Tuesday, September 7, 2010

Let's Be Honest--About Jobs and the Economy

As many of you know, I have been obsessing lately about the way in which truth and facts have seemingly become irrelevant and missing from the public conversation of politicians and our news media. It's not about whether one agrees or disagrees with the point of view of another. It's about the way issues are framed in a way that often has nothing to do with the truth and, more often than not, in a way that makes no sense.

This will be the first in a series of articles entitled "Let's Be Honest." Each article will deal with an important issue which our news media and political leaders are framing in a way that is so distorted and misguided that it makes rational discussion impossible.

For example, reasonable people can disagree about whether Barack Obama is doing a good job as president. But they can't disagree about whether he is a Muslim (more than 30 percent of Republicans believe he is) or was born outside the U.S. (more than 40 percent of Republicans believe he was). Those are simply lies.

The same would seem to apply to any reasonable assessment of where our economy and job situation stand right now and whether our president's policies have helped or hurt. Reasonable people can disagree about the wisdom of Obama's approach and about the long term ramifications.  But, as with so much else these days, the news media and politicians have chosen to make rational discourse almost impossible by filling the airwaves and print with so many lies and distortions that useful give-and-take can't even get started.

For example, we are constantly hearing about the horrible condition of the U.S. economy and how Obama's socialist preoccupation with bailouts, redistributing wealth, and taxing us to death is killing business.

But let's be honest. When Obama became president the economies of the world were in an American-induced economic death spiral. Stock markets and commodities prices were in free-fall, our economy was shedding 800,000 net jobs a month, credit was not available to most companies at any price. General Electric and Goldman Sachs had to pay Warren Buffett 10 percent interest and provide an equity kicker just to get a loan which should give you an idea how impossible it was for mere mortals to borrow. There was a very real risk that hundreds of major companies and financial institutions would disappear.  Many actually did.

We still have enormous economic challenges, but let's be honest. It is now 18 months later and the stock markets in the U.S. and around the world are 50 to 100 percent higher. With federal help, General Motors and many other companies staved off bankruptcy and are now able to sell stock to new investors. Commodities prices have recovered broadly and credit is widely available to a broad range of credible borrowers. 

We have enormous debts to repay once we get the economy on even better footing and other challenges remain. But the sequencing of the "experts" is backwards. We already had the economic crisis they are predicting for the future and it had nothing to do with Obama, taxes, or socialism. It was due to good old American greed and free-market capitalism run amok.  People are buying less because they are worth less, owe more, and are earning nothing on their savings.  They are doing the responsible thing by paying off debt and putting more money away for a rainy day--not because of uncertainty about what Obama will do to them next. 

We are repeatedly told that making the richest Americans pay the same level of income tax as they did during the boom times in the '90s would kill the economy.  But let's be honest.  How many millionaires do you know who are putting off purchases and denying themselves stuff that they would run out and buy if they only had an extra few grand?  Most people are buying less because they are nervous about the future--in part because they are told all day in the media and by politicans that they should be outraged and afraid.  It has nothing to do with uncertainty about a proposed small increase in taxes for a handful of the wealthiest Americans.

The one problem that remains very real for far too many people is jobs.  Most companies downsized their work forces during the economic meltdown but now that business has come back--in many cases stronger than ever--they are not hiring new workers.  In most cases, they haven't even hired back the ones they laid off during the crisis.

The U.S. unemployment rate is hovering just below 10 percent and the number of people who are holding jobs that pay and require skills far below their qualifications is at least as high. We are told by financial "experts" and politicians that Obama-induced fear is to blame for reasons that make no sense.

They claim that corporate CEOs are not hiring more workers, even though many of their companies are doing more business than ever and are flush with cash, because they are "uncertain" about the impact of health care reform and tax increases they fear may be coming in the near future. These paralyzing uncertainties are simply the icing on the Obama anti-business, anti-America socialist cake which is yet another reason why the Republicans will take over both houses of Congress in a couple months. Or so the story goes.

But let's be honest. Back during the Clinton years when taxes were much higher and when health care costs were going through the roof each and every year, companies were hiring like crazy. Many, like my employer, offered big bonuses to any employee who referred a prospect who ended up being hired by our firm. It had nothing to do with certainty about the future or tax rates or socialism or health care costs.

It was all about our CEO's belief that we were missing out on a lot of business because we didn't have enough people. So we hired more people.

Today many companies that survived the financial crisis are flush with cash and very profitable. But instead of hiring back the workers they laid off, they are investing in new equipment and productivity-enhancing technology that will enable them to do more business with even fewer employees in the future. They are also using their huge cash hordes to buy other companies so they can lay off even more workers in the future and become even more profitable--at least in the short run.

And when companies make more money, their CEOs (the same ones who decide whether to hire or fire more workers) make LOTS of money. A recent report issued by the Institute for Policy Studies shows that the 50 companies that laid off the most workers last year saw their profits go up an average of 44 percent. And (surprise surprise) the CEOs of those companies made an average of $12 million last year--almost 50 percent more than average CEO pay at America's 500 largest companies.

So let's be honest. There's not a thing that Obama or any other politician can do to lower unemployment in the private sector as long as CEOs and shareholders of our largest companies are getting richer and richer because of mergers, productivity gains, and layoffs. And our free market capitalist system--which I heartily support and have earned my living managing for more than 30 years--is based on their ability to do just that.

So, if we're going to be honest there is a lot to talk about and figure out. It will be tough and it will be complicated. It is so much easier to create villains and phony issues to keep people busy being outraged and afraid. Maybe that's why so many of our politicans and media celebrities are doing just that instead of telling is the real story and helping America.