The war on the working class continues

I personally hate conspiracy theories. like most, I hear such and my eyes begin to glaze over and I eagerly wait for the person to stop talking so I can move on to another conversation. However, there is something about the Obama administration that makes it very difficult to not question the intent, as well as the consequences, of their policy choices.

Recently Eric Holder, the Attorney General of the United States, gave the commencement address at Boston University at which he told the students about the wonderful and "progressive" reforms that came out of bad economies. Essentially, he is arguing that major actions by government can only happen under the worse possible economic circumstances, because people are otherwise fine with the status quo. Holder's remarks reminded me of White House Chief of Staff Rahm Emanuel who quipped, "You never want a serious crisis to go to waste," Emanuel then went on to discuss the major changes you can make in just such an environment.

Essentially these high ranking public officials are sounding a mantra of more problems leading to more change. With such a philosophy, it should not be a surprise that we continue to see policies that are contributing to the continued destruction of the economy. Unemployment is at the highest level in over a quarter of a century, the national debt is growing at over $1 trillion dollars a year (in the early 1980s the accumulated debt of the US government was only making that mark for the first time), and inflation looms around the corner as cheap money is being produced to pay for this massive government expansion.

Particularly harmful will be the President's far reaching health care reform legislation, which will require small businesses to provide health insurance to their employees. It is being marketed by the administration as having a minimal adverse effect because this burden will be offset by a tax credit for each of the covered employees. Without such, it is unlikely the bill would have ever navigated through the Congress. However, with the federal government's incredible appetite, that will like be modified as the law is implemented. Even without a single change in the current law, the present credit is already arbitrarily reduced as a business grows, essentially discouraging employers from hiring more workers or increasing their salaries. Devon Herrick and Pamela Villareal (both of the National Center for Policy Analysis) have noted that this bill is going to clearly undermine job growth and be particularly harmful to higher paid workers.

The tax credit is suppose to be helpful to small firms. Businesses in select industries that have 25 or fewer employees will quality for a tax credit worth up to 35 percent of the employer's contribution to health insurance during the period of 2010 to 2014. After 2014 this is how the picture looks:

• Although employers may qualify for a 50 percent health insurance tax credit for the first two years, they must pay for at least half of the expense.
• Employers will have to make these purchases through newly formed "health insurance exchanges" in order to qualify. It is yet to be seen if these will be competitive. Since they are largely government controlled (and potentially monopolistic), it is highly unlikely.
• Than the law begins to get sticky and companies will likely slip through the tax credit cracks when it comes to being qualified as employers must have fewer than 11 workers, earning an average of $25,000 or less, in order to qualify for the full tax credit. Therefore the law is punitive towards individuals who make more than $25,000 a year. This is not affluent by anyone except the government.
• Finally, the credit is not available to sole proprietorships and their family members, yet this is one of the most common type of small business in the United states.

The policy implements an ugly trade off for firms that would like to do more for their employees. As the company's average pay goes above $25,000, the credit is withdrawn at a rate of 4 percentage points for every additional $1,000 in average pay. Eventually it is completely withdrawn once the average pay reaches $50,000. In addition to this, the credit is also incrementally withdrawn for each increase in the size of the business beyond 10 workers (regardless of average pay), and it disappears once the firm reaches 25 workers.

Therefore this legislation will mandate businesses to pursue low wage workers and avoid those who enjoy better skills and typically receive higher pay. It may also simply force employers to avoid the costs of having many employees by choosing technology over workers (which has a higher initial cost, but would clearly become cheaper over time in the new health care environment). Another option could find companies pursue vendors (particularly overseas) in order to avoid these prohibitive employee costs entirely.The war on the working class continues.

Kevin Price is a nationally syndicated columnist and host of the Price of Business on CNN Radio. Learn more about him and his activities at www.PriceofBusiness.com.

Finally, a sensible look at bailouts

Political economy is one of my passions. As a radio host and syndicated columnist I get several free books a month. They are usually unsolicited and not of much interest, every once in a while I get one that is worth reading and spreading the word on. "Too Big to Save?" by Robert Pozen is just such an example. The book's subtitle is "How to Fix the US Financial System" and it offers an agenda to do that and so much more. It offers sanity in an industry that has lost its moral compass and he provides direction going forward. His book is filled with some important facts that cannot help but wake one up to the causes of our financial crisis and how to solve such problems in the future.

Pozen is a refreshing voice on the issues surrounding the bailout. Most of the analysts of the subject have pure academic backgrounds or mere activist experiences. The former cannot have any real idea how such things happen and the latter believes everything requires more government control in order to avoid some from making a profit. Pozen has serious academic credentials. He holds degrees from Harvard and Yale. Furthermore, he is on the faculty of Harvard University. What is more important is that he has an understanding of business and the financial system. According to his website, he "is Chairman of MFS Investment Management®, which manages over $200 billion in assets for over five million investors worldwide. This represents an increase of 50% from the first half of 2004 when Bob was named to his current position."

The book is filled with common sense arguments that are built on the idea of restoring the integrity of financial institutions, rather than promoting political agendas. Furthermore, it points out several important factoids that are designed to simply make you think about where we are and how we got here.

• Up until 2008, no housing slump in any country had ever caused a worldwide financial crisis.
• Until mid-2008, the Federal Housing Administration offered loans that required just a 3 percent down payment. In spite of this low sum, many nonprofits sprung up (and funded by construction developers and home builders) to cover the cost. It was a house of cards waiting to fall.
• The stock market crash became even worse after Congress authorized the Treasury to spend billions of dollars "resolving" the financial crisis. Many rightly argue that the worse is yet to come.

Pozner's solutions to the problems surrounding the financial are refreshing and filled with common sense. The crisis we have today is rooted in "geniuses" with political, social and even profit agendas rather than sound financial principles. Pozner points to the better way:

• He argues for the restoration of loan securitization as a key to economic and housing recovery. The reason housing had never been a source of major financial catastrophe in the past is the integrity in the process, like due diligence and monetary "skin in the game" that proves one to be a worthy candidate of a home loan.
• The federal government's efforts to buy "toxic assets" are not viable and poorly designed to meet goals. A great example is the use of such for loan modifications. To date, 80 percent of all homes that experienced a modification are again in foreclosure.
• The federal government has been wild and indiscriminate in it recapitalization of financial institutions. It has bailed out many large banks that did not want the assistance, over 500 small banks that are anything but "too big too fail," and many insurance and credit card companies without explanation.
• Far reaching legislative restrictions of executive compensation have clearly made the situation worse. For example, limits on "golden parachutes" have generally increased the cost of most terminated packages. Furthermore, in order to be competitive, companies forced to have strict limits on bonuses have, instead, dramatically increased base salaries. This means the executives can enjoy higher rewards with lower performance.

Pozen's excellent book goes on to evaluate the potential restructuring of the financial industry, the importance of fair value accounting, and the huge downside government actions in the financial industry has had on taxpayers. It is an excellent book and really "must reading" for anyone interested in serious answers to our current financial crisis.

Kevin Price is a nationally syndicated columnist and host of the Price of Business on CNN Radio. Learn more about him and his activities at www.PriceofBusiness.com.

When the problems of Greece hit close to home

Americans have been in shock watching the images of buildings — and even people — in flames as the government of Greece implements austerity measures to stop the bleeding caused by decades of irresponsible fiscal policies and socialism. We Americans naturally think, "thank God I still live in the US. That could not happen here."

Recently Dale Hurd of CBNNews.com has painted a dark future of our own republic if we do not change our spending priorities. Furthermore, he points out several scenarios — none of them pleasant — if we fail to fundamentally change the direction our country is going.

Hurd points out in his column that the "federal debt as a percentage of the Gross Domestic Product now stands officially at around 60 percent. But with the course the country is on, it will hit 150 percent in 10 years, and 300 percent by 2050" (emphasis added). He goes on to compare our situation with the one in Greece, which began to spiral when its debt reached 115 percent of GDP. We will reach and surpass that number in less than ten years. Because Greece is a member of the European Community and its currency is tied to the Euro like most member countries, other countries have (at least) a short term incentive to bail the country out in order to protect the value of their money. Those countries are, in fact, doing just that. Who will bail out the United States? Considering the disdain by other countries towards the US, one should not have any hope that others will come to the rescue.

The columnist quotes Anne Vorce of the Committee for a Responsible Federal Budget, who said she is not sure when America will enter economic crisis, but noted that "The problem is you don't know when you reach a tipping point until you reach it, but we're well beyond normal peacetime historical experience already." If the US entered into any additional major national security conflicts or faced any series of natural (or other disasters), we could find our situation deteriorate rapidly.

What I found most disconcerting about the article was the words by Hurd about the future of the United States of America. He said we only have to look to our friends in Argentina to find a disturbing window of the future. "Before World War II, Argentina was one of the most prosperous nations in the world. With a strong industrial base and thriving middle class, it attracted immigrants much like America. But within 15 years, Argentina went one of the richest nations to one of the poorest. Argentina President Juan Peron, who some historians say was a fascist, fomented class warfare and bashed business, banks and the wealthy. He made labor unions his allies and unleashed massive social spending that the nation couldn't afford." This sounds eerily familiar as we have a sitting President with certain obvious "corporatist" inclinations and disdain for those in the entrepreneurial (most of whom are middle income) class.

So what does the future hold? Experts point to several possible scenarios, none of which offer much to be optimistic.

Long term economic stagnation. We as a nation simply get use to doing without. High unemployment becomes the rule rather than the exception and the idea of an expanding economy and growing opportunities becomes something for the history books. Many experts see this as one of the better scenarios.

On the opposite end — and the worst case scenario — we have a government that goes into default. This means it cannot fulfill financial obligations, pay its bills, and it leads to a rush on the dumping of its Treasury bonds as countries no longer see us as a good investment.

Another possibility is hyperinflation. On a single day last year the US Government pumped $1.4 trillion into the money supply in order to offset the high cost of bailouts. This "funny money" has the potential of devaluing all dollars that are out there and it appears this approach to monetary policy could become a permanent part of our economic strategy.

The bottom line is that the US is going to have to make tough decisions about the future of our spending or the consequences of our behavior will make decisions for us. "Doing nothing" is a course that was followed by countries like Argentina that was propelled from a major economic player into third world status. There has to be a better way for the United States of America.

Kevin Price is a nationally syndicated columnist and host of the Price of Business on CNN Radio. Learn more about him and his activities at www.PriceofBusiness.com.

A Radical Solution to our Fiscal Crisis

I have been writing for decades, but I have probably used the word "crisis" more in the last two years in my articles than in all the other years combined. There is a reason for that, the use of such hyperbole gets old. I think such words should be used with restraint or they will eventually fall upon deaf ears. Unfortunately, any word short of "crisis" simply does not make the grade in the times we live in today. The government is doing more (poorly) and spending more (than ever) and it is bankrupting our futures and the futures of those who will not even be born for several generations to come.

Currently the national debt is now growing at a rate annually that originally took almost 200 years for our country to reach for the first time. We are a nation in financial ruin and we continue to spend as if money grew on trees. Desperate times call for desperate measures. It is time for Americans to seriously consider the damage that comes from mob rule.

According to the government's own statistics, less than half of all Americans even pay taxes. This is significant because we now have a country where the majority is lulled into sleep as the minority is essentially oppressed by those who have "no skin" in the political process. They have absolutely no problem with spending growing out of control because whatever they receive is with minimum burden on them.

Meanwhile USA Today reports that well over half of the population receives direct assistance of various types from the federal government. This includes perennial welfare moms and the super rich who enjoy government bailouts.

The terrible situation we are in begs for radical change. The Constitutional type. In the early days of the Republic, people had to be property owners and even taxpayers before they were allowed to vote. Furthermore, the federal government was very limited in what it could do. With only seventeen enumerated powers and those voting having a vested interest, frugal government was much easier to achieve and maintain.

The principles of frugal government can be found on the micro level. If a board of directors of an organization or business has a vote on an item that directly benefits one of those decision makers, that person is expected to abstain. It only makes sense. If that did not happen there would be cries of impropriety and would plant the seeds of financial ruin for any group or company.

The United States is going to have to take a similar approach to solve its financial problems. The classical economist John Stuart Mill advocated the bold proposition that, if people received any government assistance, they would have to turn in their right to vote until they were no longer on the government dole. This policy would apply to the mega rich, the very poor and everyone in between who were getting direct government assistance. People seem to be concerned about "influence peddling." They warn about lobbyists and political action committees throwing money at politicians in order to get their vote on key issues. Yet, influence peddling runs both ways -- it is a two sided coin. Politicians who want to get reelected make all sorts of promises of money, goods, or services in order to buy votes. If the voter became disenfranchised while on the government's budget, politicians would have to find other ways of getting our votes. Maybe they would boast about how frugal they are in the way they represent the voters. A radical approach to government? Maybe, but it seems to me it could be long overdue.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is also host of the Price of Business (M-F at 11 AM on CNN radio). Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

If the Federal Government does not do it, who Will?

Article I, Section 8 of the Constitution makes it clear that the federal government has very few powers delegated to it. Meanwhile, the Tenth Amendment in the Bill of Rights delegates powers not explicitly granted to the federal government to the states and the citizens. James Madison eloquently noted that "ambitious encroachments of the federal government, on the authority of the State governments, would not excite the opposition of a single State, or of a few States only. They would be signals of general alarm... But what degree of madness could ever drive the federal government to such an extremity." (Federalist No. 46, January 29, 1788). Madison would be shocked to see the state of affairs our nation is in today.

The brilliance of those who founded this Republic was obvious. They gave the national government very limited powers and gave the power to do virtually anything they desired to the states. They did this knowing that, if an individual state exercised too much control — taxes too high, regulations too oppressive — people would be free to leave to find a place with more liberties. This freedom to "vote with their feet" would keep the state governments in check and give the American people the ability to find the type of government that met their needs.

In addition, giving states such enormous powers would lead to a competitive environment in developing the best approaches to solve policy problems. Instead of the national government making the foolish mistake of trying to solve a major national problem and creating an environment where it is too costly for the states to develop innovation, the founders intended for each state to solve problems through competition and the best innovations would eventually rise to the surface. Virtually all states use the same standard procedures in a plethora of areas. They were developed by witnessing the work of other states, not through the coercion of the federal government.

The founders of this country understood that the federal government was no place to address policies like health care because the issues surrounding it would be too complicated and the costs too high. They delegated that to the states and, over time, the innovators would eventually rise to the top. To date, the states have had no success in solving the health care situation, so it is laughable that the federal government would try to replicate failed policies in Massachusetts on a national level. Remember, the federal system our republic is built on intended for issues like this to be addressed exclusively by the states and not the federal government. Without exception, states like California, Oregon, Massachusetts, and Hawaii have attempted major healch care programs and they have all been complete failures. Hawaii's socialized health care program almost put the entire state into bankruptcy and had to be discontinued in seven months.

The states are the best place for solving policy problems. They have limited amount of dollars because they do not have the power to print currency (meanwhile, the federal government had that power but few others and few reasons to print its "funny money"). This would make a certain level of frugality essential in solving policy problems. Furthermore, having problems solved on a state level allows the mistakes in the problem of doing such isolated, rather than becoming a national disaster. Again, those who created our Republic were brilliant and we need their wisdom now more than ever.

How to Become Exempt from new "Monetary Tax"

The massive bailouts of 2008 and 2009 (and continuing today) not only changed the way our nation conducted its fiscal policy, but its monetary policy also. The enormous amount of spending by our government -- at a pace that increases the deficit annually at a rate higher than our total debt a few decades ago -- has been breathtaking to observe.

As a result of such spending, government is mass producing money to pay its bills. The government loves this approach to solving its problems for several reasons. First of all, since the government prints the money and release it first, it enjoys this "funny money" at its highest value. It is only after it circulates through the economy that it loses its spending power and reduces the value of all other dollars in the market. Inflation is defined as "too much money chasing too few goods." High prices is only one of the many symptoms of such a policy. In addition, inflation plays on the ignorance of a population who has no idea that these increases in prices are caused by the mass production of devalued dollars. Most voters will blame businesses for their "greed" and price raising, not the politicians who make such a phenomenon necessary. Simply put, every new dollar pumped into the economy takes away the value of all the dollars in the market, unless there is a comparable increase in productivity.

In one day in 2009, the United States took a chapter out of Zimbabwe's playbook by pumping $1.2 trillion into the money supply in an attempt to pay off its bills. Many Americans have (rightly) been alarmed by the more than $1.5 trillion we have seen in bailouts. According to the Washington Post, these inflationary efforts have the potential of being much more far reaching, noting that "combined with the billions already deployed by the Fed, the new money dwarfs even the biggest government bailouts of financial companies."

Historically, this type of monetary policy leads to the kind of inflation that we have seen in history books, where it is cheaper to use money for wallpaper than to buy it or it requiring a barrel of money to buy a loaf of bread. Printing worthless money will not make our problems away, but make issues we never imagined.

The purpose of this inflation is to serve as a tax by taking away the value (rather than the actual dollars) of all the money we hold. This is, however, one tax we can fight against, according to Albert Lu of Woodlands Bullion, a leading authority on precious metals and a contributor to the Price of Business radio show. Lu has stated many times that Americans can reduce their "monetary tax" burden with every precious metal purchase they make. Gold, silver, and other precious metals are at an all time high because of the inflation we have suffered over the last two years. It is only expected to get worse. Precious metals are a tool for shoring up the value of money. As the money supply is inflated, those with gold or other precious metals will see their wealth enjoy a greater level of protection and their "monetary tax" burden greatly reduced. Those who do not move towards precious metals either do not fully appreciate our current economic crisis or are as apathetic as the millions of Americans who still sit on the sidelines rather than participate in the most important political battles of the day. People need to make a difference in the national economy through elections and their personal economies through precious metals.

Federal laws are both too numerous and vague

The vast majority of Americans are unhappy with the working of Washington. The President and Congress have overwhelmed the American people with an incredible number of laws that are difficult for the voters and even policy makers to understand. Many bills are now passing Congress without being read by many, if not any, members. With so many bills coming out of Washington, DC, it should be no surprise that most Americans are unhappy with the results and find much of this legislation confusing.

The National Center for Policy Analysis has brought to my attention the work of two organizations that are working together to try and persuade Congress to stop writing criminal laws in such a manner that leaves innocent people vulnerable to unjust prosecution. One is the Heritage Foundation, which is one of the nation's premier conservative think tanks and the other is the National Association of Criminal Defense Lawyers. Together they prove true the adage that "politics makes strange bedfellows," since the latter organization is better known for its affiliation with liberal groups and causes.

According to a recent report they produced:

• Over twenty federal laws that went into effect in 2005 and 2006, to combat nonviolent crime, lack an adequate provision that one accused of breaking the laws must have had a "guilty mind," or criminal intent. Good law has always required such provisions. It is imperative that the government prove "both a guilty act and a guilty mind." Without such, bad judgment and even mistakes could become criminal.
• On that rare occasion when the Congress makes a new law that includes a provision for a "guilty mind," it is "often so weak that it does not protect defendants from punishment for making honest mistakes, or committing minor transgressions."

For centuries the legal code of most Western countries have required "criminal intent" as a part of all laws designed to fight crime. This was intended to make sure laws were created to protect the public good and not be used for political agendas, such as punishing political enemies rather than true threats to the general population.

Currently, the more conservative wing of the Supreme Court is beginning to question the legality of many of these laws and has expressed concern on how they can be used. They are focusing on three laws in particular. Justice Antonin Scalia sees these type of laws as a great tool for "headline-grabbing prosecutors" who want to shut down unpopular and maybe even unethical behaviors, but not necessarily criminal ones. These type of laws make populations fearful, prosecutors powerful, and people less free. Scalia has noted that the law is so vague that it could be used against a mayor for using his political influence to get a better table at a restaurant or against a salaried employee who calls in sick, but goes to a beach. These, of course are the kind of laws that are selectively applied and are begging for abuse.

It is interesting that, after centuries of writing laws that protect the rights of individuals and require proof of intent, that the Congress has forgotten this simple, but important, practice. It is time for the Congress to develop specific tests to make sure these laws comply with the letter and the spirit of the law.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is also host of the Price of Business (M-F at 11 AM on CNN radio). Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Taxes on wealth creation are about "social justice," not revenue

There is an old saying, one that people of all philosophical persuasions seem to concur with, that "the more you tax something, the less you get of it." Those who support less government and more economic freedom have argued this for years. That was the reason behind the "supply side" tax cuts that proceeded periods of enormous economic growth. They came in the early 1920s, 1960s, 1980s, and at the beginning of this decade. In each case they resulted in huge increases in revenues and widespread job creation. Although "across the board," these cuts have a more immediate impact on those with higher incomes, because those are the ones who pay more in taxes. Why do these type of cuts increase revenue? The answer to that is simple -- such cuts increases taxable economic activity.

Those on the political left seem to understand the impact taxes have on an economic activity as well. One of the first things Obama did as president was raise taxes on cigarettes for the purpose of both getting revenue to pay for government programs and to discourage smoking. In fact, some in the Administration argued there would be a 10 percent decrease in the consumption of cigarettes after the tax increase. We all know this to be true, the more it costs to do something, the less likely we are to do that activity.

The founders of the US government understood this idea as well. They wrote in Article I, Section 9 of the Constitution that "No Capitation, or other direct, Tax shall be laid, unless in proportion to the Census or Enumeration herein before directed to be taken." This clause prohibited income taxes until the Sixteenth Amendment in the 20th century. These much wiser leaders than today believed that the government has no right to know how much an individual makes and even the sources of revenue. They believed taxes were purely for revenue and not any particular political or agendas, they merely taxed imports and did so at the same levels and at a very low rate (since government was very small in the beginning).

To tax the earnings of individuals, especially in a progressive manner in which the rate gets higher as the income grows, will eventually undermined the desire to earn. This is even more the case with businesses. Higher taxes on their activities makes them work all the harder to be less subject to the tax (rather than on the economic activities that benefits everyone). Businesses are not wood, they function with the same "fight or flight" behaviors as humans. When government causes a massive increase of taxes on those companies with 50 or more employees, like that which will come with Obamacare, they will layoff enough employees to avoid the tax. If the US decides to have one of the highest tax rates on businesses of any industrialized country in the world (it is in a battle for that top spot with Japan), businesses will either downsize or move to countries with friendlier tax environments (which are not hard to find).

Politicians get angry when businesses export these jobs to other countries. Governments know that businesses do not pay taxes, they are merely tax collectors. The government prefers to make the businesses do its dirty work. Now more than ever, businesses do not have to tolerate it and they can easily dispose of the burden by moving their activities to more profitable locations. Journalist Thomas Friedman has noted that "The World is Flat" and business can move capital with more ease and speed than in any time in history. Policy makers in Washington know this and they are casually observing and even supporting the greatest depletion of jobs we have since the Great Depression. Furthermore, as those jobs and businesses disappear, so does the revenue. It is how economies work.

This administration seems blinded by these realities because it is driven by ideas such as "social justice" and not in the creating of a wealthy and free nation. Its excessive taxes on the job creators seems to be far more personal than business. It is not about generating revenues or jobs, it is clearly about punishing those who are successful. It is driven by blind ideology and not common sense. Conspiracy theorists surmise that the Obama administration is in the process of creating more poverty, since the poor are among his primary constituents. After all, if incomes of all Americans increased and we had a significant increase in jobs creation, who would be left to support Obama's agenda? Any party that depends on poverty to succeed is dangerous to a healthy nation. This is the liberals' dilemma. If a political philosophy depends on poor voters for success, you need more poverty.

Now even the most reasonable of individuals are asking, "are these crazy conspiracy theories or painfully obvious truths?" What we know that is true is that Obama's policies are not working, unless the goal is move poverty and less prosperity.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is also host of the Price of Business (M-F at 11 AM on CNN radio). Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Why Economic Freedom Matters

Economic freedom is one of my favorite topics and the one that is discussed the least by politicians in this country. Everyone on every news channel discusses all types of "freedoms" -- many without Constitutional legs, but the one that is clearly seen in our governing document (by the Tenth Amendment and the limited powers in Article I, Section 8) is largely ignored. Politicians do not discuss economic freedom and those in the media have no idea why such even matters.

The National Center for Policy Analysis (NCPA) brought some excellent information on this topic from several different resources to my attention. The Federal Reserve Bank of St. Louis has released a new study called "Economic Freedom and Economic Growth in the US States." That report notes that there is a definite link between such freedoms and employment growth. Other studies have come to similar conclusions, but Michael D. LaFaive (Director of the Mackinac Center's Morey Fiscal Policy Initiative) notes that the thing that makes the Federal Reserve's study significant is its findings on labor markets. The authors write: "In addition, we find that less restrictive state and national government labor market policies have the greatest impact on employment growth in U.S. states."

Having had come from Michigan originally, I am always saddened by stories of that state's continuous decline. LaFaive states that the findings of the study only translates into more bad news for the Great Lakes State. Michigan has one of the worse labor environments in the country. It is not only a closed union shop state, but the epitome of big labor out of control. It is simply much easier for a business to move capital (and jobs) than to subject itself to the highest wages, biggest employee benefits, and toughest "pro-labor" regulations of any state in the Union. These type of policies have forced businesses to leave the state, which has created a revenue shortage, and has led Michigan to answer that problem by raising taxes even higher. Its $1.4 billion tax increase has made Michigan and even less friendly place for doing business, according to LaFaive.

These factors are among the reasons Michigan has consistently suffered from the highest unemployment in the country. The Fraser Institute and Pacific Research Institute have also chimed in on the decline of economic freedom in Michigan. In 2004, Fraser ranked Michigan 32nd among states in economic freedom. By 2009, it had dropped to 39th. Meanwhile, the Pacific Research Institute pointed out that the state fell from 27th in 1999 to 34th in 2004, and most recent, to 43rd (in its 2008 report). This rapid decline of freedom in Michigan has translated into economic ruin for the once great manufacturing giant.

LaFaive suggests several steps in reversing Michigan's economic slide, including:

• Put a halt on the state's new tax increases. Michigan has to develop ways of being more competitive in some areas than other states. Currently, Ontario, Canada does commercials boasting a lower tax rate than Michigan. That has to change if that state is going to attract job creators.
• The state should end entirely its repressive business tax and replace that with real spending cuts and other reforms. Again, the state has to develop ways to attract new businesses. Ending such a tax would certainly help.
• Forbes Magazine notes that all but one of the ten most prosperous states are right-to-work states. Michigan has to make it easier to fire and control employee expenditures, if that state is interested in businesses hiring more and increasing payrolls.
• Finally, Michigan has environmental laws that are among the most aggressive in the country. Michigan has to get its regulations in line with other states, if it is interested in job growth.

Michigan is in a state of crisis. Many other states are following a similar path (as is the nation, seen in businesses taking capital and move to other countries). It is imperative for policy makers on every level of government to recognize the relationship between economic freedom and jobs.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is also host of the Price of Business (M-F at 11 AM on CNN radio). Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.