Muhammad Yunus for President? Or picking up pieces from our burst financial bubble.

It's time to rethink our economic lexicon.  Let's bust a few myths and recognize some truisms.

First off, when did rich people become called "job creators?"  This term seems to be the Right's creation in the aftermath of the economic collapse of 2008.  The intent seems focused on discouraging any increase in income tax rates on high income individuals, and also to prevent the responsible (or shall we say "irresponsible") parties from being held accountable for the roles they played in the economic collapse.  

Rich people are not job creators.  There is no such thing as a job creator (in a capitalist market... not that there's anything wrong with that).  The goal of capitalism is to create profits.  Jobs are a (undesirable?) biproduct of creating revenues and, the principal objective, profits.  If companies can be made more profitable by cutting jobs, outsourcing jobs, off-shoring jobs, using temp services, and/or using contractors, business owners usually do these things first.  Adding full time employees is the last thing many business/business owner  wants to do.  And they will only do this when it adds to their profitability.  The closest thing to "job creators" are non-profit micro-enterprise lenders whose goal is to give individuals the opportunity to earn a living and/or create small businesses.  If we want a "Job Creator" in the White House, we likely have to find a U.S. born Muhammad Yunus.

Consumers are the foundation of our economy.  If we do not have a strong and vibrant consumer class, we will not have a strong economy.  The continued concentration of wealth in fewer and fewer hands does not bode well for the future.  How come business owners don't care?  Maybe it's because they are short sighted, or perhaps because they see their market expanding.  It doesn't matter to them if they sell the product in the U.S., Canada, Europe or China.  So if the U.S. consumer class is weak, that's okay, provided they can sell their product somewhere else.  It's not good news for the middle class here, but most businesses do not care.  That is not what they are designed to do.  Business's priority is to create profits for owners/shareholders.

You "earned" it, you deserve it.  Conservative pundits would have you believe that anything you can legally extract from the system has been earned.  Not necessarily true.  Look at the dictionary.com definition of "earn."

1.      to gain or get in return for one's labor or service: to earn one's living.

2.

to merit as compensation, as for service; deserve: to receive more than one has earned.

3.

to acquire through merit: to earn a reputation for honesty.

4.

to gain as due return or profit: Savings accounts earn interest.

5.

to bring about or cause deservedly: His fair dealing earned our confidence.

Interesting that the words "merit" and "deserve" come into the definition (Merriam-Webster says "to make worthy of.)"  Let's not forget that lots of people receive more than they "deserve/merit."  And lots get less: good teachers come to mind, doctor's who work for below market salaries in economically depressed areas, etc.  Many U.S. financial institutions have become egregious examples of institutions that legally created "equity instruments" that made a lot of their employees and principals rich, while 

wreaking havoc on our economy.  While the behavior may not have been illegal, it was certainly ethically compromised and lots of non-participants were hurt in the process (probably more than 95% of Americans).  Why there is not more anger over this behavior is beyond me.  Theories, anyone?

To be continued...

Herman Cain: Why the Pizza Man Won't Deliver

Presidential candidate Herman Cain is a master of spin, even without pizza dough in his hands, and when caught red-handed fabricating truths, he brushes it off as nothing more than pizza sauce.

So Cain thinks he can create jobs?  Well, his turnaround of Godfather’s Pizza proves just the opposite.  Cain reportedly closed in the neighborhood of 200 stores, and laid off hundreds of workers (with thousands likely losing their jobs as a result) to make Godfather’s profitable.  So if you were a poor unemployed pizza worker in Omaha in the late 1980’s, you have no one to blame but yourself… and Herman Cain.  After 14 months of consolidation at Godfather’s, Cain predicted greatness according to Businessweek.  He had plans to double the number of stores over three years and run with the big boys at Dominos and Pizza Hut. It never happened… never even came close.  When Cain took over, according to various sources, Godfather’s was the number three, four or five pizza chain in the country… and Cain turned it into number 10 or 11 when his association with the company ended.  Sales under his leadership were reportedly flat to down (and definitely down when adjusted for inflation).

Cain, of course, took home millions for himself.

Despite posing as a simple Pizza mogul, Herman Cain is actually a Washington and Wall Street insider who spent years as a lobbyist, conspiring with business to buy the policies he and his constituents craved.  As the head of the Restaurant Association lobby -- Cain promoted smoking in restaurants (the inspiration for his current campaign ad?), against lowering the legal blood alcohol level for drunk driving, and for keeping restaurant salaries low.  So whose fault is it that people are poor, Herman? 

Herman Cain is really the worst kind of hypocrite.  Cain’s approach to business is to squeeze the juice out of an orange, drink the juice and hand the flaccid rind to the workers and tell them to be grateful.  As far as I can tell, Herman Cain has never grown anything.  He has cut his way to profitability. 

So what kind of America can we expect under Herman Cain?  Based on his record… fewer jobs, not more, and at lower pay… dirtier air, because Cain will push for burning more fossil fuels and repealing smoking bans… more drunk drivers, but fewer police and less health insurance (a nasty formula if ever there was one).

He will slash revenues and spending… shift what little tax burden there is almost entirely onto the poor and middle-class (can’t penalize the job creators)… and what little spending there is will be used to build a 2000+ mile fence on the U.S. Mexico border (possibly electrified, though probably no alligator filled moat – I think people striving for a better life being eaten by ‘gators passed as Cain’s idea of humor).

Under Herman Cain, America may cut deficits and shrink government – that is his modus operandi after all – but we will have to settle for being an economic also-ran.  We won’t be #1 after a Cain presidency – we may not even be in the top 5.  Jobs and GDP will likely under perform.  Disparity between rich and poor will increase.  Under Herman Cain’s fast food, low tech approach, the Unites States will slip behind our competitors (just as Godfathers Pizza did under Herman Cain) and we will end up catering to the high tech, growth economies of our global counterparts, including China, India, Brazil, Germany, Canada and perhaps countless others.  Because while Herman Cain is undoubtedly an inspirational speaker, his record does not back up his claims, and he will not be able to deliver… unless all you want is a pizza.

Deception and Distraction: the fabricated connection between tax rates and job creation

How many false and/or misleading statements can conservative strategists fit into a single sentence.  Let’s give it a shot.

The threat of higher taxes (e.g. the Bush tax cuts being allowed to expire for high earners) creates uncertainty that is keeping the “job creators” from being able to create jobs.

If you object to this sentence as representing the conservative position, raise your hand now… and tap the BACK button on your browser.  Otherwise read on.

So what is false and/or misleading?

1. The expiration of the Bush tax cuts raises the taxes on people earning $300,000 by $1,500./year.  If you earn a cool million (that’s $1,000,000.), your taxes could go up a whopping $22,500.  These tax increases are relatively negligible.  This affects few if any businesses as it generally applies only to individual taxpayers.

2. The only businesses directly affected are those structured as tax pass-through entities -- S-corps, some LLCs, partnerships and sole proprietors.  And in fact, hiring people creates tax deductions that reduce the taxable basis for these companies.  Specifically, hiring people means fewer dollars pass through to the owners.  So hiring new people actually reduces their taxable income (until the new employee is generating revenues and profits in excess of expenses – which means they are making marginal profits for their employers… now there is a problem one wouldn’t want to have).

3. Paying a new employee reduces marginal taxable income.  Raising taxes on marginal income actually creates an incentive to hire.  If the marginal tax rate is 50%, then hiring an employee only costs 50 cents on the dollar as the salary is 100% deductible.  Do I want 50% of the money in cash or 100% of the money in productivity?… hmmmm.

4. There is no such thing as a job creator – with the possible exception of Bangladeshi economist Muhammad Yunus and the Grameen Bank micro credit program.  There are simply businesses that grow and generate jobs as the addition of new positions becomes marginally profitable.  Big business has no interest in creating jobs.  Business aspires to be an “income creator.”  Jobs are an inconvenient bi-product.  That’s the reason so many companies are using business services companies and outsourcing and off-shoring jobs.  

5. The implication that the alleged “job creators” want to create jobs to begin with… but are being prevented from doing so.  Lets look at some big “job creators.”   It is reported that Koch Industries has cut thousands of jobs over the past three years, even as profits have risen, and the Koch brothers net worth has increased by 40%.  Oops.  See #4… Companies don’t want to create jobs.  They do so only reluctantly.

6. In the past 10 years… with the benefit of the Bush tax cuts in place… our economy has created (drumroll please)… -203,000 jobs.  That’s minus, as in negative, less than nil, nada, zip.  In the 1990s, with higher marginal rates and fewer loopholes, ~19 million jobs were created. 

Conclusion?  There is no defined relationship, causality, or even correlation between hiring and tax rates, no matter what the Republican Presidential candidates say.  Who could imagine that one simple sentence could be so deceptive. 

Now don’t get me wrong… allowing the Bush tax cuts to expire/raising taxes is no silver bullet,   What we really require is structural reform.  Tax brackets are really not the issue at all – they are barely part of the conversation -- and that’s the very reason conservatives want to talk about them.  The further they stay from the real issues, the better their prospects look. 

Coming Soon:  How tax rates are being used as a red herring/smoke screen.

RETHINKING AMERICA

It is time we started rethinking America. But as a precursor to doing this, we must each first rethink ourselves. If we are to create something good, something workable for America’s future, we must let go of our entrenched beliefs and look at this country as it actually is today. In 2008, when the United States teetered on the brink of financial Armageddon, then Federal Reserve Chairman Alan Greenspan expressed that his worldview had failed him. His worldview absolutely did not fail him... his views were simply proven to be wrong, and that made Greenspan very uncomfortable. Most of us would be extremely uncomfortable with the notion that our worldview is wrong – because it causes cognitive dissonance. “Cognitive dissonance is a discomfort caused by holding conflicting ideas simultaneously. (Festinger, L. (1957). A theory of cognitive dissonance. Stanford, CA: Stanford University Press.)” The theory of cognitive dissonance proposes that people have a powerful drive to reduce dissonance. They can do this by changing their “attitudes, beliefs, and actions,” or -- perhaps more commonly-- dissonance can be reduced by “justifying, blaming, and denying.” Most of our political leaders are masters of “justifying, blaming and denying,” and as a result, they never make mistakes or are ever wrong Politicians cling dogmatically to whatever worldview is supported by their political base. And we citizens become willing partners in this exercise, because if their views are right, ours are right. And that makes us feel good about ourselves. Politicians may make us angry sometimes, but they also make us feel comfortable with our beliefs and our biases. That is why, in the world of politics, it is seemingly more important to be consistent, than it is to be correct.


Most people's "world views" rely heavily on personal experience, which is essentially anecdotal evidence. We feel our perceptions and beliefs are accurate and factual, even when we don’t have any hard facts to support them. This is not automatically a bad thing. For example, our beliefs can work as motivation… the belief “if I work hard, I can be successful” may inspire us to greater efforts. It may lead to good advice… “working hard leads to success.” The problem arises when a corollary is used to judge other people, Then it becomes a bias: “If you are not successful, you must not be working hard.” It is easier, and more comfortable, to see another’s “failure” as the result of their own actions, rather than resulting from circumstances or chance.


Reality is that all of us have an incomplete and limited perspective from which we see the world and operate in it. The fable of the three blind men and the elephant graphically illustrates this – the blind man who grasped the animal’s trunk believed an elephant was like a large snake, the one who hugged a leg felt an elephant was like a tree trunk, and the one who grabbed the tail believed it was simply a rope. In a way, we are all somewhat blind. And while we are not literally without sight, we can still work to expand our “vision.” Wiser individuals embrace the opportunity to enhance their perspective and supplement there own experience with the perspectives and experiences of others. Reading can give us insight into how others think and about experiences far from our own. Experts and specialists can give us nuance and specifics we can sometimes not even imagine. It is important to recognize that as humans, we are prone to misperception and mistakes. There is nothing wrong with making mistakes. What is wrong is when we deny our mistakes and cling to them dogmatically. Unfortunately, this is standard operating procedure for most of the political leaders who run our country.
 

A politician who learns from his or her mistakes and changes course is labeled as wishy-washy and a flip-flopper... while the politician who stays the course (albeit wrong) is viewed as principled, of strong character, and ideologically committed. In the real world, it is generally the other way round. A business leader who does not adapt to changing market conditions usually ends up out-competed and, perhaps, unemployed. For a politician it is just the opposite -- politicians who "change" are seen as weak and opportunistic. A running joke is that the definition of insanity is doing the same thing over and over and expecting a different result. Yet, this is often a quality we choose in our political leaders. Here again, this is about cognitive dissonance. If they are wrong, then we are wrong. And for many people, that is an unacceptable proposition. So we demand that that our leaders stay the course and stick to their guns, even when their guns are firing blanks. We allow them to -- nay, demand that they -- squeeze our world into neat little boxes; paint pretty pictures that leave us feeling safe, comfortable and good about ourselves; Whether this is supported by facts or not.

 
In keeping with this simplistic approach, Politicians almost always mistake correlation with causality -- although they do this selectively, often choosing to ignore science or any relevant information that does not support their position. Example, the economy is weak... Barack Obama is president... ergo, Barack Obama's policies are responsible for the weak economy. This ignores all the pre-Obama private banking sector misdeeds and government missteps that contributed and continue to contribute to a weak economy; Ignores the fact that collapsing, under-collateralized banks created such a seize-up in the capital markets that businesses slashed jobs at unprecedented rates and hoarded cash -- and continue to hoard cash -- despite recent record profits; And ignores the fact that years of pushing for expanded international trade and economic inter-connectedness have left our country more vulnerable to conditions of the global economy. In general, this just ignores pretty much all the actual economic pressures and conditions that have contributed to a protracted downturn. In fact, against the backdrop of these unprecedented economic conditions, it is extremely difficult to evaluate the success or failure of Obama's policies. The problem is simply too big for any policy to solve (though policy can help mitigate the damage).
 

Mistaking correlation for causality by no means follows party lines – The first President Bush’s policies were blamed for a weak economy. His son, President George W. Bush receives heat in some circles for his failure to stop the events of 9/11, or even for “causing” it. The working wisdom is that a president owns whatever happens while they are in office. And while president’s are supposed to at least get the credit when things go well, the partisan perception is that our guy or gal’s policies would have worked better than whoever was in office (think Ronald Reagan and Bill Clinton).     
    
 
Unfortunately, we do not have the luxury of being able to see how different policies would have played out under different administrations. Would Al Gore have been able to foil the 9/11 assassins? He might say yes, and it's possible (and we will never know), but I would say unlikely. In the same way, it is easy for Republican's to say current economic conditions would have been much better under them, but it is difficult to see how. The magnitude of our economic problem seems beyond governments capacity to control. Business leaders say that only increased demand will bring back jobs and growth. Most businesspeople favor a balanced approach(including tax and revenue increases) to stimulate growth, but the Republican plan for shrinking government will in fact shrink demand in the near term, leading to further job cuts in both government and the private sector, and will very likely perpetuate and magnify our problems. Long term it is necessary to get our spending under control and our fiscal house in order -- but severe cuts to this still sickly economy is equivalent to taking a patient off life support after an operation.       


Republicans are also quick to criticize Obama for “promising” to keep unemployment under 8%, but fail to acknowledge that conditions exiting the Bush administration were far worse than even they imagined. Obama did not “renege” on a promise. This is not a George H.W. Bush “Read my lips…” moment. The unemployment rate is not a “choice” that the President makes. In 2003, when George W. Bush launched the second Iraq war, his administration promised a quick and decisive victory, and assured the public that we would be welcomed as liberators. This did not happen. Both Iraq and Afghanistan proved to be protracted grinds that we are still engaged in. Republicans did not criticize George Bush for underestimating the difficulty of these propositions. They did not accuse him of “reneging on a promise.” They lauded him, and urged the electorate to stay the course: which we did.      
    

Both Bush and Obama miscalculated. The fact that today’s economic recovery is slower than anticipated is no reason to give up on Obama. The economic morass is more indicative of the deep hole we were in, and Obama has recently shown himself willing to moderate his goals to economic realities. He has even showed a willingness to address the problems surrounding sacred cows such as Social Security and Medicare/Medicaid. Republicans, meanwhile, are holding a hard and simplistic line. Their principal economic policy is shrinking the government and maintaining the Bush tax cuts. They fail to explain how the Bush tax cuts will help the economy, given that they have been in place for one of the worst economic decades in our nations history. In fact, the Bush tax cuts correlate with our worst 10 years since the Great Depression. Does that mean they are the cause of our economic problems? No… but they are clearly not the solution.


Perhaps it is time for Republicans to give up on a 10 year failed experiment, eliminate the Bush tax cuts and big corporate subsidies, and recognize that the share of wealth controlled by the wealthiest 3% of Americans is at an all time high. The discrepancy in wealth between rich and middle class/poor is accelerating at a rapid pace and is the greatest in the industrialized world. Without a vibrant middle/working class, America is doomed to become a second tier nation.


Democrats also have to be held accountable. Long term, our government has to learn to live within its means. Waste and fraud must be rooted out, and government workers must be reminded that they are employees of the people and for the people. Democrats have to recognize that we are likely going to have to cut back on entitlements. And we cannot afford to be a nanny state. Too many people are defrauding the system and draining resources that could benefit those truly in need. Unions have to support policies that protect all workers, not just their own members, and understand that American competitiveness is crucial to our long-term success. Unions have to choose to be self-policing and eliminate workers who are not pulling their weight. This would benefit companies, American competitiveness, and the vast majority of union workers.

In short, rethinking America will only happen if both Democrats and Republicans get their own houses in order. We will only succeed when our leaders are willing to confront their own constituencies and tell them the truth, not simply what they want to hear.


Obviously, there are grave risks for the leaders who choose to do this – creating cognitive dissonance in ones base may provoke them to desert you. And there is certainly no shortage of partisans willing to pander who will step into the void this creates. A Republican who says “We have to raise taxes,” or a Democrat we says “We have to cut entitlements” may be throwing themselves to the wolves, but they will both be speaking the truth in our world as it is now. And only if brave leaders step forward and act in America’s best interest – and not simply their own (e.g. doing what it takes to get elected and stay in office) will we live up to the promise that America holds. One can only wonder what Alan Greenspan’s view of the world is today. Did cognitive dissonance lead him to denial or adaptation?
 

Adman Leo Burnett said, “To swear off making mistakes is very easy. All you have to do is swear off having ideas.” I want a leader who has ideas. I want a leader who makes mistakes, levels with the American people when he or she does, and learns from their mistakes. Many Americans may or may not be ready for that kind of honesty from their leaders, but it may be the only opportunity for us to achieve the greatness to which we, as individuals and collectively, aspire. So let’s demand that of our leaders. Let’s start the process of rethinking America… but first, let’s rethink ourselves.