It is not About Doing Something, but the Right Thing

The majority I speak to are excited about Barack Obama and his sweeping legislation that is going to possibly change this economy for decades to come. They are excited because they argue that something -- anything -- needed to be done. This type of logic does not serve well in any other aspect of our lives. For example, we don't praise the heroic efforts of the person who poured gasoline on a burning building, or the person who avoided rush hour traffic by driving on a shoulder, or the person who attempts to forget about his problems through alcohol. In the real world, we know there are rules to almost everything. There are also rules to the economy: some things work, other things do not work.

There are two basic views of government. One sees the best government doing as little as possible and being focused on protecting individuals from other individuals and our country from foreign adversaries. The opposite extreme is that government should play a pervasive role in every aspect of our lives and that it should be the primary driver of our economy and society. The vast majority who have an opinion fall some where in between. Far more than those with an actual opinion have no real view at all. Those people are my concern here.

This uniformed majority are the same people who are driving Barack Obama's extremely high approval ratings. They don't really know what they are doing, or what they believe, they are merely very sincere. They think some action is, at least, action. But the actions of this administration will take generations to pay off and they promise to make things far worse than better.

The majority of countries around the world are moving away from more government as an answer to economic problems. Although still Communist, China's economic success has been due to areas of decentralization. This is true, also, for India's famous bureaucratic country. Maybe the best example to the United States is Ireland.

For decades, Ireland was little more than a Third World country. It was uncommon for Europeans to face starvation in the 19th century, but it was a major problem on the Emerald Island. On the economic front, Ireland had the highest tax rates among industrialized nations. This is not the case any more. Ireland dramatically lowered its highest tax rates to around 10 percent and for over a decade it has had one of the fastest growing economies in the world. Countries that have moved towards government solutions and high taxation are only seeing more economic problems. Japan has had chronic economic problems for over two decades (and the highest corporate tax rates in the world). The US now has the second highest and we are quickly catching up in terms of economic woes.

We all know that businesses have to work hard to attract customers, and states have to work hard to attract businesses, but don't countries have the same responsibility as well? Ireland seems to understand that and, in light of the "something" our government did this past week, it is clear the US does not.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Only Barack Obama Could Pull this Off and it Would Cure Economic Woes

Every week we here of increasingly higher jobless numbers and policy makers are dumbfounded as to what to do about it. Approximately one year ago we had virtually full employment at around 5 percent unemployment. At current trends, it will likely be ten percent or higher by the end of the year, unless something miraculous happens.

However, we are not hearing about any stroke of genius, but rather traditional government "solutions" to economic problems. We are hearing about "make work" programs and "bailouts" that have government at the center of the solution. It is interesting that Barack Obama, who was marketed as an agent of change, would find his solutions in the waste bin of government created work, for answers. He needs to go deeper, he needs to pursue an entire paradigm shift.

Obama campaigned as a candidate who supported transparent government, but there is nothing more deceptive than our current tax system that discourages wealth creation and places businesses in the role as tax collector. Remember, businesses don't pay taxes, they are merely tax collectors. Taxes are a fixed cost of doing business. If taxes on businesses were eliminated, consumers would enjoy the savings over night because businesses couldn't afford to be reluctant to transfer the savings due to competition. These taxes on businesses are the single force undermining job creation today. They force businesses to find countries that are cheaper for doing business, be it in labor, taxes, or other factors. Currently, the US has the second highest tax rate of any industrialized country in the world and we do not even want to compete with cheap salaries (nor can we). Eliminating dishonest business taxes would restore some transparency to government and create many more jobs. It is as simple as that.

But those taxes would have to be replaced with others and the only honest place to raise those revenues are directly on the people and on their consumption (rather than income), however challenging to pursue. This is contrary to Obama and the Democrats class conflict philosophy, but it is the most honest, efficient, and the least damaging on all job creation (in fact, it would generate more jobs). Obama could make history with these realities.

No one, but an anti-Communist like Richard Nixon, could open relations with the Chinese. If any President who had a history of being "soft" on Communists open these doors, they would have been denounced and dismissed. Nixon brought an element of surprise that made the move possible. So, too, was the case with Bill Clinton who truly did end "welfare as we know it." It took a progressive Democrat to break the cycle of poverty that was holding the poor hostage. If a Republican President had proposed such a policy he would have been dismissed as being "cruel" and "heartless." To change our tax code towards a consumption system would require a similar element of surprise and would need to be done by someone who has promoted himself as a champion of the poor. That describes Obama very well.

With such a policy, the only serious challenge he would face is among his fellow Democrats in Congress. However, if he continues to pursue policies that destroy jobs, he will likely have a Republican Congress in 2011. This is a similar situation that Bill Clinton had in the 1990s in which a Republican Congress played a role in getting his reform passed. Clinton's welfare reform is one of the greatest policy achievements of the second half of the 20th century. A change in the way we collect taxes by Obama could be one of the greatest policy achievements of the 21st century and it is one many would love for him to seriously consider. Especially those facing unemployment.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Should You Read This or Visit Internet Addicts Anonymous?

Many readers of this post are addicts. They are Internet addicts, according to Medill Reports from Northwest University. Today we have all grown some what dependent on the Internet. It is one of our primary communication sources via email, it tells us what movies are on at our local theaters and whether or not they are worth viewing, and it communicates information we want to convey about our business or gives the information about businesses we are interested in. but it is more, so much more.

According go the Medill Reports: "Kimberly Young, clinical director of the Center for Internet Addiction Recovery and author of the book 'Caught in the Net,' said that about 5 percent to 10 percent of Americans --15 to 30 million people -- may suffer from Internet addiction. And the problem may be even greater elsewhere. Young said 18 to 30 percent of the populations of China, Korea and Taiwan, where the Internet is even more popular than in the U.S., may be addicted."

Addiction, according to the study is defined as "online-related compulsive behavior that interferes with normal living and causes severe stress on family, friends, loved ones and work -- is a psychological and behavioral problem." Smart phones have made the feeding of this addiction even easier to maintain. We should be talking business over lunch, but we are reading email. We should be watching our child's soccer game and instead are looking at our up coming schedule. Instead of being "there," wherever that is suppose to be, people are roaming around the World Wide Web.

What do these addicts find themselves doing? According to the report, "the main types of Internet addiction are cybersex, online affairs, online gambling, online gaming, compulsive surfing and even eBay addiction, Young added." The situation has gotten so bad, people spend 30 to 90 days at recovery centers to seek help about the Web.

The Internet is tougher than some more commonly known addictions to break. First of all, the Internet itself is completely culturally acceptable. Virtually everyone does it. That leads to the next problem, complete abandonment is very difficult because most of us need it to function in the modern world of business. But how does one go from 10 or more hours a day to a mere one or two? I'm sure someone will develop a web site to help people with such. Oh, the irony of it all!

To find out if you are an Internet Addict, visit the Center for Internet Addiction Recovery.

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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

The Real Reason the Europeans Like Obama

Barack Obama was received in Europe like a rock store with thousands of fans showing up to greet him and heads of state were acting like swooning teenagers. Is it because he is young? African American? Handsome? Articulate? Those might all be contributing factors but the most likely reason of all may have been revealed in an interview I had with Steve Moore, Senior Economic Editor of the Wall Street Journal.

On my show today Moore jumped into the discussion many are having through out the country and around the world -- why is Obama so popular. Maybe, instead of the conventional wisdom listed in the examples above, it is actually good old fashion competition. The Europeans believe that Barack Obama could be good for their businesses.

Much of Europe is moving away from excessive taxation that had been so pervasive and crippling on the continent and they are moving towards tax systems that attract businesses. In fact, the only Industrialized country that has more excessive taxes on corporations is Japan. According to the Tax Foundation, the United States has a combined federal and state tax rate that hovers close to 40 percent. While Ireland's is only 12.5 percent (which is why it is also one of the fastest growing economies in the world).

The European governments understand that business owners are their customers. The developing countries, like China and India, haven't attracted business because of the sophistication of their legal systems or better technology, but through cheap labor. Europe is rapidly moving towards lower taxes on wealth creation through flat tax and other predictable and low tax approaches as a way of bringing companies to them. Obama has made it clear, he plans on raising taxes on corporations, that only makes the European countries more attractive.

Obama is popular with Europeans because his policies will benefit them. Maybe he should run for office over there.

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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

China's Population Control Program and An Earthquake

The recent devastating earthquake to hit China has many rethinking the Draconian 1979 policy that made it illegal for couples to have more than one child. Why? Because it appears that thousands may have lost their only child due to this natural disaster. China's rich have paid thousands in fines to be exempt from the policy, but what about the many poor that dominates this region that didn't have that luxery? There are other reasons why this policy is a disaster and I discussed them in a previous article commemorating the US reaching 300 million. Here is an excerpt from that article:

The reality is, countries are not poor because of how many people they have. They are poor because of economic policies. One of my favorite examples is Singapore, which is the second most densely populated independent country in the world. In spite of the fact that Singapore has almost twice as many people per square mile as the much poorer Mexico, it is one of the most affluent countries in the world and has the highest standard of living in Asia, and is ranked 11th in the world. Instead of encouraging population control, it has education programs and tax incentives that encourages large families. It has virtually no natural resources of its own, but the people enjoy high incomes and unemployment of less than 3 percent. This is, of course, one of the lowest unemployment levels in the world (the US, which has around 10 percent of the population per square mile, is at 5 percent). This didn't happen by accident, but by policies that support economic freedom, wealth creation, and by avoiding taxation that weakens economic growth.

We learn from Singapore, one of the most "over populated" countries in the world, that large numbers of people don't hurt economies. Government policies do. China and India's economic renaissance is proving that every day as they change their policies and move towards free markets.

If "more people" is "bad", why does virtually every city in the country encourage people to move to them and as towns lose numbers it is a sign of decline? The common sense behind the need for more people in cities works the same for countries, as long as the policies of the government work.

I hope that China learns this lesson and uses this tragedy as an opportunity to change a program that makes good science fiction but terrible policy.

Warning: the above video is graphic and disturbing to some.

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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Too Fast Cities?

I've looked at the fast ones (which are suppose to be good), and I've looked at the slow ones (which are bad). Now we are tackling the cities that Fast Company believes are "too fast." "Too fast" has problems too.

Cairo, Egypt

"The push for democracy has stalled, and corruption is as rife as ever. No wonder so many Egyptian entrepreneurs are looking elsewhere for opportunities. "

I never knew Cairo or Egypt were ever fast. I have long perceived it as a city stuck and chaotic. I have never considered chaotic as "fast," but simply chaotic. I'm surprised it is on the list.

Almaty, Kazakhstan

"There's new construction everywhere. There's also crime, corruption, and nuclear waste. Culture? Uh, no."

This is true. The remnants of the corruption pervasive in the old Soviet Union remain alive and well in this old Republic.

Greenwich, Connecticut

"A luxe enclave of superrich hedge funds. But one meltdown and this party's over."
This small "fast money" empire has done well on hedge funds, but at some point you have to wonder how it is going to work long term.

Las Vegas, Nevada

"An environmental pileup in the making. Can the casinos find enough water to fill all those pools?"

Las Vegas is one of those few cities that I felt like I was getting motion sickness even while sitting still. On the other hand, when has it not been fast? And when has it not been making people uncomfortable about its future? I'm not sure if it is a smart bet to make a wager against sin city.

Shenzhen, China

"Think Vegas, except in China. Home prices have doubled in four years."

Home prices have doubled in four years because the vast majority of the people were virtually homeless. They have gone from rather primative conditions to big money in a very short period of time. Should Shenzhen make you a little nervous for investing? Maybe, but I'm not sure it can help its rapid pace of change.

I think "too fast" is a little subjective, but I still believe such a list has merit. I'm just not sure if I would have made Fast Company's choices. Maybe I will address those in a future post.

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US-China Trade War?

I'm a very strong advocate of free trade between nations and absolutely despise protectionism. Free trade encourages competition and forces companies to produce the best products at the best prices. Protectionism is anti-consumer, causing higher prices for consumers and is a form of corporate welfare and indirect taxation. Protectionism usually destroys more jobs than it creates, because so many domestic jobs depends on imports. With 4.4 percent unemployment, what are we protecting the US from? The typical argument for protectionism is the lost of jobs due to unfair trade practices, this certainly isn't the case now.

Furthermore, the reasons for protectionism never make sense. Historically, our economy is doing best when we have high trade deficits. Why? Because we are able to afford more goods -- including foreign -- when our economy is doing well. The period of our strongest trade surpluses was during the Great Depression, because the US couldn't afford to buy foreign goods. Trade deficits and prosperity or trade surpluses and depression? Tough choice. Instead of being seen as a negative, I actually see trade deficits as an economic positive, because of the other indicators associated with such.

I do, on the other had, have problems with China. China uses slave labor to create its goods (e.g., political prisoners) and it is a consistent violator of intellectual property rights. But it isn't in these areas that the US wants to punish China. Rather, it wants to put tariffs on goods that we know are subsidized by the Chinese governments. Let's see, China wants to help us get stuff cheaper? Isn't that the same as foreign aid? The US, meanwhile, wants to penalize our consumers who will suffer from the higher prices that the tariffs will carry. Furthermore, our struggling airplane builders that need cheap steel in order to compete internationally will probably have to layoff employees when the price of steel goes up after the tariffs go into effect. Trade wars don't happen in a vacuum, they happen in the real world with real consequences.

Furthermore, trade wars typically go both directions, with countries retaliating against each other, further negating any economic benefit to protectionism.

But protectionism also creates conflict. Frederic Bastiat (photo), the great economist, pointed out that "when goods do not cross borders, soldiers will." Many believe that the tariffs of the 1930s fueled the fires that lead to World War II.

Any question on what I feel about free trade? If the US is going to punish China for behaving badly, penalties need to relate to the specific areas of violation and not be some excuse to apply protectionist measures. The best ways to protect the US economy is to keep costs for consumers down, create a tax and regulatory environment in which our businesses can perform, and to make sure US businesses must compete in order to make the best products for the price These objectives are best pursued in an environment of free trade and not protectionism.

Saturday Morning Talking Heads

I typically watch Fox News every Saturday for their block of "Cost of Freedom" programs and I clearly see why it is the most watched two hours in business talk. Although I don't always agree with all the participants, they are very entertaining and many provide the best thought in business and the economy in the media.

A few observations from this week's programs:

* Social Security tax increases are still tax increases on job creation. We continually hear that Social Security is in a crisis and the answer to such always seems to be to raise taxes. If increases of taxes on income hurt the economy, so will Social Security taxes. In both cases it makes it difficult for the business owner to hire employees. Let's fix Social Security, but let's do it without hurting the economy.

* Let Wal Mart go into banking. The retail giant is interested in creating retail banking options at very low costs to consumers, and critics are concerned about their ability to do such. One commentator actually said "they don't know how to do it, so they won't do it well." Give me a break, as if Wal Mart won't hire the best people they can find to protect their assets and their customers. Wal Mart won't compete against the vast majority of banks, but make it possible to attract customers who have never had accounts, pumping huge amounts of money into the economy to be leveraged in a way it could never be done in a cookie jar, like many of these potential customers are doing now. If it is legal and Wal Mart wants to do it, I bet they will figure out how to do it well.

* Taxes on wealth creation must remain minimal in order to compete in a global economy. This may have been the smartest thing I have heard all day. How has Ireland, India, China, and other historically weak economies turned things around in recent years (two of these becoming economic powerhouses)? It isn't merely cheap labor, which India and China has had for years, but a tax system that puts the burden increasingly on consumption and a way from wealth creation (the source of jobs). If the US wants to compete on the international scene, they need to reduce or eliminate as many taxes on wealth creation as possible. Now more than ever they should consider eliminating income tax and replacing it with a consumption tax.

* How Tax Cuts Increases Revenue. Ben Stein is known by many as a TV and even movie personality (remember the history teacher in Ferris Bueller's Day Off?), but he is also quite brilliant when it comes to understanding the economy. One area he has come up short on, in my opinion, is understanding the power of the tax cuts in eliminating the deficit. On the news today he said that the increase in revenue the government has seen has been due to "business cycles" improving, which naturally generate higher revenues and not due to cutting taxes. Yet, I have also heard him state that the economy responded favorably to tax cuts and created a positive economic cycle. In other words, Stein has created a sequence of events in his mind but fails to see the bridge between the positive business cycle and higher revenues. That bridge was the tax cuts.

Some of these issues deserve, and will receive, more attention later, but I wanted to get them down as soon as possible. There is some excellent intellectual capital when it comes to business information available, one simply needs to know where to find it.

Ford Employees Learning Economics 101

I know this is going to sound harsh, but the economic realities that Ford employees are discovering are the same lessons everyone must learn in order to thrive in our current economy. During an interview on ABC News Nightline an employee was asked about the cause of the company's decline. She replied it was because Americans selfishly bought foreign cars at the expense of their fellow Americans. The interviewer asked a question that was shockingly perceptive in our current political environment, (paraphrase) "could it be that Americans don't want to pay for the amazing salaries and benefits that you boasted about earlier? Wouldn't they rather pay for the lower cost of buying a car made by Toyota with lower wages and benefits?" (One thing all the Ford employees discussed was how good it was for them financially).

The look on her face was amazing. It was like she had a "V-8" moment, but the negative type, not the one you see in the commercials. She said "the benefits are amazing, but I hate to think that is why they did it." But that is exactly why we -- all of us -- "did it." The economy is a lot of things, but it isn't personal. The invisible hand that Adam Smith discussed in the 18th century is alive and well today. People actively make self interested decisions daily, even as we criticize the ability of other countries in competing against us. The invisible hand, a force we can't see but is all so powerful, creates supply and demand, and controls our economy unless harassed by government.

A great example of this is Wal-Mart. If everyone I talk to about this "job exporting," "people exploiting," "made in the USA destroying" company is telling the truth, this company should be on the brink of bankruptcy and not, arguably, the most economically powerful company in the world. But people, even as they drive to the "hated" store, will decry the injustice of goods made by cheap labor and walk out with not a single item made in the USA (with the possible exception of a tag that was made in a US territory). In essence, they cry all the way to the bank in savings.
Is this a bad thing? Certainly not, in my opinion. Our country has an unemployment of only 4.7 percent, that is virtually zero unemployment when you consider the large number estimated who are voluntarily unemployed (seasonally employed, criminals, etc., equals around 4 percent). Because we are free to get what we want, largely from where we want, we are able to get Ford Escorts for only $14,000 (since they make much of their cars in "cheap labor" countries rather than $60,000 a year (which is what they would likely cost if made bumper to bumper in the US). I'm able to eliminate poverty voluntarily and long term in countries like China and India through my purchases (like we did in Japan 40 years ago) without the United Nations taking my money through redistribution as that organization is attempting to do (leading to corruption and international welfare dependency). We are able to truly take advantage of the law of comparative advantage (things being made were they most make sense economically) and the whole world benefits from it.

I believe people should give up the notion of stopping the imports and embrace them. They are making us richer, not poorer (by the way, our longest period of trade surpluses was during the Great Depression; trade deficits mean we can afford more than other countries; not a bad thing). Instead of grumbling about our imports, we should appreciate the good things we are doing for the world economy and simple common sense with our purchases. We don't make these purchase because they are bad, but because they are good for everyone.

What about the nice Americans who lost their jobs at Ford, GM and other companies? The reality is, most of them will quickly find themselves back on their feet, with either new jobs or created businesses as they pursue becoming their own boss. This loss, though sad, will be temporary, but the American resolve the prosper is permanent.