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Where Will the Jobs Come From?

Where Will the Jobs Come From?

I find myself in Liam's taxi on the beautiful drive to Kilkenny through the Irish countryside for a few hours this very early Friday morning, so what better time to begin writing about employment than in a country that is struggling, just as most of the developed world is, to find good jobs for its people. I'm on my way to a conference that will talk about the economics that is driving the world's leading governments to distraction in Cannes. Is Greece going to vote? Take the money? Will it be an orderly default? Should Ireland default? Whatever I write, the situation will change as soon as I hit the send button tonight. (For the record, I think Greece should have a referendum. You don't go into what they are getting ready to suffer without national buy-in. No elitist deals. Put it to the people to decide, one way or the other.)

Where Will the Jobs Come From?

With seven kids, jobs have been on my mind of late. It has not been easy for some of them. It helps me to remember what it was like to be in my 20s in the '70s and to really struggle to pay the rent and put food on the table for a family. Savings? Hah! And while I have been able to help the kids here and there, back then there was no one to help me. More than a few nights, I woke up with a knot in my stomach, wondering whether to pay rent or make payroll. College did not prepare me for the "joys" of being an entrepreneur.

Interest rates were 18% if you could even find a bank in Texas to lend on hard receivables. Unemployment was north of 8% and sometimes 10%. The Japanese were beating our brains out. It was the Carter malaise years. All my friends were struggling as well, so it seemed normal. Kind of like now.

And I know I have written this before, but it bears repeating. The correct answer then, as it is today, to the question, "Where will the jobs come from?" was "I don't know, but they will." That is what free markets and entrepreneurs do: they create jobs where none existed, given the chance.

And that's how it looks today. This week's ISM and jobs reports augur poorly for employment in the coming months.

Jonathan Tepper (co-author of Endgame) of Variant Perception writes this week:

"Economists miss the start of recessions for two reasons: 1) they focus on coincident to lagging data, and 2) they use data series that are heavily revised, rendering them useless in real time.

"For example, most mainstream economists did not recognize the beginning of the last recession that began in December 2007 until mid-2008. Leading indicators had plunged, yet coincident and lagging data continued to be positive. However, once the data for non-farm payrolls and GDP were revised, the loss of employment and the loss of economic output were much greater than had originally been estimated. In all likelihood, we are seeing a similar dynamic play out today.

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"All of our leading indicators have been pointing down since early spring. Now many unrevised short leading indicators are pointing towards weakness in employment, output and asset prices. The GDP weighted employment reading for ISM services and manufacturing is now clearly below 50. The last times this happened was before the 2001 recession and before the 2008 recession."

You can't read any serious economic analysis of late that does not talk about jobs, whether in Europe or the US or Asia. And not a lot of it is pretty. Politicians offer "plans" for jobs, most of which go to great lengths to illustrate the sympathy they have for people out of work, but without offering any real ideas on how to create meaningful, lasting jobs. Some are actually destructive of jobs, far from creating any (these are of the "I'm from the government and I'm here to help" variety).

I have been having a rather lively email conversation with several serious thought-leaders about what we should do to get us out of the current job malaise. The ideas we are discussing are worth a wider audience, so Bill Dunkelberg, who is the Chief Economist for the National Federation of Independent Businesses and I have decided to write what we hope will be a short book on employment (I know, I have never done a short book yet). How are jobs created? What policies should governments adopt to help create jobs? How do we get back to full employment in the US in a Muddle Through economy that needs at least 125,000 jobs a month just to keep up with population growth? (Today we learned that in October new employment was just 80,000.)

Stupid Government Tricks

The book will be US-centric in its focus, but the policies we will be talking about can be adapted to almost any country. And as long-time readers know, when I start on a book project, some of it tends to leak into the weekly letter; so in between writing about the crisis du jour in Europe, I will give you a small preview of where we are going. I should note that Dunk and I will be getting a little help from our friends, and we want your help in some very specific ways.

First, I know my readers are among the smartest on the net. If you have an idea about how to increase employment, send it to us. Put "jobs" in the subject line.

Also, most of America is familiar with David Letterman's occasional skit called "Stupid Animal Tricks." We want to do a section on government policies that hurt job creation. At all levels, from local to national. Send us your anecdotes and notes on odd rules and laws that destroy jobs and opportunity, rather than create them. Almost everyone has a story about how government is hurting their business. Tell us yours.

And at the same time, what do you see that is working? Why do some states seem to attract businesses and others lose them? Again, send your comments with the subject line "jobs." And, you'll get a footnote if we use your suggestion. (Hey, I love being footnoted!)

In that regard, I call your attention to a column in Thursday's Wall Street Journal by Daniel Henninger about whether Texas Governor Rick Perry (now candidate for president) can take credit for the jobs creation that has been happening in Texas. And the writer's point, and I concur, is that he can only in the sense that he didn't get in the way and did help pass a few bills to make it easier. And you do have to give him credit for being aggressive about luring businesses.

But that has been the case as long as I can remember. Democrat or Republican, Texas governors and politicians in general recognize that businesses drive employment, which drives the economy. In that regard, Perry does "get" what helps create a favorable business climate (not that that would be the reason to elect him). The columnist interviewed a lot of businesses that had come to Texas. It was not just lower taxes that brought them; it was an overall favorable business climate and an able workforce that made the difference.

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Henninger has some very nice things to say about Texas and its work ethic:

"In 1990, one of the world's biggest companies, Exxon Mobil, left New York City for Dallas. Exxon's former CEO, Lee Raymond, says the move in part was indeed about costs and New York State's notoriously overbearing tax authority. But it was also about working amid a culture of competence. ‘It's just the attitude in Texas of getting things done and doing them well,' he says.

"Mr. Raymond remarks that the economic policies that in time trapped the Northeast and Rust Belt in spirals of decline never touched Texas. But this is about something beyond low taxes and no unions: ‘In Texas the people tend to be farmers or individual businessmen, and they have this attitude: We have to make do with what we have and work together to get things done and survive. It's can-do. That attitude permeates everything there.'"

And while the part of me that is deep-roots Texan likes to believe that somehow we are special, the part of me that has been to 49 states and 60 countries smiles a little at my pride. I find that same attitude in Maine, where I go fishing in the summer. And in Atlanta, where I will be next week. And in New York City, and Colorado. Everywhere I go I find people wanting and willing to work hard.

It is not just the US, either. As I noted a few weeks ago, the Irish may be at each other's throats with their politics, but they are united in their desire to "sell" Ireland as a center for business (and the jobs businesses bring). And while the Dutch work many fewer hours than we do in the US, their productivity is manifest and their export power per person is amazing. South Africa? Thailand? Japan? China? I could go on and on. Everywhere I go I see the drive to excel and get things done. Yes, with different local emphases, but with that same basic human drive.

"A more recent corporate immigrant [to Texas], Alan Boeckmann, until recently CEO of Fluor Corp., the engineering and construction firm, says regulatory and legal hassles pushed Fluor out of California. Congress passed Sarbanes-Oxley, but ‘California had its own version.' There were constant class-action suits over Fluor's benefits. ‘It could have been settled, but not in California. That's how the game is played there.'

"When word of the 2006 move got out, ‘California made no attempt to keep us.' In Texas, ‘things started to happen quickly, without us initiating them.' The Irving Chamber of Commerce did orientation sessions for employees and spouses, even helping with new-house searches. Or ‘little things': Irving on its own renamed a street Fluor Drive, which in California or the Northeast would be laughable. Those Texas rubes!"

But the workers of California are no slouches. Witness Silicon Valley. And the amazing biotech companies of Southern California. And California farm productivity is legendary.

Yet certain states seem to be the beneficiaries of businesses moving to them from certain other states. The data on that is compelling. Lower taxes? Less regulation? Lower costs? (Certainly no one chooses Texas for the weather. I left San Francisco yesterday and could only wish for days like that in Texas.)

Let's hold that thought on business-friendly states for a few paragraphs and turn to two other op-eds in a weekend edition of the Wall Street Journal from a few weeks ago. The first was by Peggy Noonan, who may be the most gifted writer and commentator of our times. The Weekend Journal is where you can find her, on Saturday mornings. This particular column was poignant, as she was focusing on the angst she sees in the world outside Washington:

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"Look, we are in a remarkable moment and I'm not sure we're noticing it in the day-to-day of politics and media. Last week I wrote of the new patriotism that I see taking hold of the American establishment, if that's the right word—business leaders, doctors, scientists, entrepreneurs, journalists and lawyers who find themselves feeling a great, deep yearning to help save their country. That public-spiritedness is waiting to be harnessed and led by good men and women who, in words I'll explain in a moment, have passion not for themselves but for America.

"What's behind it is fear. The economy is tanking and can take a whole world with it. But what's interesting—and new—is that the fear is not finding its expression (again, among those loosely described as the establishment) in rage, or in deeper partisan antagonism. Democrats could be feeling bitter and snarky: President Obama didn't work, and they're not in love with him anyway, so why not bash Republicans just for fun? Republicans could be feeling mindlessly triumphant: We're on the verge of a major victory, make way for your new rulers. But that's not what I'm seeing. What I'm seeing is a new convergence of thought among Democrats and Republicans who are not in Washington and not part of the political matrix. They are in new agreement about our essential problems and priorities: that the economy comes first, all other crises (in foreign affairs, in our culture) come second, because they cannot be helped without an economy that is healthy and growing. They all agree—no one really argues about this anymore—the government is going bankrupt. They all agree the entitlement system has to be reformed. Heck, they all respect Paul Ryan, for his seriousness. They all want grown-ups to come forward with ideas that maybe each party wouldn't love but that might do the country some good.

"That is what I see in every business and professional meeting, in conversations with Democrats and Republicans: a new convergence of thought among the thoughtful."

She then goes on to describe two focus groups she watched that week of "Wal-Mart moms," one in Iowa and the other in Orlando, Florida. A few strategic quotes:

"In Orlando they were asked to describe in a word or two how things are going in the country. The responses: ‘Depressing,' ‘different,' ‘discouraged,' ‘sour' and ‘bad.' Any positive words to describe our country right now? Silence. How, asked the moderator, do you see our economic troubles in your life? ‘I see it every day in my job,' one woman said. Two weeks ago her company put up a posting for a position. Two hundred fifty applicants responded, ‘all overqualified.'

"Another: ‘Most houses in my neighborhood are under foreclosure or for sale.' Another: ‘If I had the financial stability I think I'd just get out of here.'

"…What do they want in a political leader? Someone who cares about ‘Jane Doe on Main Street that can't pay her electric bill.' Someone ‘with passion not for himself but for America.'

"Do elected officials in Washington know how you live? In Orlando there was a chorus of noes: ‘They have a bunch of chefs cook for them.' ‘They're more privileged.' ‘They're compensated above and beyond their salaries. They have health care.'

"Do they care about you? ‘No, not so much.' ‘They won't care till they're affected.' What do you want Washington to do? From Iowa: ‘Fix it.' ‘Start looking at the big picture.'

What do you want from leaders. From Iowa: ‘Someone who isn't hollow.' "

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"They all said they care about 2012. They all said they'd vote.

"We are in a remarkable moment. Everyone understands the stakes. Everyone wants action. From comfortable professionals to people barely scraping by, everyone wants both parties to work together, to think of our country and not themselves.

"And of course everyone really gets this except Washington, which says it gets it and doesn't. But those who think 2012 is just a clash of big parties had better wake up. They think they're pulling and pushing in a tug of war, but they are dancing on the precipice."

Precipice indeed. It is the Endgame. We are watching it play out in Europe, but we all know it will come to our own shores all too soon if we do not act. I hear this everywhere I go. The meeting I had with those ten Senators a month ago resonated with readers. I get asked over and over, "Do you think they understand? Will they do something?" Most of the times their voices are tinged with hope. Sometimes, though, it's resignation, and the follow-up questions are in the "How do I protect my family and survive this?" vein.

Reading Peggy's article invoked deep empathy, as those women could be my kids and their friends (and yes, we shop at Wal-Mart, among other places). Watching Occupy Wall Street just underscores the frustration out there. And then I read the column below Noonan's, by Mary Kay Henry, president of the Service Employees International Union. She argues that:

"The hard truth is that things are pretty lousy for most Americans right now. And while students, seniors and workers didn't cause our economic collapse, we're the ones paying the price. It's been three years since Wall Street CEOs crashed our economy. When Wall Street was on its knees, the American taxpayers came to their rescue with trillions of dollars in bailouts and promise from the big banks that they'd invest in our recovery.

"Instead, the banks used our hard-earned tax dollars to enrich themselves. They robbed millions of Americans of their jobs and their livelihoods. They refuse to invest in the small businesses that drive America's job creation and growth. And they continue to kick us while we're down by foreclosing on millions of families.

Mary Kay sounded the refrain about millionaires and billionaires and then said:

"…We can't begin to fix what is wrong with our economy without creating good jobs. We have work that needs doing in this country and millions of Americans looking for full-time work. It's time to put the two together to make America a stronger nation. And it's time to use the money being made on Wall Street and in corporate boardrooms across the country to put Americans back to work.

"Congress can begin by passing the American Jobs Act and immediately put Americans to work rebuilding our outdated and dangerous roads and bridges and ensuring our kids have first-class schools. We can invest in our communities to keep teachers in our classrooms, police on the beat, health-care workers at our hospitals and clinics, and ensure that we have enough firefighters to protect our communities."

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The disconnect between the two columns simply leaped at me. Both note the angst that is palpable in the country (and around the world in developed countries). But one called for adults coming together and the other struck a severely partisan note, which I guess you might expect from the head of a government workers' union.

Which brings us to the question, "What is the role of government in creating jobs?" To answer that, let's look at the data that shows us where jobs come from. And we find (I go in-depth on this in previous columns and in Endgame) that net new jobs for the last 15 years came from new business start-ups. Big business is a net drag on job creation, and small businesses are a wash. Governments have seen job growth, but where does the money come to pay government employees?

Net new jobs come from new businesses (defined as those started within the last ten years). Yes, some of those businesses become Google and others are the local dry cleaner or donut shop. But those start-ups (if they survive) are the source of new jobs.

Let's Tax the Millionaires

Ms. Henry wants to tax the millionaires, as if they are somehow sucking the system dry and should "pay their fair share." Her answer is to tax them and hire more government workers. But that simply transfers income from one party to another and does nothing to create real wealth. And this has been brought home to me recently in a very personal way.

My youngest son, Trey, has been spending a lot of time with a new friend, and I decided I needed to meet his father. I went to their home to check them out. The father, Larry, was from South Africa and had just moved to my neighborhood from Utah. He said he was in software design. We became friends, and one day I probed a little deeper into what he did.

It turns out that he had designed a system (and patented it) that automatically triggers a "911" call (the US emergency number) if you are in an auto accident, as long as your (smart) cell phone is on. Yes, the phone can recognize when you are in a vehicle and there is an impact, and that is different from dropping the phone or even throwing it into a wall. It can notify family members (or friends) if there is an accident and tell them where you are. It will work in almost any country. If a button is hit, it can silently call emergency services. It can also track your kids or employees and let you know all sorts of things you ask it, but that's another story.

But he was in the middle of a funding crisis. I watched for several months as he struggled for money to finish his project. It was 98% of the way there, with thousands of paying users in "beta." It was cheap. It worked. There was demand. But he was losing his funding. Why?

His original source had been a wealthy entrepreneur who had a "liquidity event," selling his business for a large sum. As part of his reinvestment, he funded, with a small part of his money, a venture capital firm that had the goal of investing in 40 start-ups, mostly in high tech, which was where he had made his original money. I talked with the manager of the fund. The story was typical of others I have heard.

In just a few years, 10 of the original 40 had already been shut down or sold off. But the manager was not discouraged. Their plan was in the end to get ten businesses that survived and were successful. Think about that for a minute. A lousy 25% success rate?!? Would you start a business if you thought there was a 75% chance of failure? Really? Would you fire a manager who had 75% of his projects fail?

Understand, they had looked at multiple hundreds of business ideas to get to that 40. Those were the best ideas they saw. They initially thought every single one had a chance of success or they would not have funded them.

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But Michael Gerber would say they were being optimistic. Gerber was a very real influence on me as a young entrepreneur. He wrote a book, originally called The E-Myth, on what really makes a business work. He cited studies that suggested that 80% of all new businesses fail within five years and that 80% of the remainder fail, are sold, or shut down within another five years. Now that is creative destruction, if not outright Darwinism. He has since gone on to write a lot of books and to help many entrepreneurs, but I have never forgotten those first lessons. ( – I would suggest that any entrepreneur read his books.)

Do you think that because you like to make pies and are good at it you can open a pie shop? (his illustration). You'll soon find out you are not just in the pie-making business. You have inventory, employees, payroll, marketing, budgeting, customers, taxes, government forms, regulations, etc. They take your time away from doing what you thought you were good at.

I grew up in a print shop. And when I was in my 20s I found out I could sell. And because I knew printing and could sell, I opened a print shop. Several times. You would think I would have learned. Starting a business is more than just having technical knowledge or skills. It is a host of things, and it is very hard to make one work. But the good news is that optimism triumphs over reality, and as a society we all benefit from those who take the risks and figure it out. And jobs get created.

The rich entrepreneur who funded Larry's start-up? His basic business and investments hit a bump in the recession. He had to reduce his funding commitments, and one of those casualties was Larry, who went into scramble mode when his next source also went upside down.

I did my homework, brought in some people who understood what Larry was doing, and decided to make an offer. Larry took it. I got in for much less than the original investor in terms of dollar-for-equity, but that's what I wanted for the risk. We'll see how it works out. (Note to self: go see that private fund manager and find out what the heck the businesses are that he thought were worth continuing to fund, if you funded his leftovers. You might learn something.)

The point? The entrepreneur with his venture capital firm is one of those millionaires that some want to raise taxes on. If you take another 5% from him, that is 5% less that he can invest.

I am somewhat like him, on a much, much smaller scale. I am a serial entrepreneur. I can't help myself. (Is there a 12-step program?) I won't pretend that if my taxes go up 5% from where they are today, I won't start or invest in a business if the right opportunity comes along. But that is 5% less that I have to use for risk capital. At some point along the tax curve the risk is not worth it. And that 5% may actually represent 30-50% of the annual growth in my risk capital, as venture capital is the very last part of my residual capital and income that gets allocated.

Multiply that by one million potential entrepreneurs, just in the US. There is a certain portion of the human breed that is by nature and instinct entrepreneurial. They see opportunity and look for ways and means to make it happen. Family, friends, and so-called "angel" investors fund these start-ups. More and more we see quasiformal networks of angel investors forming. They often go in together and mentor and help start-up companies and businesspeople.

These are the millionaires who are somehow not paying their fair share. Yes, there are Wall Street bankers and some professionals that make large salaries, but most of the high-income earners in the US are owners/founders/investors in small business, or got that way as a result of a small business that became larger and successful. Some become Bill Gates or Steve Jobs – the billionaires. But those successes are rare, very rare.

(Sidebar: I am so tired of hearing about Warren Buffet's low tax rates. Berkshire Hathaway pays billions in taxes. Which, since Warren owns a chunk of BH, are essentially paid by him. Since he doesn't require that much to live on, his effective tax is in the 1,000%-plus range. Therefore he pays a lot more than his secretary. )

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Without growth in private GDP, or the portion of GDP that is not government-related, there will be no job growth for the rest of this decade. Private GDP has been flat for 15 years (in real terms). The chart below shows how important government spending has been to official GDP figures.

The "growth" of the economy has been in government spending and debt. But that source of growth is going away as governments are increasingly constrained by revenue losses and debt. We can talk all we want about how we need to make a commitment to government jobs, but the reality is that we are at the Endgame of government spending, both in the US and in Europe.

How do we grow our way out of the current crisis? We have to have more private-sector jobs. Period. End of story. And that means we have to figure out how to make it easier for entrepreneurs to find and access capital. Taking capital away from investors who fund these start-ups will not do the trick.

Let me hasten to say I am not against government spending or taxes. A certain level of government spending is necessary. And as I outlined at length in Endgame, I am all for increasing energy taxes (slowly over time), to be used 100% to rebuild our crumbling infrastructure (funding goes directly to local and state governments), which, yes, produces government-financed jobs. But we simply do not have the funds to take national taxes to fund local needs, no matter how worthy. If something is needed on a local or state level, that must become a local funding issue. If California wants to pay its prison guards $100,000 a year, that is their choice. Or pick a state, any state – they all have needs. We have plenty in Texas that needs funding, for sure.

It is time to hit the send button, so let me close by saying that we really do want your input on this new jobs book. Dunk and I and the other writers want to contribute to the national conversation that we must have next year. It is a very timely and worthy topic, and there is much more to say. It is not simply "support your new small businesses." It is far more complex and will take a book to go into the detail that is needed.

We want your input and ideas. Put "jobs" in the subject line. Let's start an adult conversation by exploring the nuances of how jobs are created and how we can help the process.

Kilkenny, Atlanta, DC, and Home

As noted at the top, I am in Kilkenny, Ireland. I got off the plane, drove to Kilkenny, and saw posters with quotes from me on the walls around town. That was different. I was almost immediately grabbed by host and event organizer David McWilliams, for what I was told was the #1 radio talk show in the country. Very thoughtful host and large, sold-out crowd for the show. The first panel session was tonight. I found myself in an unusual role. Normally I am the radical in the group. Here it was a very mixed crowd, liberals and conservatives and everyone ready to mix it up, along with some very funny stand-up comedians! And tomorrow I am on three panels or speaking events. Lots of readers were in the audience, and it is all quite fun; although, when I talk about reducing deficits I am not used to getting boos and cheers at the same time. Like I said, interesting and fun.

I am in Atlanta on Wednesday for the Hedge Fund Cares fundraiser (along with Tiffani). The team that is hosting the event wants me to point out that there are a few spots for lunch still available. Contact them for cost and details. It is at the Piedmont Driving Club, which is the most exclusive "old-money" club in Atlanta – Driving Miss Daisy was filmed there. It sounds like a really cool venue. And it is for charity.

I then go the following week to Washington, where I will be at the National UBS conference for a few days; and then I am home until mid-January, or at least I don't have to get on a plane unless I want to. As much as I enjoy meeting people and seeing new places, I am looking forward to being home for an extended time.

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Tomorrow I will wander around Kilkenny and visit the local castle and learn some of the history. This was the first capital of Ireland, and there are some VERY old buildings here (as in 900 years plus). And walking back tonight I got the sense of a very lovely place. I will probably want to come back.

Have a great week. And go out and tell an entrepreneur thanks.

Your hoping that I can be in that 20% a few times in a row analyst,

John Mauldin Thoughts from the Frontline
John Mauldin

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Curtis Cerenzie
Nov. 5, 2011, 7:30 p.m.


John, thank you for writing this newletter. 

In my opinion, increasing employment is the key aspect to turning around the loss of wealth, security, and stability of our country.  If everyone had a job, then there would be plenty of tax revenue, much less government spending, no protests, no riots, much less uncertainty, etc.  Housing would be stable, auto sales would be higher, and kids could pay back those student loans quicker.  Personal savings would be higher, which means we could improve capital formation, which should lead to more conventional financing techniques by our banks.  It all begins and ends with increased production of goods and services in our country…and the loss of jobs over the past 30 years or so is what has lead us here.  It isn’t the awful lefties, or unbelievable righties.  It wasn’t the tax cuts, or the war, or a myriad of other issues.  It was loss of jobs, and the opportunity that was lost with it.  It’s taken several decades for the issue to show up as chief protaganist, but it is the key element to what ails us.

My idea is controversial.  Let me start out by stating that I grew up in a family of 6 with my father making $90 per week.  We were dirt poor, but I had a great childhood, with many outstanding memories.  So don’t label me as an elitist or corporatist.  I am not.  I am financially conservative and analytical in nature.  My thought process is to look where others aren’t, to challenge commonly held beliefs, and try to put the pieces together on this giant puzzle at which we all stare. 

Bring back the corporate jobs!

There is a major flaw in our thinking.  It is widely held, spoken regularly by economists everywhere, and yet incredibly shortsighted.  What is it?  The concept that jobs are created by small business, so this is where we need to go to create more.  Small business may be the job creator today, but thatâ??s only because large business isnâ??t. 

Your latest E-letter provides the greatest rationale as to why large corporate jobs are most critical.  80% of small businesses fail within 5 years.  That means employees of small businesses are going to need to find another job within 5 years.  And of the surviving businesses, most are sold or closed in the next five years.  Thus, most employees of small businesses donâ??t obtain jobs that will last more than 5 years, and then max out at ten years.  This is the fallacy of our collective thought process and mindset.  We need long term, higher paying, stable jobs which mostly come from larger entities. 

Encouraging corporations to bring back the jobs to our country is the key.  Consider General Electric for a moment.  Would it be easier to negotiate the return of 20k jobs to the US with GE, or coax 20k small businesses to hire one person?  The answer is simple.  We need the large corporations to grow in our country againâ?¦we need the â??job hogsâ??, and there are many things we can do to encourage them to expand in the United States.

Corporations are putting up healthy earnings numbers, but they are doing it through unconventional methods which are now becoming the conventional.  The jobs are sent overseas, along with the capital, where it is treated much better.  It stays over there because the corporations canâ??t stand the idea of paying the 35% ransom charged by our government to bring it home.  On top of that, they know if they build a factory here, it will take several years to get the approvals from the byzantine of government regulations, and then they stand to face a myriad of lawsuits from the environmental and anti growth movements.  In contrast to competitive countries, we treat our corporations poorly, and so they go where they are wanted…but the jobs go with them.  What’s left are small biz jobs which are much less technical/stable, and almost transient in nature.  We need to bring back the stability. 

So how do we go about getting the big corporations to bring back the jobs? 

1)  We have to insist on real free trade.  If you havenâ??t done so, take a look at the Chinese tariffs in products categories where we compete with them.  We arenâ??t engaged in free trade.  That is someoneâ??s pipe dream at the moment.  We must insist on the removal of tariffs with these countries or put our own tariffs in place to level the playing field. Yes, it means we need to find a backbone like our forefathers!  The fear that this may cause a trade war is real, but unfortunately, doing nothing is even worse in the long run. 
2)  We need to analyze the corporate income statements.  Every line item has extreme costs in it.  Legal fees, union wages, healthcare costs, tax rates, insurance costs, costs to meet local and state regulation,  unneeded accounting costs to meet Sarbanes Oaxley,  retirement costs, productivity losses from labor laws/union imposed work rules, etc. There are many low hanging fruit here.  This isn’t to say many of the cost categories aren’t warranted.  It’s just to say, that everyone has their fork in the side of the corporate body.  We must remove some of them, to become competitive again. 
3)  Convincing America that this is the right thing to do—when all theyâ??ve been told for decades is how bad corporations are.  This will be a huge challenge as so many people have learned to hate the big corporation.  At some point though, desperation will bring people to reprioritize what is most important versus media rhetoric.  And what’s most important is jobs. 

Do you want a stable high paying job with benefits?  I am betting a lot of folks are beginning to yearn for that concept once again… 
All the best and thanks again for what you do.

Allan Hotti
Nov. 5, 2011, 7:24 p.m.

Jobs will come when demand returns. Business and VC.s will invest when there is opportunity to meet a rising demand for goods and services. Currently, smart money is hoarded or sent overseas where labor is cheap and demand is high, (No US “trickle down” there). The old “chicken and egg” story. An extra “5%” investment in infrastructure has both short and long term benefits. Private construction companies receive money to hire new middle class workers who now create new demand that can encourage business and VC’s to invest to meet this demand.
As responsible home owners we must necessarily renew and repair our assets; replace roofs, renew paint, replace water heaters, unplug toilets, replace doors and inefficient windows and educate our children. We cannot moan about doing these necessary tasks, rather we must just get on with repairing our national home. The price may include a loss of “5%” of venture capital, but 75% of that will be lost anyway.

Allan Hotti
Nov. 5, 2011, 6:32 p.m.

You have the opportunity to waste 75% of your investment dollars ... is this record better than giving an extra 5% to Gov. to contract with private contractors to repair/renew infrastructure, to hire middle class workers, pay them wages, create demand that now encourages entrepreneurs to start businesses. (two streams of new jobs). It’s the chicken and egg story. Businesses are holding their money until demand strengthens or sending their money overseas where labor is cheap and demand is high (a no brainer, no US “trickle down” there).
BTW I’m sure you spend a considerable proportion of your assets on your own “infrastructure” ... new roofs, new water heaters, paint, unplugging toilets, educating your kids etc., because you understand; that is smart and necessary. Stop moaning and get on with it!

Glenn Taylor
Nov. 5, 2011, 6:03 p.m.

How about including a chapter or two on Stupid Private Enterprise Tricks?

For instance, we have a system of software patents which exist solely because Private Enterprise - gasp - wants MORE rules which would allow companies to extract more Money for Nothing from other companies and ultimately consumers.

Lets call this a hidden tax from corporations.

As someone who runs an IT company and in discussions with other software developers who don’t own big companies, I can tell you we all believe and know that there should be no patents allowed for software because so much of it simply mimics real world behaviour which does not represent original thinking.

Microsoft, for instance, makes money on every Android device sold which is simply ludicrous an open source software program I use frequently for clients has had a feature removed for reordering file names by drag and drop because it “might” violate a patent. Reordering files names!!! It’s insane really.

John Mauldin likes to rail against the government as if it operates in some kind of vacuum. The truth is that many rules and regulations exists because Private Enterprise - gasp - lobbies for these rules because it enriches them at the expense of consumers and other enterprises.

Will Rogers once said “It ainâ??t what you donâ??t know that hurts you. Itâ??s what you know that ainâ??t so.”

It just ain’t so that government is root of everything that is wrong with the world. Big business is as much to blame for our current malaise as anyone because honestly, they wield far more power than consumer or public interest groups and tend to get their own way. And I’m not just talking about banks and hedge funds.

In John’s previous letter he quotes Bill Bonner:

“...The state has looted us just as surely as a robber who enters our home at night and steals all that we love.”

I had to chuckle. We always hear from the right about how the state robs us but getting robbed by private enterprise seems to end up in the small print or gets minor mention - more as an attempt to appear balanced - from pundits on the right.

The implication is that we can trust private enterprise to do the right thing which is simply not true.

I don’t get the sense either that government responds very much to the will of the people. It seems much more responsive to business interests than consumer or voters interests. Hence we have subsidies for the sugar industry, oil industry, car industry, etc. Politicians surely respond to popular outbursts of the “people” but business is hiding there in the shadows piggy backing on these popular ideas and pushing for their own “rules” which distort the economy and add unnecessary regulation.

Let look at China for a moment. China - which is clearly not a market economy - has terrible environmental problems. Horrific in some cases. You could say they have free enterprise when it comes to the environment because they have few regulations or they simply aren’t enforced (which is the same as having no regulation).

This is what we get from a completely “free market”. Just look at the Gulf oil disaster.

The irony however is that if government ceased to exist, the most powerful business interests would quickly fill this vacuum and begin to create rules which benefit their business interests at the expense of other interests. So much for free markets.

The so called ‘Carter malaise’ gave way to Ronald Reagan and unceasing deficits which led to where we are today. I’m not saying Carter was a good or bad president (I was too young) but I don’t believe Reagan was any better or worse. Reagan just gave us the illusion that things were great because he was willing to spend national equity built up over generations to invoke a debt fueled boom.

I believe it’s wrong to suggest that government can’t create jobs and it’s dogma to suggest that is so.

Government built the Hoover Dam, government built roads and infrastructure over generations without which, much of today’s economy could not succeed as wonderfully as it has over the past 40 or 50 years. It was the GI program after WWII which led many individuals towards success and prosperity not just for the individuals involved but for the economy as a whole. Try doing business in India or any third world economy if you want to find out how well an economy functions without good publicly funded infrastructure.

I own a business and I don’t want stupid rules or taxes that are too high but I also recognize that we need rules because you can’t put the fox in charge of the hen house. I know that self-interest leads me to see things as I want to see them especially if there’s economic benefit in it for me. I will rig the system for my own benefit if given a chance.

I don’t believe socialists or those who really believe in free markets have all the answers.

Countries like France are going down the tubes because of excessive government intervention and so is the US because of excessive free market manipulations.

The answers are somewhere in between and we won’t get to the right answers until we are willing to let go of our dogma and see things as they are instead of how we wish them to be.

We definitely won’t get there if we can’t transcend self-interest.

John Cody
Nov. 5, 2011, 5:04 p.m.

Nevermind a crippled real estate infrastructure (roads, etc), we do not even have the infrsstructure necessary to manufacture, no machine tool industry, no LCD industry, etc. As we deindustralized from 40% manufacturing to 12% or less, we didn’t notice because home building hired the redundant workers. Now-nothing. We have a mass problem requiring a massive solution, no fancy, pancy micro ideas, simply a return to a time of a factory or mill in every town. Boycott China, tax China, fight their self-declared mercantile policy to become the sole manufacturer in the world.

So how many tens of thousands more factories do we need to lose before we do
something about it?

How many millions more Americans are going to become unemployed before we
all admit that we have a very, very serious problem on our hands?

How many more trillions of dollars are going to leave the country before we
realize that we are losing wealth at a pace that is killing our economy?

How many once great manufacturing cities are going to become rotting war
zones like Detroit before we understand that we are committing national
economic suicide?

The deindustrialization of America is a national crisis. It needs to be
treated like one.

America is in deep, deep trouble folks. It is time to wake up.

Nick Nielsen
Nov. 5, 2011, 4:57 p.m.

There are two major reasons taxing millionaires is such a popular idea with Americans.

First is the glut of articles pointing out that many millionaires pay lower rates on their income because of the source of that income (e.g. carried interest).  That this group includes the bankers, brokers, and speculators who are seen on Main Street as being the proximate cause of the economic collapse adds fuel to the fire.  For the vast majority of Americans, income is income; if it has to be taxed, all income should be taxed at the same rate, no matter where it came from.

Second is the disconnect between 1) being told ‘the rich’ are the job creators, so we need to reduce the tax rates; 2) tax rates at the lowest levels in decades; and 3) the steady disappearance of American jobs as tax rates were reduced.  What the body public sees is the rhetoric and the empirical evidence that, on its face, contradicts the rhetoric.  That the disappearance of American jobs is related to a government economic policy that actually encourages moving jobs overseas is little understood.

What’s the solution?  Reducing government spending is a start, but there are some things government has to do, including repairing, replacing, and updating our crumbling transportation infrastructure.  And it may be simplistic, but I think the best place to start fixing the economy is to achieve the primary goal of the Occupy movement: get the money (business) out of politics.  How?  In my mind, it’s simple: if you can’t vote for a candidate, you can’t donate to that candidate.

Richard Schneider 31849
Nov. 5, 2011, 4:54 p.m.


Your anecdote is simply microeconomic.  The point is that corporate america has 2.5 trillion dollars in cash and should be investing in the business idea of your friend from South Africa.  This man’s prospective customers are the one’s who will buy his products.  There are plenty of millionaires who could invest in this business.  Raising taxes on them would in no way decrease the amount of money would have to invest.  In fact, if they invest in the business you describe and make money on it they will still have more money to invest as a result.  Whether or not that money represents 60% of their investment or 65% is of little or now consequence. 

There is an enormous amount of money sitting idle in the investor class that is not being invested now.  That’s why people are buying treasuries instead of investing and the price of treasuries in so high. 

I’m glad to see the other comments here point out the falicies of your reasoning.  The reason the national and global economies are in such a mess is because there are influencial people such as yourself who have forgotten the lessons of the 1920’s and 1930’s.  Supply side economics in total nonsensence and has now been proven to be such be the events of the past 30 years.  As I have told you before you will not and can not disavow your belief in supply side economics because you earn your living advocating it to your customers. 

A person of you high intelligence and education could never actually beleive in such drivel.

Frank Blangeard
Nov. 5, 2011, 4:42 p.m.

Texas sounds like a great place. Makes me wonder though about the value of education. According to a Texas fact sheet at 24.3% of Texans have not completed high school and another 24.8% have only a high school education. ‘Some college’ accounts for another 27.6% and only 23.2% have a college degree. Despite this rather poor showing in education the household median income is $48286 (from

john boveri
Nov. 5, 2011, 4:35 p.m.

Not once do you mention the low-labor cost countries in this piece. Are you a Free Trade ideologue?
The better answer is Fair Trade - not to lower our government regulations but to insist that our trading partners meet and abide by the same regulations or they get tariffed.

Charles Yaker
Nov. 5, 2011, 4:26 p.m.

We don’t ‘t come close to agreeing but iwon’t argue with you today. I will however ask a question. When States like New Yorkand New Jersey send more money to Washington then they get back is it any surprise that States that have a more favorable federal spending level have lower overall taxes. Check it out at a Right leaning organization before you answer.

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