Posted by: Lazy Jack | November 6, 2009

The National Scouting Report

Businesses, like major league hitters, want to put runs on the board. Doing business in today’s environment is like facing a team that just padded its pitching staff with cheaters who know how to throw a lot of junk. Understanding and breaking down what they are throwing is critical to succeeding in this environment. So what are we facing this season? A batter in the box today appears to be facing all the following pitchers at once:

1) The Ace: Federal, Local, and State taxing bodies all legally throw tax fast balls designed to suppress your batting average. Tax is the modern fastball, and the hitter and employees have no choice but to pay. The average company is spending between 23% and 30% of all non-raw material expenses on taxes when you count the money the company must piece off to the government for each employee on payday. Count the taxes paid by suppliers upstream in the supply chain and the number grows larger. Despite the huge tax burden already levied on all businesses and people in the U.S., Washington is telling us all we need is more.

2) Second starter: Regulation. The Sherman Anti-Trust Act, the Federal Trade Commission Act, the Wheeler Lea Act, the Interstate Commerce Commission, the IRS, the FCC, OSHA, the FDA, The EEOC, The EPA, fifty state Attorneys General, the Federal Attorney General, the Consumer Product Safety Commission, the SEC, the Federal Reserve Board, the FDIC, HIPAA., the NLRB, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Office of Thrift Supervision, the SIPC, fifty state banking offices or commissions, the trial bar, fifty state and one federal legislature. This is a wide pitch selection, but expect even more from the current federal legislature.

3) Third Starter: The American Clean Energy and Security Act of 2009. The CBO estimates that beginning in 2010 the legislation would lower GDP by .9% or $126 billion per year and reduce household purchasing power by an average of $900 before offsets. The CBO claims the offsets will give you back $760 for a net reduction in household purchasing power of $160. Anyone really believe that will be the actual reduction each family will have to endure? Sounds like a nasty slider.

4) Middle Reliever: The American Free Choice labor legislation. Expect affects similar to the Wagner Act, including a possible increase of 30% in the unemployment rate as happened in 1937. In other words, the unemployment rate could top at 13% just because of this legislation alone based on experience from the depression. Call this pitch the cutter.

5) Middle Reliever: The national debt and annual deficits. Favorite pitch is the breaking ball, weakening the dollar by printing so much money that rapid inflation may be inevitable now. Weak dollar policy is already driving increases in commodities, especially oil. And, as the risk on that debt increases, the vigorish will have to increase. Our interest rates will be forced to balloon, possibly leading to more layoffs in order to pay the capital cost of financing business. Definitely a breaker.

6) The Setup Man: The 2009 fiscal stimulus. Of the $787 billion, a mere $80 billion is allocated for direct infrastructure investment, and only $51 billion of that was appropriated for roads, bridges, etc. An additional $61 billion for energy infrastructure is so thinly spread through pet projects both the near and long term economic impacts will arguably be zero. The tax reductions in the bill will likely pay dividends, but the $500 billion in direct spending will be financed with treasury bills. In simple language, instead of investing in businesses and new technologies capital is flowing into t-bills to finance your deficit, despite the ample evidence that no job growth is being ‘stimulated.’ What would have happened if that $500 billion, or the entire $787 billion, was invested by the private sector? We will never know, will we? Call this one the screwball.

7) The Closer: Healthcare reform. One hundred billion per year in new spending, taxes on premium health plans, monstrous new bureaucracies, a flood of new taxes to pay for the programs… Let’s just say that we have not seen this pitch before, but it is probably a spit ball.

And then there are the regular pitchers we must face every day: the economy, competitors, talent management, advancing technology, international competition and opportunity, Russian Tort Roulette, the stuck credit markets…

The fashionable in the media and the political class are fond of portraying every executive and business owner as demons that enjoy laying off people just to make a buck. In truth, in the face of all the above, most companies are laying off in order to survive and prepare for the worst to come. A majority are small enough that they are laying off friends and family and neighbors so that others will still have a job. The only reason unemployment is not higher is business people are holding back, confident in their people’s ability to recover despite the next sobering fact.

According to the Bureau of Economic Analysis, private direct fixed investment in this country has declined for twelve of the last fourteen quarters. That is a three and a half year run of negative investment. Non-residential direct investment has now declined for six quarters, including this last quarter when GDP grew. If you wonder what the scouting reports reveal to business people and investors in this country, this number is telling. The message is: place your bets elsewhere. This, despite massive stimulus, promises of free healthcare and a worker’s paradise. Why is that? Because logic and evidence demonstrates that the stimulus is ephemeral at best, its effects fleeting and diluted because it was nothing but one long collection of earmarks. Because outside of academia, people understand someone always has to pay for lunch.

A vast majority of workers, small business owners, big business owners, and entrepreneurs are not afraid to take the risks in this or any market. We get into that batter’s box every day only to find that our biggest obstacle is our own government and its insane new momentum to collectivize everything.

We can compete with everything else. We know how to pick ourselves up and dust off. We have done it before. We probably could have done it on our own during even this crisis. We do not need some invisible hand to do it especially if that invisible hand protests that it had nothing to do with the disaster the last two years (See Frank, Dodd, Nancy, Fannie, and Freddie). We certainly did not need the stimulus or cash for clunkers. One could argue that we needed TARP and TALF, if only because the economic distortions we created by the presence of Fannie and Freddie needed to be re-balanced by those that created them.

The scouting report says that petty socialists around the country and in Washington are about to pile on more obstacles to the success of the average American, whether he or she is a hairdresser, a welder, a dentist, an engineer, or a CEO. I say, bring it on. If we go down because we collectivize everything, at least we will go down swinging.

© Edward Hunter and Thanks for the Laughs, 2009


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