Don’t be lame. Be dynamic.

– By: Larry Walker, Jr. –

When it comes to tax policy, there are two schools of thought. Liberals and progressives cling to what’s known as static revenue analysis, while conservatives lean towards what’s known as dynamic revenue analysis. Today we will be comparing both concepts to gross domestic product, and government revenue between the years of 1993 and 2008. The objective is to open minds to the concept of dynamic analysis, and to prove once and for all that tax cuts lead to increased government revenues, and higher levels of economic activity. But first, lets look at a couple of examples:

Example 1: Static Revenue Policy – Joe the retailer owns a gift shop. One day Joe got sick and tired of lackluster sales and decided to raise prices by 100%. Joe believed that if he doubled prices, while maintaining the same volume of sales, that his revenues would double. Joe doubled prices but soon noticed that sales volume had dropped dramatically. Before the price increase, Joe averaged 1,000 customers per month, with average sales of $10 per customer, and total sales of $10,000 per month. After the price increase, the number of customers fell to 500 per month, with average sales of $20 per customer, and total sales of $10,000 per month. Joe soon realized that higher prices don’t necessarily lead to more revenue. Joe had applied a static revenue policy, and in the process learned that there’s more to business than meets the eye.

Example 2: Dynamic Revenue Policy – After taking a few businesses courses, Joe the retailer decided to give it another try. This time Joe decided to cut prices by 50%. Joe quickly noticed that sales traffic picked up dramatically. After the price cut, the average number of monthly customers rose to 2,000, with average sales of $10 per customer, and total sales of $20,000 per month. Why didn’t the average sale per customer fall from $10 to $5? Because, customers were already spending $10 per sale, and quickly figured out that they could now buy twice as much for the same amount; so consumption didn’t decrease. This time, Joe had applied a dynamic revenue policy, and in the process was able to double sales. Not only did sales double but, Joe was able to receive volume discounts from his suppliers for placing larger orders. Joe had finally arrived. Now, let’s look at GDP.

Gross Domestic Product

A comparison of GDP between the periods of 1993-2000 and 2001-2008 can be looked at in two ways. Static minds will focus to the far right of the table below, and pontificate that GDP grew at a higher rate, an average of 5.79% under Clinton, than the lackluster 4.71% under Bush. What they miss is found in the third and fourth columns. Comparing the total amount of gross domestic product over each term, we see that total GDP under Clinton was only $65.4 trillion, while it was $98.4 trillion under Bush. We also see that average annual GDP under Bush was $12.3 trillion, while under Clinton it was a mere $8.2 trillion. In other words, total economic production grew by 50.4% during an era of lower tax rates.

So then why was the annual percentage growth rate higher under Clinton? That’s easy. If you make $10,000 per year and get a 10% raise, your pay will have increased by $1,000. Fair enough. But if you make $100,000 per year and get a 5% raise, your pay will have increased by $5,000. Which would you rather have, more money, or a larger percentage increase? I’ll take the money.

Here’s what this looks like graphically:

Government Revenues

Now let’s look at total government revenues over the same period. Static minds will focus to the far right of the table below, and lecture that government revenues grew at a higher rate, an average of 8.05% under Clinton, than the lackluster 3.04% under Bush. Again, what they miss is found in the third and fourth columns. Comparing the total amount of revenue raised over each term, we see that total revenues under Bush were $17.2 trillion, while under Clinton revenues were only $12.4 trillion. We also see that average annual revenue under Bush was $2.1 trillion, while under Clinton it was a mere $1.5 trillion. In other words, total government revenue grew by 38.7% during an era of lower tax rates.

Lower tax rates lead to greater tax revenues, and a larger economy. That’s the whole point. It’s the number of dollars that matters, not the rate of increase. The fact that revenue growth is achieved at lower annual growth rates is a bonus, especially when it comes to tax rates. The only problem we have is that the demands of government have grown faster than both revenues and GDP, but that’s another story. Remember: “Government is not a solution to our problem, government is the problem.” ~ Ronald Reagan

If we want to grow the economy and spread wealth, tax cuts are the way to go. It all depends on ones philosophy. Liberals and progressives want to grow the size of government, at the expense of the economy. Conservatives want to grow the economy at the expense of government. So let us all think clearly now, and not be stuck on static. Have a Merry Lame Duck session.

Sources: Bureau of Economic Analysis and Office of Management and Budget

More White House Rubbish

– by: Larry Walker, Jr. –

Does keeping the current tax rates in place constitute a tax cut? No. Only a reduction in current tax rates could be considered a tax cut. Keeping the current tax rates on one group, while raising tax rates on another, constitutes a net tax hike (i.e. 0 + 1 = 1). That’s just common sense. Let’s face the facts; there are really only five logical possibilities:

1. Lower Tax Rates on Everyone = Tax Cut

2. Raise Tax Rates on Everyone = Tax Hike

3. Maintain Current Tax Rates on Some + Raise Tax Rates on Others = Net Tax Hike

4. Maintain Current Tax Rates on Everyone = No Change

5. Raise Tax Rates on Some + Cut Tax Rates on Others = It Depends*

Net Tax Hike

Let’s focus on number three, which seems to be Obama’s solution. To raise tax rates on a few is to raise them on everyone. For example, let’s say that we have a two-person society, of limited resources, composed of Joe the employee, and Joe the employer. If tax rates are left alone on Joe the employee and raised on Joe the employer what will happen? Joe the employer will either have to cut back on expenses, one of which is Joe the employee’s wages, or raise prices in order to maintain the status quo. Either reaction will curtail economic growth. This drag on the overall economy will decrease the amount of income earned, and the amount of taxes paid by both Joe’s. Of course there are other possibilities, one of which would be for Joe the employer to fire Joe the employee, and move his operations to another country, one that has lower wage demands, which leaves Joe the ex-employee totally dependent on the State. The point is that the imposition of a net tax hike will have negative consequences.

One Economy

While Obama has neatly dissected the American economy into classes based on annual income, our economy is actually one. There is no lower class, middle class or upper class America; there is just one United States of America. It doesn’t matter whether you are a doctor, lawyer, accountant, CEO, manager, teacher, or wage earner; we are all interconnected. We all rely on the products and services of one another. To increase tax rates on one is to raise them on all, to cut tax rates on one is to lower them on all.

Defining the Problem

Now, since Obama has come up with a solution, the question we need to ask ourselves is, what is the problem? Are we looking for a way to grow the economy and to create jobs? Or, are we looking for a way to reduce the federal budget deficit? If the goal were to grow the economy and create jobs, then the logical solution would be to implement across the board tax cuts. Under number five* (above); a tax cut would imply cutting taxes by more than they are raised; otherwise only number one will suffice.

However, if the objective is to reduce the federal budget deficit, then tax policy alone will not suffice. The reason that tax policy will not solve our budget woes is that our budgetary problem is comprised of two variables: revenues and expenditures. The main reason for the present imbalance is expenditures. In fiscal year 2010, the federal government spent around $1.6 trillion more than its revenues. So can this problem be solved through implementing a $1.6 trillion tax increase? Not hardly. We already know that drastic spending cuts are required.

It has already been proven time and again that the act of lowering tax rates has the effect of broadening the tax base and increasing revenues. It has also been proven repeatedly that increasing tax rates has the opposite effect. A recent example would be the NY cigarette tax. As the NY Post reported, “Sales of taxed cigarettes have plummeted a staggering 27 percent statewide since the highest cigarette tax in the nation took hold in July.” So did over a quarter of NY smokers quit smoking? Not exactly, they simply started buying cigarettes outside of the state. So the plan to increase revenues by raising cigarette taxes actually wound up creating a budget shortfall.

We already know that a tax increase will not spark economic growth or aid in job creation; only a tax cut will suffice. It is also clear that a tax increase won’t solve the budget dilemma. So why is Obama stuck on number three? What problem is he trying to solve? There is only one logical possibility: wealth redistribution (i.e. class warfare). Is this really where we should be focused at this moment in time? I say no. To me this is just a bunch of rubbish (i.e. partisan trash talk).

Certainty

Lowering tax rates would begin a new era of growth, like I personally experienced between the years 2003 through 2006, while a tax hike will only cause further cutbacks. Maintaining current tax rates would have one benefit, and one alone: certainty. Small business owners, such as myself, are just not able to function under the present cloud of unusual uncertainty. My experience this year has been that where I should have concrete answers, I have none. Most of my advice, and all of my decisions regarding asset acquisitions are on the shelf. It’s probably too late to change anything for 2010, but there’s always next year. However, there won’t be any definite decisions until there is certainty. And for me, certainty means stability. In other words, a temporary fix or patch won’t cut it. I’m holding out for a clearly defined long-term plan, such as W’s 10-year tax plan.

If I have to endure any more partisan rubbish from the White House, I will explode. I don’t think I can bear listening to another two years of partisan campaign trash. One and done son. One and done. For God’s sake, repeal the AMT, and either cut tax rates now, or extend the current rates, and then work on the out-of-control spending problem next year. These are the only logical options.

Too Busy Talking Trash to Lead

By: Larry Walker, Jr.

What happens when you spend years trying to persuade people, yet they are not persuaded? What happens when you try to instill confidence, yet only raise doubt? What happens when you try to bring people together, yet they become more divided? What happens when you attempt to set a tone, yet the tone you set is one of deafness? And what happens when you attempt to make an argument that the people can understand, and they understand it, yet they reject it? You get fired.

Barack Obama on 60 Minutes said, “You know, I think that over the course of two years we were so busy and so focused on getting a bunch of stuff done that we stopped paying attention to the fact that leadership isn’t just legislation. That it’s a matter of persuading people. And giving them confidence and bringing them together. And setting a tone. And making an argument that people can understand. And I think that we haven’t always been successful at that. And I take personal responsibility for that. And it’s something that I’ve got to examine carefully as I go forward.”

You can bet that voters will be carefully examining Obama’s leadership skills as we go forward. As far as getting a ‘bunch of stuff done’, now the task at hand is figuring out how to undo all of it without further damage to the nation. The major tax is whether Obama will be able to admit his failures, and work with others to correct his misconceptions. And speaking of taxes, how long will it take Obama to make that decision? Has he learned any lessons? We are watching and waiting.

One lesson that Obama has yet to learn is that, whether he is speaking from the Oval Office, in India, or on the campaign trail, he speaks on behalf of all Americans. When Obama trashes ½ of America, he is trashing all Americans. As Obama moves forward with his attempts to divide employee against employer, brother against sister, and child against parent, he risks an even greater backlash: total and complete rejection. Grow up or depart.

Leadership Quotes

“Management is doing things right; leadership is doing the right things.” ~ Peter F. Drucker

“Delegating work works, provided the one delegating works, too.” ~ Robert Half

“The very essence of leadership is that you have to have vision. You can’t blow an uncertain trumpet.” ~ Theodore M. Hesburgh

“The best executive is the one who has sense enough to pick good men to do what he wants done, and self-restraint to keep from meddling with them while they do it.” ~ Theodore Roosevelt

“Effective leadership is not about making speeches or being liked; leadership is defined by results not attributes.” ~ Peter Drucker

“You don’t lead by hitting people over the head – that’s assault, not leadership.” ~ Dwight D. Eisenhower

Definitions

Stuff: ideas of little value: trash

Trash: something worth little or nothing: as
a : junk, rubbish
b : (1) : empty talk : nonsense (2) : inferior or worthless writing or artistic matter (as a television show); especially : such matter intended purely for sensational entertainment (3) : trash talk

Translation

‘I was so busy talking trash that I forgot what I was supposed to be doing.’

Lesson

Leadership isn’t about talking trash.

References: President Obama on 60 Minutes: ‘Leadership Isn’t Just Legislation’

“We have a system that increasingly taxes work and subsidizes nonwork.” ~ Milton Friedman

 By: Larry Walker, Jr.

 “Tracking the 3.5 million jobs Obama will save or create.” That was the title of a blog post, last updated on January 8, 2010, on a website named Understanding The Market – Capire Il Mercato. In a note, the author, Cole Kendall stated, “I will make the calculations in a way that provides a “best case” to the Obama team.” Since Mr. Kendall decided to give up on his tracking operation at the end of 2009, I decided to finish it off.

Using the same criteria as originally outlined by Obama’s (now former) economic team, jobs are defined by counting the total non-farm employment, from Table B-1 of the Bureau of Labor Statistics, “Employment Situation Report” (seasonally adjusted).

Instead of boring you with the month-by-month 2010 data, I went ahead and cut to the chase, skipping from December of 2009, where Mr. Kendall left off, to September of 2010, the latest data available from the 10/08/2010 report.

Following is an excerpt from the original blog post, followed by the revised tracker, and a brief analysis:

In an earlier essay I tried to explain President Obama’s notion of saving or creating jobs. The stimulus plan bill was passed by both houses of Congress last night and the final plan was a bit smaller than the earlier version, so the President now asserts that the plan will save or create 3.5 million jobs.

This post will track the 3.5 million jobs. There are a number of ways to measure jobs in the US. Some people work several different jobs at a time while others change employers frequently, so measuring jobs is not as simple as it might seem. There was a cartoon from the Clinton era showing the President speaking at a dinner that he had created 8 million jobs and an overworked waiter thinking that he had three of them. Obama’s economic team define jobs as use the payroll data (see here for their original report).

Just before the stimulus bill passed the Department of Labor issued a report (see here). The number of people working (see Table B1, about 2/3 of the way down, with the heading “Establishment Data”) was 134,580,000 (seasonally adjusted). This is a preliminary measure and will be revised next month and probably revised again in a year. Using the Obama team methodology, without the stimulus bill employment would be expected to fall by around 1,613,000 jobs during the next two years so that without the stimulus bill we would expect employment to be 132,967,000 in January 2011.

With the revised estimate of 3,500,000 jobs “saved or created”, employment should be 136,467,000, creating 1,887,000 in addition to the 1,613,000 jobs saved.

The table below will be updated with every new employment release to see how jobs have changed. The first column is the actual number of payroll jobs starting with the month before the stimulus plan passed; the second column is the total change in employment since the month when the stimulus plan passed and the third column shows the gap remaining of jobs to be “created” in order to reach the target.

Revised: Stimulus Job Tracker

The conclusion is pretty grim, and certainly doesn’t mesh with what Obama has been saying out on the campaign trail. The sad truth is that instead of creating 3.5 million jobs since the stimulus plan was passed, it has resulted in the loss of 3.3 million jobs. Since the stimulus plan was supposed to save 1,613,000 jobs in addition to creating 1,887,000 jobs, and since it actually resulted in the loss of 3,348,000 jobs, it would now take the creation of 5,235,000 jobs, by January of 2011, to reach the original target.

I don’t know what you call this, but I call it a failure. It’s so bad that most people simply stopped tracking it. So do we need another stimulus plan, or another Congress, Senate, and ultimately President? I don’t think it helps having Obama roam around the country making false claims in an effort to re-elect the same folks who screwed this up. The thought of $887 billion of deficit-financed spending flushed down the drain doesn’t bode well for those who supported it.

You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time. ~ Abraham Lincoln (R-IL)

Sources:

http://stats.bls.gov/news.release/empsit.t17.htm

http://stats.bls.gov/webapps/legacy/cesbtab1.htm

http://understandingthemarket.com/?p=63

Table B-1 Data: Total Non-Farm Employment (Seasonally Adjusted):

http://stats.bls.gov/webapps/legacy/cesbtab1.htm

In Search of Private Sector Jobs

By: Larry Walker, Jr.

Without question, the majority of private sector jobs created in 2010 were created in the Service Sector. Understanding precisely where is quite revealing. After my last blog post, I received the following comments, from a blogger known as Patriot01: “Ever notice that they never say what KIND of jobs they’ve allegedly “created”? And I’d like an itemized list of the jobs “saved”………wouldn’t you?” Well, of course I would, wouldn’t you? Are you ready?

Education and Health Services

Drilling down into the numbers, we found that most of those jobs were created in the Education and Health Services sub-sector. Yet when we analyzed this sector, we found that job growth has been fairly constant, even throughout the recession. In fact, you can call this a recession proof sector (graph and table below).

Series Id: CES6500000001
Seasonally Adjusted
Super Sector: Education and health services
Industry: Education and health services
NAICS Code: –
Data Type: ALL EMPLOYEES, THOUSANDS

Under President Bush, job growth in this sub-sector averaged 465,000 jobs per year, even during the worst of the recession. So far under Obama, annual job growth in this sub-sector is averaging around 332,000. So although the industry has been virtually recession proof, the number of jobs created under Obama is on the decline.

Under President Bush a total of 3,720,000 jobs were added to this sub-sector during his eight-year term. And so far under Obama a total of 578,000 jobs have been created. In terms of percentages, during the Bush years the sub-sector grew at an average of 2.8% annually, while under Obama average job growth has cooled to 1.7%.

So does this look like anything remotely close to proof of the absurd statement that, “Obama created more jobs in 2010 than Bush did in eight years?” Not hardly. But there’s more.

Employment and Temporary Help Services

The other sub-sectors where we discovered job growth in 2010 were Employment Services, and more specifically Temporary Help Services. So far this year, we have recovered 228,000 jobs in Employment Services, and out of those, 218,000 were under the sub-category of Temporary Help Services (graphs and tables below). Add these to the 261,000 jobs created in the, recession proof, Education and Health Services sector, and together they account for 489,000 jobs “created” in the last nine months, or basically the whole enchilada.

Series Id: CES6056130001
Seasonally Adjusted
Super Sector: Professional and business services
Industry: Employment services
NAICS Code: 5613
Data Type: ALL EMPLOYEES, THOUSANDS

Series Id: CES6056132001
Seasonally Adjusted
Super Sector: Professional and business services
Industry: Temporary help services
NAICS Code: 56132
Data Type: ALL EMPLOYEES, THOUSANDS

Busted Again!

So there it is, Obama’s greatest feat to-date is that he has managed to slow job growth in the Education and Health Services sector, which has always been recession proof; and he has only managed to recover jobs in the Temporary Help Services sub-sector. And this, his cohorts call a great success? Those of us who are rationally-minded beg to differ.

We wonder how long our economy can sustain itself through providing temporary job search services, especially when the type of jobs people want no longer exist. Meanwhile, our non-existent Goods-Producing sector has hemorrhaged 6,524,000 jobs over the last 10 years, and nothing is being done about it. Where are those jobs? In China.

Charts and Tables from the Bureau of Labor Statistics, Establishment Data, Table B-1 (here).

Rational or Ridiculous

by: Larry Walker, Jr.

So the latest spin by the left-wing media and the White House is to repeat the following mantra, “Obama created more jobs in 2010 than Bush did in eight years.” However, how much sense does it make to compare an arbitrary nine-month period for Obama to a full eight-year term? Well none, none at all, at least not within the realm of rational human thought. For those of us who are rationally-minded, we will begin with the month that Obama took office, and compare his full term to-date with whomever.

Turning to the Bureau of Labor Statistics (BLS), when we added up the total number of private sector jobs created during Obama’s short twenty one month tenure, we found that a total of 2,991,000 jobs had been lost (110,961,000 – 107,970,000). Oops!

Total Private Sector Employment (Bureau of Labor Statistics)

Busted!

Although I too could cherry-pick and find periods where private sector job growth was up by 4 or 5 million under Bush, I choose to remain among the rational. Needless to say, private sector job growth was at least slightly positive over Bush’s eight-year term, while under Obama, the words – worst track record in history – come to mind.

Is there no shame?

Also see: Tracking the 3.5 Million Jobs Obama Saved or Created and Deceptive Claim from Obama & The Democrats or Obama’s New Reality: Black Unemployment