Posts Tagged ‘ Tariffs ’

America Pay Up

Most of us have been acutely aware that our wallets, bank accounts, and retirement funds are under siege from unseen forces.  Everyday increasing numbers of people are losing their jobs and the stock market feels more like skydiving than a roller-coaster ride.  Some are declaring this the second Great Depression while others say no.  Rohm Emmanuel told the WSJ, “You never want a serious crisis to go to waste.”  While we fret about our personal economic futures, there are people around the world working overtime trying to exploit this crisis.

Wednesday, British Prime Minister Gordon Brown addressed a joint session of the U.S. Congress.  Previous British PMs have focused on foreign policy issues but today’s political issues are quite different.  Brown barely made more than a passing mention of the Middle East or Iran, and mentioned no other international issues.  Instead, Brown chose to focus on the global economic downturn.  It’s not a surprising and even quite appropriate.

In this address Brown shied away from actually blaming America for the crisis.  Rather he only eludes to it, “we need to understand what went wrong in this crisis, that the very financial instruments that were designed to diversify risk across the banking system instead spread contagion across the globe. And today’s financial institutions are so interwoven that a bad bank anywhere is a threat to good banks everywhere.”  We know which banks led the charge.

Brown appealed to the Obama administration not to become protectionist but rather join Britain in leading a global economic stimulus.  “So should we succumb to a race to the bottom and a protectionism that history tells us that, in the end, protects no one? No, we should have the confidence that we can seize the opportunities ahead and make the future work for us.”  I know I am flying in the face of my economic education and the majority of Americans, however, it is my opinion that the abolition of import tariffs and excise fees are at the root of the global economic crisis.

What?  How could this be? Aren’t the housing bubble bust, subprime mortgages, bank deregulation, and the war in Iraq to blame?  Everyone seems to have come to this conclusion.  Rather than rehash the same rhetoric, I will summarize, free trade shifts government revenues from foreign imports to individual and corporate taxpayers.  Free trade makes first-world labor too expensive and third-world labor extremely attractive.  As manufacturing, textiles, mining, and oil production leave a nation it erodes the ability of the first world to produce things and this undermines the foundational economic strength.  Furthermore, when a nation no longer knows how things are manufactured, innovation is stifled.  Can an engineer design something to be efficiently manufactured if he or she has never seen a factory?  No, the engineer must be flown to plants halfway around the globe, an expensive process that must be repeated often.  Any smart company will eventually figure out that it would be cheaper to hire R&D engineers close to manufacturing, thus eventually the first-world loses that ability as well.  (I suspect someday this theory will be recognized but I will get no recognition for it.)

Thus, I don’t buy it when PM Brown says, “America and Britain will succeed and lead if we tap into the talents of our people, unleash the genius of our scientists and set free the drive of our entrepreneurs. We will win the race to the top if we can develop the new high-value products and services and the new green technologies that the rising numbers of hardworking families across our globe will want to buy.”  While I agree the U.S. and the U.K. still have the “genius” to develop new high value products and green technologies, I disagree with who profits.  These products will be manufactured in China or some other developing nation that employs virtual slave labor and the profits will benefit only the top brass of multinational corporations and their stockholders.  The U.S. certainty doesn’t benefit in job creation, since clearly no one here will be building anything.  A few service and sales jobs perhaps, but hardly three million.

But let us return to Brown.  When Brown said, “America knows from its history that its reach goes far beyond its geography. For a century you have carried upon your shoulders the greatest of responsibilities: to work with and for the rest of the world. And let me tell you that now more than ever the rest of the world wants to work with you,” he meant, you rebuilt the world after WWII and now we expect you’ll foot the bill again. Sure a few paragraphs later he claims, “America and a few countries cannot be expected to bear the burden of the fiscal and interest rate stimulus alone. We must share it globally.”  But how does the following line, delivered only a few seconds later fit in? “Let us … [help] the emerging markets rebuild their banks…”  I believe this would require a sizable injection of capital from some major nation, maybe a cash cow like the United States.

But wait, that’s not all, he wants the U.S. to finance the education of “every child in every country of the world.”  Did you catch the “do it for the children” appeal?  Brown understands how to play the American audience, suckers and idiots all.  Besides the sheer cost of such an undertaking, there are implications that far exceed the kind sentiment.  There are national sovereignty issues, religious, and cultural issues.  Some have gone so far as to suggest that Brown’s address laid the groundwork for a single world government proposal.  I hate treading on that ground but it could lead us into that discussion.

Read the full transcript along with British opinion at: http://www.guardian.co.uk/politics/2009/mar/05/martin-kettle-brown-speech-analysis

The only thing we have to fear is…

Fear will kill you

If you have read my essays on Free Trade you will know that I believe the source of America’s economic weakness comes from outside the country.  Sure, the banking and housing crisis played roles but Free Trade policies are causing permanent damage.  As long as American companies employ Americans they are disadvantaged to those who don’t.   Not only do foreign companies not pay U.S. wages but they are exempt from U.S. corporate taxes.  Corporate taxes in the United States range from 35% to a top end of 41.6%.  The top end is greater than Japan’s 40% rate.  Do you understand why American businesses outsource?  They have to.

The Tax Foundation reported that the United States would need to reduce corporate taxes 20% just to rank in the middle of the international pack.  It would be an unrealistic expectation for this Democratically controlled government to cut corporate taxes like this.  It would be like asking a child to voluntarily give up candy – permanently.

No, we can expect them to fund the non-stimulus programs by increasing rather than decreasing corporate taxes.  After all, businesses are the bad guys.  They do nothing for this nation except abuse employees and charge actual money for their goods and services.  As a rule, they tend not to engage in social engineering, and rarely do they give away all their money (or borrow money to give) to unproductive or worthless employees.  They actually demand something in return for their money.  This simply is not fair and such evil entities should be punished, right?  Wrong, of coarse.

I do not understand which economic theory the current administration is following.  (I have studied economics too.)  Someone explain how giving money, through tax credits, rebates, or outright handouts, stimulates the economy?  I thought this spurious when Bush did it and we received no results.  So why are we doing it again and in a bigger way?  When people are losing their jobs, they won’t take this money and run out to Best Buy and buy a new iPhone.  If they did this still would have little lasting effect on the economy, iPhones are made in China.

If they were serious about stimulating the economy they would encourage, through tax breaks and other incentives, new business opportunities, the hiring of new employees, or create disincentives for businesses that cut jobs or outsource overseas.  What about a tax break for companies who expand and a new tax on American companies who employ non-American third party vendors?  How about reducing the corporate tax from 35% to 25% and then add a corresponding excise fee on non-essential goods.  Currently we punish businesses who call America home and reward them for moving jobs overseas where they can benefit from lower taxes and virtual slave-labor;  AND we give huge tax breaks to foreign companies who export to us.

youareallidiotsThere is no such thing as “bottom up stimulus.”  The bottom doesn’t create jobs they consume resources unless they are employed.  Businesses employ people.  Employment enables the economy to work because people are producing to meet demand.  The fact that they are producing allows them to create demand.  Business is at the top and when they employ people they are stimulating the economy and in turn are being stimulated by it.  Reagan called this “trickle-down,” a term abused by the left and successfully made to insinuate that the money stays mostly at the top.  Today’s conservatives need to rename this, perhaps “top-down job creation.”

The U.S. government is funded 95% through payroll, corporate, and income taxes.  Every time a business sheds an employee the government loses tax revenue both from the employee and the business, furthermore they incur additional entitlement payments.  When businesses shutter the impact is greater.  “Bottom up” simply adds  to the government burden and does nothing to address the underlying issue.

Last week I discovered an undated corporate memo on another blog that I want to reproduce here.  (I attempted to verify its authenticity, but the author refused to respond.  Therefore I cannot be certain the memo is real, so if you work for this company, let me know.) The memo boldly paints a picture of a situation I believe will become commonplace if Democrats increase taxes to fund their stimulus, ah, social engineering plan.  This memo clearly illustrates what we have to fear and from whom the threat comes.

To All My Valued Employees,

There have been some rumblings around the office about the future of this company, and more specifically, your job. As you know, the economy has changed for the worse and presents many challenges.  However, the good news is this: The economy doesn’t pose a threat to your job. What does threaten your job however, is the changing political landscape in this country. However, let me tell you some little tidbits of fact which might help you decide what is in your best interest.

First, while it is easy to spew rhetoric that casts employers against employees, you have to understand that for every business owner there is a back story”. This back story is often neglected and overshadowed by what you see and hear. Sure, you see me park my Mercedes outside. You’ve seen my big home at last years Christmas party. I’m sure; all these flashy icons of luxury conjure up some idealized thoughts about my life. However, what you don’t see is the back story.

I started this company 28 years ago. At that time, I lived in a 300 square foot studio apartment for 3 years. My entire living
apartment was converted into an office so I could put forth 100% effort into building a company, which by the way, would eventually employ you. My diet consisted of Ramen Pride noodles because every dollar I spent went back into this company. I drove a rusty Toyota Corolla with a defective transmission. I didn’t have time to date. Often times, I stayed home on weekends, while my friends went out drinking and partying. In fact, I was married to my business — hard
work, discipline, and sacrifice. Meanwhile, my friends got jobs. They worked 40 hours a week and made a  modest $50K a year and spent every dime they earned. They drove flashy cars and lived in expensive homes and wore fancy designer
clothes.  Instead of hitting the Nordstrom’s for the latest hot fashion item, I was trolling through the Goodwill store extracting any clothing item that didn’t look like it was birthed in the 70’s. My friends refinanced their mortgages and lived a life of luxury. I, however, did not. I put my time, my money, and my life into a business with a vision that eventually, some day, I too, will be able to afford these luxuries my friends supposedly had.

So, while you physically arrive at the office at 9am, mentally check in at about noon, and then leave at 5pm, I don’t. There is no “off” button for me. When you leave the office, you are done and you have a weekend all to yourself. I unfortunately do not have the freedom. I eat and breathe this company every minute of the day. There is no rest. There is no weekend. There is no happy hour. Every day this business is attached to my hip like a 1 year old special-needs child. You, of course, only see the fruits of that garden — the nice house, the Mercedes, the vacations… You never realize the back story and the sacrifices I’ve made.

Now, the economy is falling apart and I, the guy that made all the right decisions and saved his money, have to bail-out all the people who didn’t. The people that overspent their pay checks suddenly feel entitled to the same luxuries that I earned and sacrificed a decade of my life for.

Yes, business ownership has its benefits but the price I’ve paid is steep and not without wounds. Unfortunately, the cost of running this business, and employing you, is starting to eclipse the threshold of marginal benefit and let me tell you why:

I am being taxed to death and the government thinks I don’t pay enough. I have state taxes. Federal taxes. Property taxes. Sales and use taxes. Payroll taxes. Workers compensation taxes.  Unemployment taxes. Taxes on taxes. I have to hire a tax man to manage all these taxes and then guess what? I have to pay taxes for employing him. Government mandates and regulations and all the accounting that goes with it, now occupy most of my time. On Oct 15th, I wrote a check to the US Treasury for $288,000 for quarterly taxes. You know what my “stimulus” check was? Zero. Nada. Zilch.

The question I have is this: Who is stimulating the economy? Me, the guy who has provided 14 people good paying jobs and serves over 2,200,000 people per year with a flourishing business? Or, the single mother sitting at home pregnant with her fourth child waiting for her next welfare check? Obviously, government feels the latter is the economic stimulus of this country.

The fact is, if I deducted (Read: Stole) 50% of your paycheck you’d quit and you wouldn’t work here. I mean, why should you? That’s nuts. Who wants to get rewarded only 50% of their hard work? Well, I agree which is why your job is in jeopardy.

Here is what many of you don’t understand … to stimulate the economy you need to stimulate what runs the economy. Had suddenly government mandated to me that I didn’t need to pay taxes, guess what? Instead of depositing that $288,000 into the Washington black-hole, I would have spent it, hired more employees, and generated substantial economic growth. My employees would have enjoyed the wealth of that tax cut in the form of promotions and better salaries. But you can forget it, now.

When you have a comatose man on the verge of death, you don’t defibrillate and shock his thumb, thinking that will bring him back to life, do you? Or, do you defibrillate his heart? Business is at the heart of America and always has been. To restart it, you must stimulate it, not kill it. Suddenly, the power brokers in Washington believe the poor of America are the essential drivers of the American economic engine. Nothing could be further from the truth and this is the type of change you can keep.

So where am I going with all this? It’s quite simple. If any new taxes are levied on me, or my company, my reaction will be swift and simple.  I fire you. I fire your co-workers. You can then plead with the government to pay for your mortgage, your SUV, and your child’s future. Frankly, it isn’t my problem any more. Then, I will close this company down, move to another country, and retire. You see, I’m done.  I’m done with a country that penalizes the productive and gives to the unproductive. My motivation to work and to provide jobs will be destroyed, and with it, will be my citizenship.

If you lose your job, it won’t be at the hands of the economy; it will be at the hands of a political hurricane that swept through this country, steamrolled the constitution, and will have changed its landscape forever. If that happens, you can find me sitting on a beach, retired, and with no employees to worry about….

Regards,

Mark Harger

Superior Mechanical Contractors

An Unlikely Economic Lesson

You have to hand it to Ford.  $5.9 BILLION quarterly loss and they refuse to grovel before Congress for bailout money.  That is not to say they won’t, just that for now, they seem to have more faith in themselves than their two domestic competitors have in themselves.  In my Free Trade essay, How Much free Trade is Free? I wrote about free trade as a whole.  The real point of that essay was that as much as free trade lowers prices, boosts stock portfolios, and lowers the cost of doing business there is a downside.  The negatives include a decrease in available domestic jobs, the destruction of domestic manufacturing, the creation of foreign jobs that pay so little that most qualify as slave-labor, and in the long-run the erosion unskilled labor rates.  The inspiration for that essay was the dire situation of the American Automobile Industry.

There is no competition in wages

Life outside the U.S. is hard for Americans to relate toI contend that free trade created an unfair competitive environment for manufacturing in the United States.  The reason being that wages in the third world and developing nations are not comparable to those for U.S. workers.  I reject the argument that U.S. companies are rendered non-competitive because American workers are greedy.  True, union labor does artificially inflate labor costs and this reduces the competitive advantage U.S. manufacturers might otherwise possess.  My statements seem contradictory, but my point is more fundamental.  If we remove the inflated union wages from the competitive formula, American manufacturers would remain disadvantaged on labor costs.  As I have pointed out before, the American standard of living is far higher than that of developing nations, thus American workers demand a higher wage.  They need the higher wage to pay for all the goods businesses offer them, from housing to transportation, from soap to silverware, from shoes to televisions and computers.  However, a worker in a developing nation such as China, does not need a car, they don’t likely have a TV, let alone a satellite service or Netflix, nor are they likely to have a 3 bedroom/2 bath air-conditioned home.

To make matters worse foreign manufacturers are more than comfortable with the idea of paying workers the absolute minimum wage possible.  In many countries there is no right to belong to a trade union or negotiate for a better wage.  In Mexico it is not uncommon for workers to be paid barely enough to pay for food, (here’s my english language source, I know it’s a Cuban news agency with an agenda, but the stats come from Mexico.)  This story is repeated in other developing nations as well, in China new labor laws are basically ignored.  Workers are beaten for demanding back wages when their bosses simply don’t pay.  This is the “fair trade” playing field.

Would the last person to leave the plant, please turn out the light

I believe greed does play a huge role in our current global economic crisis.  I also believe free trade more than housing, banking, or loose lending has created the mess we are in.  As consumers we covet low priced goods so we can have more of everything.  As entrepreneurs and business people we want to give our customers those low prices and increase our sales volume.  The only way to achieve these goals was to employ those billions of low wage workers so plentiful in the third world and developing nations.  But in 1990 realizing this required convincing the industrialized nations to drop the tariff systems that leveled the economic differences of nations.  When Bill Clinton signed NAFTA a huge hurdle was overcome.  Free Trade agreements became all the rage and we saw a continual stream of them pushed by the WTO.

Since the 1980s there has been a systematic deconstruction of the American manufacturing infrastructure.  However, the real decline has occurred in just the last decade as 3 million manufacturing jobs (nearly 17%) were lost largely to other nations. We are employing cheap labor to support our standard of living without regard to what the consequences might be.

Now that I have painted the picture I want to make a point by comparison, I think the comparison is fair if approached with an open mind.  I stated above, consumers want low prices.  We don’t care how they are achieved we simply want WalMart to continue providing us goods at low prices and we’d appreciate them lower, please.  Business owners and stockholders of corporations want to produce goods with low overhead so they can offer their goods at the lowest possible prices, (payroll is the single biggest expense for most businesses.)  Neither consumers or business owners care how this goal is achieved, they simply want it achieved.

Modern slavery

The workers are also the consumers and they express shock and anger when they are displaced but you will have a hard time finding anyone demanding higher prices in order to save those jobs.  On the contrary, as more people are displaced, demand for lower prices increases.  The fact that people working for wages that barely provide food on their tables and clothes on their backs, is not a concern for either of these groups.  A blind eye is given to these people except when the press exposes a textile factory in Bangladesh, however, the shock is quickly put behind us as we fill our shopping carts at Wal-Mart with cheap T-shirts.  A point Americans ought to be confronted with is that much of the manufacturing growth in third world and developing nations is being done through slave labor. Twelve year old children in China are pressed into labor and abuse is not uncommon.  However, as a nation we not only tolerate such slave labor but we promote it through our economic decisions.  Consumers fain shock at such facts but really we don’t want to know about it.

In the 19th century 16 U.S. states supported their local economies through forced labor, commonly known as slave labor.  The system afforded people in the northern states and Europe very cheap textiles and produce.  Europeans and northerners overwhelmingly turned a blind eye to the injustices and cruelties of slavery.  The fact that slaves worked for a bare subsistence of food, rags for clothing, and substandard housing was largely ignored or conveniently unknown to consumers of the time.  What was important to the average person was being able to purchase cheap food and clothing.  (For the analogy I am leaving out all the other justifications and circumstances of the times.)  In fact, as the Civil War began, the Lincoln administration was fearful that Britain might declare war on the U.S. or otherwise aid the Confederacy to protect their own continued cotton trade, even though the British were overwhelmingly appalled and opposed to slavery, (Goodwin, 2005.)

As I reflected on slavery in the Old South, another parallel came to my mind.  The slave states were not industrialized, they were agrarian societies with high unemployment and poor infrastructure.  The factories were in the North since slave labor required the deprivation of education, they were excluded from factory work.  When war came to the South, southerners found the only arms they had were those obtained from the North.  Cut off from factories, they quickly found they had little means to manufacture their basic needs.  Furthermore, lacking infrastructure to manufacture they experienced a cash drain and were forced to print money at historic rates.  Hyper-inflation was a quick reality as a single Confederate dollar was worth only a few pennies in U.S. currency.

Here’s what I’m suggesting, as we dismantle our ability to manufacture we denegrate our nation and place it in peril.  As I write we have lost the ability to make a television set, let alone make spacecraft capable of landing on and returning from the moon.  What would happen if the United States suddenly had it’s credit frozen by the likes of China and our other creditors?  What if we suddenly found ourselves isolated in a global political crisis?  How would we fare if suddenly we were forced to start making things again?

The magic bucket

I’ll stop the worst case fantasies and come back to reality.  What happens when we find our international creditors beginning to tighten their lending?  If the Obama Administration truly intends to run trillion dollar deficits this will become a reality.  They will finance their drunk spending the same way the Confederacy did, by printing money.  The result?  Hyper-inflation.

I’m all for rebuilding bridges and the like, but we need to address the real infrastructure problem, manufacturing and fair trade policies.  For most of our existence as a nation the federal government was financed from an inflow of money from other nations in the form of import tariffs.  When we made the transition to free trade policies the federal government’s financial base changed to incomes taxes from its citizens. Recently, in college economics class, I heard a professor say there is no turning back the clock on the global economy.  If true the U.S. will see a steady decline in its standard of living.Magic Self-filling Bucket

I see this shift from tariffs to income tax as a very significant event, since previously money came from outside, now it comes from inside the country.  The vision of a bucket being filled from water drawn only from inside the bucket best illustrates my thinking on this.  Meanwhile, a significant amount of consumer money flows outward as well.  As we produce less and less and consume ever more it seems increasingly unlikely the bucket can remain at the same level.

Ironic environment

I had hoped the new administration would have done more to encourage manufacturing and business.  I even hoped Obama would create real change and reverse some of the bad trade deals we’ve seen made in the past 15 years.  Instead he seems to be working against us.  Openly encouraging states to destroy the auto industry through smothering emissions regulations.  Such environmental regulations have already cost the industry billions.

1980 Toyota TercelA point none of the environmental nut jobs seems to be aware of is the self-defeating aspect of emissions controls on cars.  In 1980 I bought my first car.  Gas prices were skyrocketing and being the young hyper-money-aware person I was I bought a Toyota Tercel.  A nerd car for certain, but it got 40 miles per gallon by my own calculations.  Today you would be hard pressed to find a car that could come even close to that kind of mileage.  No, I think you could not do it (even hybrids perform worse when you include any highway useage.)  Well, it is an irony but the more emissions equipment the government places on cars the lower the fuel efficiency.

The question is why?  Obviously emission equipment is not weightless, it has mass, and that mass requires additional energy to move it. Thus with each kilo added to the weight of the car we lose gas mileage.  I want clean air but I also want to be able to afford to live the lifestyle I have become accustomed to.

I thought Obama was going to “preserve or create” jobs.  Instead we see him actively engaged in harming the American auto industry.  An industry I consider critical to American economic strength.  I fear the Obama administration is more concerned about the environment, than any other single concern.  They have bought into the Al Gore lie and it may cost us more than we can currently imagine.

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