The Job Solution

Unemployment and underemployment in the US is between 15% and 20% of the workforce. I favor the higher number because I suspect many, many people who could be productive and want to work simply believe that no meaningful work exists that can cover the costs of working. This problem took a catastrophic leap upward in the recent Great Recession

The Great Recession was caused by the Panic of 2008 which was in turn caused by the financial vikings on the Street and in the hedge funds; the hedge funds were funded by the wealthy wanting more money without making productive investments. But the causes are not part of the solution; they are mostly irrelevant.

The solution is ... a combination of policies, of course. No silver bullet.

The Job Solution

I. Stop taxing jobs, completely. That means no more taxes paid on employment income for Social Security, Medicare, unemployment benefits or any other direct or indirect tax on jobs. This will make the cost of hiring people much lower.
II. Eliminate the connection between health care and jobs. That bond prevents people from changing jobs to move on to either better jobs or starting their own businesses. It also increases the cost of employment enormously.
III. Social Security, Medicare AND a new National Shared Heath Care Benefit will be funded by a new Value-added or Sales tax on goods (especially imported goods) and many services (especially imported services). Consumers of imported goods and services now get a free ride - they are freeloaders. Make them pay a fair share to support the American System.
IV. Eliminate all tax subsidies for equipment and machinery (accelerated depreciation, etc.). Eliminate the overseas income tax loopholes. Eliminate tax loopholes for hedge fund managers.
V. Eliminate tax deductions for any compensation above the salary of the President. This will lower the costs of employing many people at middle income wages/salaries vs. the executive suite.
VI. Require compensation committees of corporations to have a majority of true outsiders nominated and drawn from the ranks of INDIVIDUAL shareholders. Require all corporate votes to be secret ballots.
VII. Require any incentive executive pay to have clawback provisions and to included the effects of ANY so-called nonrecurring losses. Require mandatory stockholder votes to approve ANY incentive plans offering pay in excess of the President's salary. These votes are binding. For any plan that loses, the compensation committee is fired and a new committee is formed.
VIII. Require any corporation wishing to bring in immigrants for so-called "hard to fill" jobs first offer the job broadly at a 10% pay increase AND offer job training for any special requirements; provide an arbitration board to protect against unfair or excessively tailored job descriptions.
IX. Eliminate all Federal & State regulations that kick in at some number of jobs, like 50. Those hold down the number of jobs and encourage using high paid employees supported by machines, vs. simple jobs for more people.
X. Eliminate the R&D tax credit and replace it with a Job Training credit.

All these policies will lower the cost of hiring people and increase the demand for people vs. machines. that's what we want. And it frees the entrepreneurial energy of millions of people stuck in dead end jobs with "benefits". The Job Solution will permanently lower the unemployment and underemployment rates. Entrepreneurs will be more free to hire people as hiring becomes simple and direct, with no red tape. The cost of replacing people with machines goes up. By equating the W-2 worker with the 1099 worker, employers will want to hire more people to lock in their services; there will be NO benefit to keeping people on 1099 contracts.

Education is part of the job problem. It's also part of the transportation problem. I will address those matters next week.

EXTRA

Any global warming Kool-Aid crowd: check this out ->
http://motls.blogspot.com/2011/02/global-uah-amsu-january-2011-cooler.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+LuboMotlsReferenceFrame+%28Lubos+Motl%27s+reference+frame%29

A data stake into the heart of AlGore's propaganda machine.

Word of the Day

"Mimetic" - adjective [$10]
Mimetic means relating to or habitually practicing imitation or mimicry; 2. (Biol.) of or relating to mimicry.
Sentence: The American "leaders" must stop acting as being mimetic is not patriot; stop the "not-invented-here" syndrome. We have a lot to learn from GERMAN employment and education practices. GERMAN unemployment fell to a record low not seen since reunification in 1990. Let's analyze GERMAN policies to see which can help here.

Reforms II. Funding the Government.

US Federal government funding is completely out of balance. Nearly all its revenues come from taxes on incomes of one kind or another: personal income taxes, corporate income taxes, and taxes on employment earnings. Europe does not do this; its funding mechanisms include big value added taxes to spread the cost of government much more broadly. Value added taxes even make consumers of imports pay for the cost of government, while in the US, consumers of imports get a free ride.

Historically, the US government was funded by tariffs and excise taxes on specific good and services. Perhaps coincidentally, the US had enormous economic growth then. All that changed when taxes on incomes were made constitutional.

The funding imbalance causes huge losses to the US economy and people. Taxes on jobs reduces the number of jobs; letting import consumption get a free ride hurts US based production and ... costs more good jobs.

The US needs to re-balance its funding sources. How?

1. Eliminate ALL taxes on jobs: no Social Security taxes, no Medicare taxes, no other taxes on employment earnings.

2. Put on a big, European style value added tax - or excise tax - on everything, including imports: something in the range of 10-15% could work. The rich would pay a lot as they spend their money; even old art would be taxed.

3. Reform the personal income tax to (A) eliminate ALL deductions and ALL adjustments to income, (B) put in a BIG personal exemption, perhaps $20,000 for each adult and $5,000 per child, and (C) lower the rate to something like 15%. Tax ALL personal income equally, including municipal bonds.

4. Corporate tax reforms: (I) eliminate the deduction for interest expense (must be phased in over time) except for (a) banks and finance companies (as interest for them is an ordinary cost of business) and (b) working capital loans; (II) tax US corporations on worldwide income - no more free ride on income in foreign lands; (III) eliminate deductions for ANY compensation above a fixed number such as the salary of the US President; (IV) permit expensing of all machinery and equipment as paid; (V) lower the corporate rate to something like 15%; (VI) include a big small business exemption of something like $1 million; (VII) move all other deductions for business expenses to a cash basis (this will simplify everything).

5. Estate Taxes: (I) eliminate this entirely, but (II) require all capital gains be realized on death and the taxes paid. Eliminate gift taxes.

6. Foundations: require all foundations to expend ALL monies within 21 years of creation - no perpetual tax free institutions. This eliminates the creation of modern day monasteries owning everything, and fairly quickly recycles all the wealth of the Ruling Class.

This system of funding the government is simple, containing only a few rates and variables such as the exemption levels. It has LOW rates and is fair to the common man and woman. It removes tax subsidies for the Ruling Classes and big corporations. It removes taxes on jobs and even has a simple incentive to hire more people below the executive suite.

TOMORROW: The safety net for the common man and woman.

Word of the Day

"Piacular" - adjective [$10] formal.
Piacular means expiatory; 2. needing expiation.
Sentence: Tossing salt over one's left shoulder after spilling salt is a simple, piacular sacrifice: a bit more salt is lost, but the demons are appeased. [Salt was a very valuable commodity in ancient times.]

Thinking Outside the Box

For all the big talk about doing this, no major figure in the public debate in the US seems to do it, ever. Even the so-called "Think Tanks" don't.

Last year the US was embroiled in a long "debate" on health care. But there was no debate, no presentation of well-argued positions, no evidence for positions was provided. The "debate" had the intellectual content of a football sports bar dialogue over a few beers. The P-O-R crowd hid behind closed doors and wrote a "plan" with the help of the lobbyists. The Rs bloviated against "socialized medicine". Did anyone look around the world for plans or systems that work ... better than what we have ? Nope. France and Germany have workable systems with very, very high public support. Who bothered to assess if all or parts could be applied here ? No one.

Take tax "reform". Does anyone with experience actually doing tax returns provide input ? Nope. All the players are economists and lobbyists who have agendas. Do you realize the US has multiple systems taxing "income" ? [regular income, minimum income, 'earned' income, capital income .. and then the corporate income] Why ? The complexity and unfairness is huge. Potential for favors and corruption are enormous. Dislocations and unfairness abound. Who among the blatherers knows that a retired person making around $35,000 a year can face marginal tax rates in the mid 40% range ? That's more than any billionaire.

Rs say the poor pay little or no tax. They are either stupid of liars. The working poor pay plenty in the form of social security taxes and medicare taxes. Those taxes come off the top, before ANY deductions. The Rs love to talk about the 'employer' payments when they talk about costs: they say it is really paid by the worker. YET they somehow forget that when it comes to assessing how much tax the working poor.

How much tax does a billionaire pay who owns municipal bonds ? Zero. He pays NOTHING for support of old people, for medical care of old people, nothing for national defense, etc. He's a total freeloader. YET who in the DC chattering classes talks about "fairness" in taxing that freeloader ? No one.

Any tax "reform" that does not unify and simply the systems is fraud. A simple, unified income tax at a low rate with a high exemption for the poor PLUS a value added tax would be fair. All would pay something. The value added tax would pay for Social Security AND a unified Shared Health Care Benefit. Taxes would be fair and collect plenty of money. Double taxation and loopholes would cease.

That is thinking outside the box.

Hey DC, read this blog !!!

Actions

I sold a bushel of TIPs [Treasury Inflation Protected securities] yesterday at a good price. The proceeds were put into a money fund. Krypto now have lots of cash to buy stocks on this dip. On a further rally in TIPs prices, I will sell more. The TIPs allocation in Krypto Fund is now 7.5%, down from a high of 12.5%. I have done the reduction in two steps, and will cut the allocation to 5% on a further significant move up in the price of TIPs.

My buying of US stocks will begin when the S&P gets closer to 1000. As always, I will buy in stages. Time diversification rules.

Word of the Day

"Obstreperous" - adjective [$10]
Obstreperous means 1. uncontrollably noisy, clamorous; 2. stubbornly defiant, unruly.
Sentence: The Tea Parties need more intellectual content to focus their obstreperous natures in order to expand support to the political center and win major elections - not just primary elections.

Summer Rally Continues

Another big up day occurred yesterday, and Intel's good earnings overnight is leading to substantially higher futures this morning.

I guess the permabears were wrong. Someone is buying all those chips. I wonder ... companies buying technology to increase productivity and avoid hiring people ... hmmmm. Could be.

Obama has reinforced the trend of government impositions that make people a big liability for companies - not good for job growth. That health care bill makes employment costs look worse as far as the eye can see, particularly for small business. Why force all that cost onto companies ? It simply makes no sense. A company can off-shore jobs and avoid that cost. It can buy technology to produce services in India. Who loses ? The US worker.

I have no problem with a national health care benefit for the people, but it should be funded directly and not foisted onto companies. Get rid of ALL the taxes on jobs and replace them ALL with a value added tax. This would make consumption of imports bear part of the cost. This must be done or US job growth will stagnate for years.

Actions

Krypto has the same sell order for me. It's still a weak signal, but getting stronger. Waiting ...

Stupidity of Billionaires

I heard a billionaire speak ... the press likes us to bow down them like gods. Not me. John Malone said that he respects Al Gore's intellect and that Al Gore really did invent the Internet with his work in Congress.

What a FOOL !!! The Internet was created by the Defense Department in the late 1960s and early 1970s ARPANET - Advanced Research Project Agency Network by MIT and the Department of Defense. I personally remember graduate students and postdocs at Harvard using it in the mid 1970s.

By his own words, billionaire John Malone is a FOOL !

Word of the Day

"Sesquipedalian" - adjective [$10]
Sesquipedalian means 1. long and cumbersome: polysyllabic; 2. tending to use long words.
Sentence: The more vocabulary one learns, the more one becomes sequipedalian. Here's an example of chiasmus (an AB:BA structure) - Using a word like 'sequipedalian' is sequipedalian word usage.

[ Bman stumped the Google spellchecker again :)) ]