the Vietnam War. Can they still do damage? Certainly. Could they fight and win a conventional war against the modern, well trained, and well equipped Republic of Korea (ROK) army and air force? Not likely. Could they fight and win a war against a ROK military supported by the US? Certainly not. Is there reason to be concerned? Certainly. Even though the outcome of a conventional war would be certain, the cost in lives and material would be immense.

North Korea suffers from a severely depressed economy. There are few meaningful industries, agriculture is antiquated, harvests have fallen short nearly every year for the past 25 years, health conditions for the average North Korean are deplorable, and the average citizen lives with year-round brown-outs and black-outs and a per capita intake of less than 1400 calories per day.

In fact, when Kim took over day-to-day operations of the government in the early 90s (before his father died), the routine assessment from various Asian analysts was that his father – Kim Il Song – was still pulling the string and that the nation would collapse as soon as the father died. It must be remembered that this is a country with no margin for error. Simple mistakes that can be corrected in nearly any other country on the planet cannot be corrected in North Korea. Simply put, every facet of the economy is on verge of complete collapse and has been for two decades.

And so, when Kim Il Song died in July of 1994 the almost universal assessment was that Kim Jong Il would not be able to hold it together. A wide range of scenarios sprung up, each with multiple variations: there would be a military coup, there would be a collapse into anarchy, there would a war of conquest south in order to distract the people and capture the wealth of the ROK. None of these things happened.

Instead, Kim Jong Il has proven to be every bit as capable of leading the country as his father. Without going into any detail about the seemingly endless series of crises and diplomatic overtures of the last 16 years, consider this: one small country (North Korea), led by a man everyone keeps calling crazy and insinuating that he isn’t too swift, has managed to lead five other nations around in a whirl, keeping them off balance even while managing to balance his own heavily handicapped nation. And which nations has he led around seemingly by the nose? The USA, Russia, China, Japan and the Republic of Korea; the smallest of these countries – the ROK – has a population of 50 million and a GDP that is rapidly approaching $1 trillion - 50 times the size of North Korea’s, while the USA has a population 15 times as large and an economy 750 times as large. This seemingly insignificant country, led by this seemingly insignificant figure, has kept off-balance five countries, each of which is massively more capable then North Korea.

Kim Jong Il is not the charismatic figure that was his father (who was equally dictatorial and heavy handed, but nevertheless charismatic). The senior figures in the government follow him out of a combination of fear and reward, with the very senior figures living very well indeed, but subject to constant close observation and the fear of being accused of some act that somehow threatened Kim.

All that being said: what does he want?

Simply put: he wants to survive. Everything that he does centers on one clear goal: survival of his ‘regime,’ which was, until a little while ago just one man deep (himself). Now he has included his son, and the central issue is to insure that he and now his son retain their position of power, at whatever cost to the nation. Everything else is subordinate to that goal.

Why does he engage in all these actions that seem to bring his nation closer to war and thus to the inevitable defeat?

First, he wants to scare the international community in general and the five powers specifically into thinking that war is imminent. To engage in acts that scare the five major powers that he faces is to shock them and the international community into actions that lead to de facto strengthening of his regime: grants of fuel, food and hard currencies that allow him to buy the goods he needs to stay afloat. By raising the specter of a madman sitting atop a huge army, he has repeatedly and successfully coerced various elements in the international community to give him support – fuel, food and money - that he needs to keep afloat.

Second, he is reasonably certain that he has the veto on war. The US and the ROK are not likely to start a war; even thought they would win such a war, the cost would be too high. He knows for a certainty that any war would result in the destruction of his country and with equal certainty his death. There is no upside to starting a war.

Third, in the last analysis he wants international recognition; he wants a settlement to the war and embassies in Pyongyang from the major powers, in particular the US. Simply put, it would represent two great victories: he would present it to his people that the US had finally given in to him – he beat the US; and it would mean that he would be able to appeal for aid from a wide range of foreign capital sources, both public (the World Bank, the International Monetary Fund, etc.) and private – corporations in the US, Japan and the ROK who would be interested in developing various resources in North Korea, where labor would be cheap and some resources remain underdeveloped – and where such funds and development would mean he could keep his regime intact for years to come.

What does the ownership of nuclear weapons give him? In Kim’s eyes he sees nuclear weapons as providing further standing in the international community and a greater certainty that there will be no pre-emptive decapitation attack from the US or the ROK.

Is there a chance for war? Certainly. There can always be miscalculations and mistakes, even though he has yet to make a major mistake in 16 years of rule. The rise of his son as the third member of the Kim dynasty raises concerns, as it remains to be seen whether the son will have the skills and evil intellect to control both his country and the international community. But it would seem likely that as long as Kim Jong Il lives and is competent that there is little chance of his actions going too far.

What then should we do? The answer of course depends on what end result is desired. And for various countries that answer varies. For the ROK and the US, the desired end game is a united Korean Peninsula, under the governance of the ROK, with the people in the north joining the people of the south in a single, free, economically strong republic. Such a step will not be easy and the cost of rebuilding the north so that it can economically, politically and socially reintegrate with the south will likely run into trillions of dollars, a more expensive and lengthy problem then the reintegration of East and West Germany during the last 21 years.

For the Chinese such an outcome is probably not desired: a united, democratic ally of the US sharing a common border with China? Nor is it likely that Russia would welcome such an outcome. Japan probably finds themselves torn between these two options, with a strong pro-democracy bent and a desire for expanded economic activities in the region countered by a centuries old animosity between the Koreans and the Japanese.

For the rest of the international community there is mainly a desire to see the 60 year old war ended, the peninsula stepping back from its current level of military preparedness, and the north opened to international economic development.

My own belief is that the only answer for the US is to work with the ROK and the North Koreans to develop a solution that steers around the problem. As horribly unpleasant as it might sound, perhaps one solution would be to place the Kim family in the role of a constitutional monarch, with ceremonial but no real power, a healthy yearly stipend and a string of official residences. Make Pyongyang the twin capital of the country and begin a gradual reintegration process of the two halves of the peninsula. This would require modification of the ROK Constitution, but that is difficult, not impossible. What is certain however is that something new must be done. We have a very smart, completely amoral figure, armed with nuclear weapons, sitting on the top of a badly decayed state. No matter how clever he his, that situation cannot last forever. And continuing to do the same thing that we have done for the last 57 years and hoping for a different outcome IS crazy.

Creating Jobs - What About Now?

A friend of mine, an excellent doctor, often says that long-term planning is good, but never forget that patients die in the short-term. What he is saying, in the medical sense, it does no good to develop a plan to help a patient live another 10 years if your long-term plan doesn’t also include immediate resuscitation. In the same sense, creating jobs in two years or five or ten doesn’t help the worker who needs a job now or he will lose his house. So, what can be done now to create jobs this year?

First, we need to take a look at what we mean by jobs.

With nominal unemployment stuck at over 9% and real unemployment somewhere in the neighborhood of 11 - 15% (depending on which set of data used), there has been quite a bit of talk about what needs to be done to create jobs. The answers usually involve some sort of ‘Jobs Program,’ the spending of tax revenues or borrowed money, to stimulate economic activity and spur the creation of new jobs. Unfortunately, little that is being said will have any real positive impact on the problem. Here’s why.

First, there are, in fact, five kinds of jobs. And only three of them are worth anything.

Job type one: some businessman (big or small really isn’t important at this point) makes an investment in his business and hires another worker. This worker then produces revenue, the business grows, pays salaries, taxes, etc.

Job type two: a government (Federal, state or local, again it doesn’t matter) with a real task (police, fire, military, ambassador – tasks that the citizenry recognize as tasks that the government does that benefit society) hires someone to perform that task. This worker does so and we all derive benefits from their efforts and society is better for it, which also directly or indirectly stimulates the economy and the business environment.

Job type three: the government (again, at any level) hires someone to perform a task for which there is no need, and from which society derives no benefit. This is equivalent to a handout, but it is called a job anyway. A good deal of public infrastructure falls into this category, as when the government funds a road or a bridge for which there is no need.

Job type four is when the government spends money in the private sector, hiring a contractor to perform a task which is in support of Job type two – DOD contractors and most infrastructure jobs (building roads) are examples of this type of job. Finally,

Job type five is when the government spends money in the public sector to hire a contractor to perform a task which is in support of Job type three – some DOD contractor and infrastructure jobs are also found in this category.

Job one produces real wealth, job types two and four provide and support the environment and infrastructure that allows the free market to create real wealth. Job types three and five do not produce or support the creation of real wealth and are net drains on the economy and society. So, what we really want in any ‘jobs program’ (no matter what it entails) is to create jobs that either create real wealth or support the creation of real wealth, and avoid those jobs which don’t really support the economy and instead act as a net drain on the economy. But the government has shown itself to be, on the whole, incapable of making that differentiation on the one hand, and at too high a cost on the other. In short, any job creation answer is going to be found not in government but in the free market. (This will be discussed more in a future article.)

Second, there is the issue of costs. The current gross national product (the value of all goods and services) is a bit over $14 trillion per year, and the US currently has roughly 165 million people in or wishing to be in the economy. There are 155 million currently employed in the US, and of those, 2.5 million are employees of the federal government and 12 million work for state and local government, so that not quite 140 million actually produce real wealth. This works out to $100,000 in goods and services per worker in the market place. So, how much does it cost to create an average job in the private sector? A recent article in the Wall Street Journal by a small businessman from New Jersey – Michael Fleischer – gives a brief glimpse at the numbers.

The numbers – for his median employee (and remarkably consistent with the national averages) – look like this:

Nominal pay (per year):                                                             $59,000

(Nominal pay and benefits: +/- $72,000)

Employee contribution to medical and dental coverage:         2,376

State unemployment insurance (tax)                                               126

State disability insurance (tax)                                                          149

Medicare                                                                                                856

State income tax                                                                                1,893

Federal Income Tax (Withholding)                                              6,250

Social Security                                                                                   3,661

Total:                                                                                                  15,311

Take-home pay:                                                                             43,689

Company expenses associated with this employee:

Medical and Dental insurance                                                      9,561

Company paid Life insurance                                                           153

Federal unemployment                                                                       56

State disability insurance                                                                  149

Workman’s comp                                                                               300

State Unemployment insurance                                                      505

Medicare                                                                                              856

Social Security                                                                                 3,661

Total                                                                                                 15,241

Total Company Outlays for this employee:                             74,241

In fact, the problem is a bit worse than this. What is left unsaid is that there is an administrative overhead for each employee, a cost to manage them in time and people, from managing their careers, ensuring that they have the proper work climate, etc., to the straightforward cost of keeping their paperwork straight. That cost varies in every single organization but is, at a minimum 5% and more commonly equal to as much as 10% of employee pay. In other words, just to manage his people, their paperwork and the accounting associated with each of his employees (he has 83 people in his company), Mr. Fleischer is going to spend at least another $4-5,000 per year.

That means each new job costs roughly $80,000 per year. But no one is going to create a new job that can only pay for itself. For any businessman to hire another worker there has to be a reasonable expectation of additional revenue; that is, the productivity of the new employee will exceed not only the cost of hiring that person – the costs above – but provide some additional margin to support the additional cost of that new position and provide some return to the owner. And there has to be some margin of profit for the company. If the above job generates a total of $100,000 per year, that would leave $20,000 to pay for additional operational costs: electricity, water, office supplies, etc., as well as the costs of actually doing business: additional capital equipment, additional raw materials, etc. And then there is the ‘simple’ question of profit: the investors/owners need some return on their investment. All in all, $20,000 isn’t a huge margin, but let’s assume it is an acceptable one.

Now we come to the other side of the equation: what does it take to convince the leader to not hire another worker? Remember that to hire a new worker at $59,000 per year (nominal salary), the business must not only have an expectation of that worker generating the $80,000 necessary to meet all pay and other compensation, the business must have an expectation a meaningful profit, nominally at least 25% gross return (pre-tax), or $20,000, for a total of $100,000 in new business activity. But, if there is going to be an additional expense, say from new taxes on the business itself, or additional costs for hiring, then the new worker’s margin is reduced until that new worker represents at best a zero gain, and if there is any dip in either demand or productivity the new worker becomes a net loss. So, in the end, for an average business to add one medium income employee there must be an expectation of $100,000 in new business, but to “kill” a new hire there must only be a marginal increase in associated costs – or taxes or other government driven expenses – to the small businessman, that will vary from company to company. It will be from as little as a few thousand dollars to as high as $20,000, but it means simply that the gross (pre-tax) profit can’t reach the amount required to invest in the new worker. We will use the most conservative number - $20,000 – four this discussion, but it is probably closer to half of that.

There is one further facet to this problem: the real expenditures government makes to create the average government job. Currently, the Federal government average expenditure for all non-uniformed personnel – pay and benefits - is $106,000 per person per year (as of 2008.) (For uniformed (military) personnel the average in 2008 was $94,000 per person.) There are additional government expenditures for personnel, for example payment to retired personnel, that are not included within that figure as the government pays retirements out of current accounts, there being in fact no ‘lock boxes’ into which the government places money for payment of future retirement accounts, so this number should be indexed up. Nevertheless, we will use the simple number - $106,000 per year – as our reference number. Note that this is an average and, as recent news has shown, government creation of new jobs often comes at a much higher cost.

The market creates new jobs that are controlled by clearly discernible margins and the creation of real wealth, that is, the creation of real goods or services. The business owner hires based on analysis that doing so will result in real income. The government agency hires because it must spend the money; one is creating wealth, one is consuming it.

There are now two separate numbers: $106,000 for each job the federal government creates, of which a certain percentage, perhaps as high as 20% (if the Grace Commission was correct), produce no benefit to the nation; and $80,000 for an average private sector job, each of which will produce approximately $100,000 of goods or services.

Where does all this leave us with regard to Job creation? Business has always claimed, and both economic theory and simple common sense confirm, that taxes on business represent a cost to business by forcing higher prices and thereby reducing demand. While it can be asserted that businesses do not pay taxes, that they simply pass the additional cost on to their customers, the fact is that there will always be both an impact on their demand and a time lag as the market adjusts to the higher prices. Thus, while the business needs to pay taxes (and they must pay withholding taxes this year for next year) the impact of the additional tax is felt as soon as it goes into effect. But the market adjustment and eventual rebound in demand can take place immediately, next week, next month, next year or not at all. Thus the business is left with a reduced demand and increased cash outflows. It is not surprising then that the normal response by any sane businessman is to be fairly certain that there will be adequate cash flow before they hire a new employee.

And so what about Job Creation? Last year the Federal Government collected $295,000,000,000 in corporate taxes. What would this equate to if, instead of being taxed, it were left in the free market and businesses were allowed to use this money to increase their own purchases of goods and services, hire new workers and increase productivity? Would the retention of this money within the free market equate to nearly 3 million jobs (one for every $100,000 retained), or would the number be larger or smaller than that?

Assuming that most businesses are already operating with unused capacity – and that is born out by US government figures – new workers can be hired without buying new office space or new factory space, etc. More importantly, for each dollar that each business retained, that money has a multiplier effect: it is spent by one business for certain goods or services and the receiving business will likewise use that dollar. A common estimate is that each dollar will be exchanged at least five times, meaning that $295 billion left in the free market would multiply into $1,475,000,000 in market activity, a 10% increase in the GDP.

Of course, this would actually require a year to 18 months to take place as businesses changed their processes and expanded their production. But the implications are huge: 10% real GDP growth would mean approximately 10% employment growth, or the creation of more than 14 million real jobs. And 14 million new jobs would mean, within another year as the market expanded with this larger work force, a significant increase in both overall personal income in the US and an increase in personal income taxes collected, more than offsetting the reduced revenue from the elimination of corporate income taxes.

But let’s go back to our small business. What happens when this or that government program levies an additional set of costs on the business? Assume a business has 20 employees and the owner is considering hiring one more worker, at a total cost of $80,000 (as above) in the expectation of generating another $100,000 in revenue. But now a new expense of $1,000 per employee is levied against the business, a total of $20,000. All profit from the new worker has just been consumed. While one might argue that by hiring the new worker he creates the additional revenue to pay for this new worker, that is the logic of a government accountant. The owner must look at it as a bill he must first pay. It is more likely that he will not only defer hiring another employee, he will also look at whether he must let someone else go to maybe free up some additional cash.

Politicians may talk of ‘creating jobs,’ but any significant real job creation can only take place within the market place. And that requires available liquid assets – cash. There is a ready pool of that cash, one that would repay the nation and the economy within a year or two with both massive job growth and substantial tax revenue growth. It’s time to end the taxation of business and leave that money in the hands of the businesses where it will create real jobs and real wealth.

Next: Is this growth rate even possible?