Category Archives: Economics

Miscellaneous economy stuff

National Competitiveness

Posted on by
Reply

James Pethokoukis had some thoughts on this in his recent AEIdeas article, “We’re #5: US gains in global competitiveness rankings.  But guess what our biggest problems are…”  In citing the World Economic Forum’s Global Competitiveness Report, he noted

After having declined for four consecutive years in the ranking, the United States reverses its downward trend, rising by two positions to take 5th place this year and overtaking the Netherlands and Sweden.

And

While the economy is getting back on track, the deleveraging process in the banking sector continues to show positive effects on the stability and efficiency of the country’s financial markets, improving from 31st three years ago to 10th this year in that pillar.

But.  There’s always a but, and Petholoukis doesn’t disappoint.  See this graph:

The graph is hard to read; the “most problematic factors” in the red box are, in order, Tax regulations, Tax rates, and Inefficient government bureaucracy.  (Note: The numbers (e.g., Tax regs’ 16.3) are businessmen responses on a scale of 1 (best) to 5 (worst), which are then weighted so that the final values for the 16 factors sum to 100.  Thus, Tax regulations can be interpreted as held roughly 16 times more important than Foreign currency regulations.  The bars visualize the numbers.)

Yet our man in the White House demands to continue raising taxes, to the point he’s willing to shut down the government and blow up our economy (he also refuses to negotiate over the debt ceiling, remember) if he can’t get more and higher taxes.  And it’s his tax collection agency that targets political groups and their speech of which he disapproves.

Hmm….

Who’s Actually Repaying Federal Loans?

Posted on by
Reply

Here’s one example.

Under the 2008 Farm Bill, the United States Department of Agriculture is required to buy sugars like refined beet sugar and sell it to ethanol producers if the sugar producers are, in the opinion of the USDA, likely to default on certain Federal loans (this requirement is unchanged by the current Farm Bill modifications wending their way through Congress).

You read that right: the Feds loan sugar producers money, then the Feds buy the producers’ output so the producers can repay the loans.  Federal money—which is to say, our money sent to the Feds as taxes—is loaned to sugar producers in support of an ethanol program that no one wants.  Then, when repaying those loans becomes inconvenient, or even impossible, more of our (tax) money is used to buy the borrowers’ output, providing them with the funds with which to pay up.  The borrowers, courtesy of…Uncle Sugar…use (our) purchase money to pay us back.  We’re screwed two times in one deal.

But wait—there’s more.  In one illustrative case,

[t]he USDA paid about $3.6 million for the sugar, which it purchased from Western Sugar Cooperative, a sugar-beet processor based in Denver, according to a notice posted on the agency’s website Friday.  Front Range Energy LLC, a Windsor, CO-based ethanol maker, paid $900,000 for the sugar, according to the USDA notice.

We’re screwed a third time.

And that’s the purpose:

By buying the sugar, the USDA aims to boost prices to a level where sugar processors will be able to repay $298 million in outstanding federal loans that come due at the end of August and September.

It really is just this barefaced.

Some Employment Numbers

Posted on by
Reply

Here are some graphs of our nearby employment history, from Express Employment Professionals, a 30-year-old provider of professionals for temporary employment.

This first graph shows the labor force participation rate since its peak in 2007.

This second graph shows the unemployment rate over the same time period.

There are two items of interest in these two graphs.  The first is that although participation rate was starting to drift down from its early 2007 peak, it didn’t get going in earnest until late summer 2008—with the unemployment rate peaking just a few months later.

The other takeaway is that the unemployment rate began drifting back down from that peak, and fairly steadily so, in concert with the labor participation rate drop-off.  While the unemployment rate has fallen by roughly 2.5 per centage points, the labor force participation rate (the denominator of the unemployment fraction) has also fallen by almost 2.5 per centage points.

Folks just aren’t able to get back to work.  More than 4 million Americans have been out of work for more than 6 months, and that number hasn’t shrunk much over these last 4, and more, years.

What kinds of jobs are being had?  Americans working part-time workers for economic reasons (they would work full-time if they could, but full-time work isn’t available) numbered some 8.2 million as recently as last July.  That’s “only” some 5.5% of those employed that month, but so far this year, there have been nearly 4.5 part-time jobs created for every full-time job.  Last year, that ratio was reversed: 0.2 part-time jobs were created for every full-time job.

We have to think about whether this is a structural change to our work environment and our labor force composition, or whether this is “just” an aspect of the continuing failed economic recovery.

A Thought on Minimum Wage

Posted on by
1

The current minimum wage is $7.25/hr, and under the guise of that being not enough to live on (it works out to about $15,000/yr before taxes), there’s move afoot to raise the minimum—to anywhere between $9/hr and $15/hr.

I’ll ignore in this post the fact that the jobs that get minimum wage are low-skill and/or entry-level jobs whose product simply isn’t worth very much money.  I’ll ignore, also, the fact that very few minimum wage earners have this job as their sole source of income—it’s a second job, intended to supplement the income from the primary job.

I want, instead, to propose a wholly radical idea: how about reducing regulations, especially for small businesses (the ones hardest hit by minimum wage laws) and lowering tax rates (of which min-wage earners aren’t paying much, but which taxes contribute to the cost of the goods min-wage earners are trying to buy)?  Those tax and regulatory costs drive up our (which includes min-wage earners) cost of living, as the cost of the things we buy is driven by those regulatory and tax costs of doing business.

Here’s a brief look at (aggregated) regulation costs for small businesses.  Daniel Sutter, a Professor of Economics at Troy University, had this information in a recent piece in the Troy Messenger:

…compliance [with Federal regulations] often requires spending on new equipment, signs, or other changes to workplaces.  Both the Competitive Enterprise Institute and Small Business Administration estimate the cost of regulations at around $1.8 trillion.  …this $1.8 trillion (largely hidden) cost of [Federal] regulatory compliance exceeds the revenue from Federal individual and corporate income taxes combined.  It represents almost 12% of GDP, or nearly $15,000 per family, annually.

There’re those $15,000, again.  Also, that aggregate cost equals 10% of the current national debt.

Sutter also had this:

Automobile dealers, for example, must comply with over forty Federal regulations affecting every aspect of their business, from the showroom to the service bays.

They aren’t even allowed to run their own businesses without the Feds looking over their shoulder, telling them how to do so.

And it goes beyond compliance costs.

Regulation reduces the freedom of individuals and businesses to innovate or create new products.  Regulation reduces productivity growth, ultimately reducing standards of living, and particularly burdens small businesses, which are the source of many new jobs.  The greatest cost is likely the new products, services and businesses that are never created because of regulation.

Now, about those taxes….

The small business owner, rather than the business itself, typically pays the taxes on the business’ income, as that, and its costs, typically are passed through to him.

A small business might have an annual income of, oh, say, $500,000—and if it’s really successful, that’ll generate a profit of $50,000.  Any salary he might take out of the business is on top of that, but let’s ignore salary and only concern ourselves with the income tax on that profit.  On those $50k, he’ll pay roughly $8,400 in ordinary income tax—nearly 17% of that profit ultimately lost to the government—at 2013 single rates.  At married, filing jointly, the bite will be roughly $6,600—13% of his profit lost.

Rather than raising the minimum wage, and pricing the worker out of the labor market, it’d be better to enable the existing wage to go farther by getting rid of all those Federal regulations, and their costs, and lowering tax rates.

Executive Pay and Jobs

Posted on by
Reply

TJ Rogers, Founder and CEO of Cypress Semiconductor, wrote in part about executive pay and income taxes in his experience in a Wall Street Journal op-ed a while ago.

A couple of years ago, I decided to invest in my hometown of Oshkosh, Wis., by building a $1.2 million lakefront restaurant.  That restaurant now permanently employs 65 people at an investment of $18,000 per job, a figure consistent with US small businesses.  If progressive taxation in the name of “fairness” had taken my “extra” $1.2 million and spent it on a government stimulus program, would 65 jobs have been created?

According to recent Congressional Budget Office statistics on the Obama administration’s 2009 stimulus program, each job created has cost between $500,000 and $4 million.  Thus, my $1.2 million, taxed and respent on a government project of uncertain duration, would have created about one job, possibly two, and not the 65 sustainable jobs that my private investment did.

On the other end of the capital-intensity scale, Cypress Semiconductor required huge investments to create jobs in its chip-manufacturing plants.  Between 1983 and 2003, those investments totaled $797 million and led to the creation of 4,033 jobs at an investment of $198,000 per job created.  Thus, my own experience on the cost of job creation ranges from $18,000 to $198,000 per job, compared with $500,000 to $4 million per job created by the Obama stimulus program.

That got me thinking about CEO compensation and the number of employees working for the CEO’s company more generally—how much was the CEO paid per employee on the payroll for stable companies that were not (yet, or anymore) actively investing in plant expansion?

Here, for some not very randomly selected large corporations, are CEO compensation, total employees in the company, and the CEO’s compensation per employee.  The data, for the year 2011 (except as noted), are from CNN Money.

Company

CEO Total Compensation

Total Employees

CEO $ Per Employee
GE

$21.4 million

287,000

$74.6
Wal Mart Stores

$17.7 million

2,200,000

$8.0
Exxon Mobil Corp

$29 million

(2010)

99,100

$292.6
AT&T Inc

$27.3 million

256,420

$106.5
UnitedHealth Group Inc

$10.8 million

99,000

$109.1

 

Here are the same data for small businesses (contra Rogers’ example, fewer than 25 employees), averaged across selected industries.  The CEO $ per employee is figured, naively, on 15 employees, since most small businesses won’t have 24 employees, and 15 made the arithmetic easier than 12 (the mid-point of the employee range).

Industry

CEO Total Compensation

CEO $ Per Employee
Business Services

$138,000

$9,200
Construction

$148,500

$9,900
Healthcare

$130,800

$8,720
Retail & Wholesale

$175,300

$11,690
Internet

$131,900

$8,795

 

These guys, despite being an order of magnitude, or two, more expensive than a large corporation CEO on a per job basis, still are enormously more efficient job creators than the Federal government.

The real takeaway, though, from these two tables has to do with the compensation “disparity” between CEOs and line workers, especially concerning those highly paid large corporation MFWICs.  Given the hiring rates they’re generating, they seem to be worth their pay.  (And none of this disputes the thesis that it’s small businesses that are the engines of economic growth and employment hiring.  It’s a whole lot easier to ramp up a small business than it is a large one.)