WSJ: The Great American Jobs Machine--U.S. has fewer taxes and regulations onerous for employers

Wall Street Journal ^ | August 8, 2005 | Editorial

[Reaganghost]

"If the government defaults on it's unfunded liabilities or raises my taxes to pay for it, how does that affect household net worth? It doesn't. How does it affect the value of the dollar? Again, it doesn't."

If you actually believe these two statements are defensible, it is a waste of everybody's time and FreeRepublic's bandwidth to continue the discussion.

"What will cause the bond market to drop, rising interest rates? Are higher interest rates going to hurt both the bond and stock markets? How do you know?

Ditto.

"Thanks again for the chart but within the proper context it really isn't as scary as you want to make it. Maybe you'll start sleeping better now."

For what it's worth:

• Ignore anything written by Kudlow.
• Watch the price of gold, it's the only real currency.
• I may not have the timing or even the direction precisely right, but if Alan sticks to raising rates, the price of gold should gradually fall. When Alan stops raising rates, buy gold. When Alan or his successor cuts rates or is likely to cut rates, buy more gold.
• If by some miracle the price of gold falls during any of the rate cutting time, buy even more gold.
• At some point over the next five years, and certainly prior to 2012, if the United States has not embarked on some program of privatizing Social Security and eliminating Medicare all together, the entire cash portion of your portfolio should be held in gold and some part of your asset portfolio should hopefully be denominated in something other than dollars, preferrable yen or yuan.
• By 2010, at the latest, I would want to own some silver.
• Any household that needs two paychecks to cover their debt service, has too much debt for current conditions.
• If I knew you were going to follow this advice, we could both sleep better.
• I have no financial credentials, training or certification of any kind, but I can read and I can certainly think.

[Reaganghost]

"Sounds like you don't understand the difference between external debt and unfunded liabilities. Or how either one impacts household net worth.

Perhaps not, but by 2016, I suspect most Americans will understand that the Gokhale-Smetters unfunded liabilities for Social Security and Medicare are exactly analogous to the off-balance sheet liabilities of Enron and that what happened to Enron will prove to be an excellent metaphor for what is going to happen to the United States if we don't abandon socialism.

When the unfunded liabilities begin to mature and have to be funded with cash, you will understand the difference between the external debt and unfunded liabilities and how they will impact household net worth. And when the government begins to monetize those unfunded liabilities, you will learn how it impacts household net worth, but it will be too late.

[expat_panama]

FWIW, I just heard Kudlow's coming up on Laura Ingram this morning.

[Paul Ross]

You completely FAILED to meet the challenge. NOT ONE IOTA OF PROOF.

I told you to forget about DOLLAR expressions of the so-called productivity. Let's see REAL productivity. I.e., the Numbers of widgits actually produced. Actually Made here in the U.S. And not with foreign components. And if so, you must count the number and time-input of foreign workers against the man-hour productivity....and compare that drastically lowered productivity level versus what we used to have before the relocation movement got going.

You can't do it.

Mogumbu is right.

[Paul Ross]

I should mention that Barlett repeats so many shibboleths of the Importer's Lobby, for example the completely debunked steel importers lobby...that he has ZERO credibility.

When he says things like this: "The United States is producing more "things" than we have in almost every year for which we have data. "...except he can't point to ANY of these "things". Come on, let's see the number of civilian planes produced. Or even military. Where are they?

He can only point to DOLLARs attributed to the sales of the product per employee, that apportionment giving the productivity figure.

And then he practices, along with Greenspan BTW, a very invidious deception.

They supposedly just subtract the imported subcomponentry...dollar for dollar... from the final sales price, hence attempting to deflate for the skewing affect of that result of offshoring inflating productivity.

But that approach is completely invalid.

The actualy required approach is that the components made abroad need to be re-priced at what the U.S. equivalent would be.

THEN, and only then, will you get a sense of how we are in fact diminishing our manufacturing base. The base that used to make the subcomponents now off-shored.

The residual employees naturally being a much smaller base, more at the high-end, will appear to be making more value...

Here is a helpful hypothetical: I.e., let's postulate that the entire manufacturing cycle of a formerly U.S. company is off-shored...with just one employee in the company HQ tasked with managing it. He is listed as the only "manufacturing" employee. His "productivity" has just shot through the roof...as all of the value of the sold items is attributed to him. The value of the Chinese subcomponentry, at say 1/3 the price of domestic manufacture subtracted from the FULL price that the Company is charging for the widgits. But the remaining value is still is inflated by the end-processing of slapping the U.S. label on it, and shipping it to the customer. Is the company making anything in the US anymore? No. Is the U.S. really increasing productivity? From a capital standpoint, it would appear so. But from a manufacturing technology standpoint, not at all, in fact is likely going backwards.

Productivity in man-hour terms, not dollar-unit terms requires actual production. And that production is not taking place in the U.S. in the hypothetical.

That is what the economic donkeys of your side fail to understand, or care about. Constantly whining about expensive U.S. production....

[bvw]

As the re-fi and mortgage hot air blimps descend, we can all start examining the rugs on the floor so as to learn how to make them. Yarn is cheap. We can hire some Afghani tutors.

The point is we have to start someplace.

[Mase]

If you actually believe these two statements are defensible, it is a waste of everybody's time and FreeRepublic's bandwidth to continue the discussion.

You refuse to answer the question here but on your very next post you admit you don't know the difference between external debt and unfunded liabilities. If the govt. decides not to give me my social security payments in 20 years, how will that reduce my net worth? It won't. Your use of bandwidth here has only served to expose your own ignorance.

Ditto.

Are you trying to tell us that rising interest rates always portend a falling stock market? Why will a falling bond market hurt equity investors? What exactly are you trying to say, do you even know?

Maybe you could explain to all of us here why Kudlow is wrong in the article I linked. Shouldn't be hard for someone as knowledgeable as you. I remember getting the same advice regarding gold back in the 80's. Here's what Kudlow has to say about gold as an investment since then:

For even more perspective, since 1980 when the U.S. embarked on “cowboy capitalism” -- meaning Ronald Reagan’s policies of low tax rates, deregulation, free trade, price stability, and massive entrepreneurship that lead to Schumpeterian gales of creative destruction -- the widest profit margins in the world have attracted investment inflows from the four corners of the globe. Consequently, the dollar has appreciated 200 percent over the past 24 years.

Adjusted for inflation, the price of gold during this period has dropped from $1,264 an ounce to today’s $430, a decline of 66 percent for the yellow metal. So much for inflation. As for wealth-creation and the health of American business, the S&P 500 stock market average increased 950 percent during this long period.

Good thing I didn't listen to the gold bugs back then. Probably won't start now.

[Toddsterpatriot]

When the unfunded liabilities begin to mature and have to be funded with cash, you will understand the difference between the external debt and unfunded liabilities and how they will impact household net worth.

I'll speak slowly, because you're a gold bug. Let's say household net worth is $49 trillion and the Social Security unfunded liability is $10 trillion. If the Fed's raise taxes by $10 trillion and take the money and give it to Soc Sec recipients, household net worth is still $49 trillion. If the government defaults on Social Security, household net worth is still $49 trillion.

I have no financial credentials, training or certification of any kind, but I can read and I can certainly think.

Don't forget, no financial understanding either.

[Toddsterpatriot]

Actually the latter news item...manufacturing... , even with the cooked numbers, has been declining the last two months.

According to what source? Realize you're wrong again?

[superiorslots]

Quote: I know engineers who have started up home improvement companies, started restaurants, gone into the motel business, or do what I do, consultant work in my chosen field.



This is good?? Highly trained engineers going into the restraunt and hotel business?? That says volumnes about the new jobs being created and our future economy.

[superiorslots]

Quote: In fact, it occurs to me as I type this that the ones who complain the loudest have never been unemployed in their lives.


So you have to be unemployed to complain?? What about being concerned for your fellow american??

I've never been robbed but I think we need police and would be concerned if we did not have them.

[stocksthatgoup]

Don't worry Wisconsin's Gov Doyle will continue to test the old model of higher taxes and regulations.

[Final Authority]

First of all, they may not be highly trained as they may have gotten an education in some state university from a southern state. Secondly, they have a potential for a bigger upside in life by starting ones own business. It is called ambition and most people have little as they expect to get a job with all the benefits set out before them, cradle to grave, and get a retirement check when they finally put their years in, sort of like the public trough from which so many feed.

Take a trip to a marina some day and have a look at all of the 30 to 50 foot yachts and tell me that those people who own them are either salary workers, like engineers, or hourly workers, like machinists, or, are they self employed individuals who make real money like a self employed plumber, carpenter, electrician, etc..

[Reaganghost]

"I'll speak slowly, because you're a gold bug..Don't forget, no financial understanding either."

An implied error and an implicit error. Better to remain silent and be thought a fool than to open your mouth and remove all doubt. Looking down on gold bugs is proof that you have a great deal to learn about finance. You will have to learn elsewhere, I have neither the time nor the inclination to help.

The political ramifications of this thread are a different matter. Your ignorance of government behavior needs some attention and to the small extent that it overlaps personal finance, I will help with that as well.

I will try to speak slowly so you can follow the discussion. Government will not default in the sense of repudiating the Social Security liability. If there is a shortfall in income, government will borrow or print sufficient money to pay the obligation. Borrowing only pushes the payment further into the future when it will be taxed from your heirs or ultimately be paid by printing money. Household net worth (hnw) is a summation of assets. Assets fluctuate in value. What is valued at $49 Trillion today may only be $25 Trillion tomorrow. Even the purchasing power of your cash is subject to change. When the government prints more of those dollar bills, each already existing dollar bill will buy less. Even if hnw remains at $49 T, it might purchase only $25 T worth of goods and services tomorrow. By the way, that $10 Trillion of Social Security is a drop in the bucket compared to Medicare. Together there is a chance that their net present value already exceeds that $49 Trillion of hnw and maybe by a wide margin. If government takes enough of your income that your income no longer covers your standard of living, your net worth or your standard of living or more likely both are going to fall.

I will go especially slow here, because this is the fundamental basis of capitalism and the point of the discussion. As hnw falls, there is less of a reservoir of capital to fund research, new equipment, or new manufacturing techniques that will allow Americans to have enough productivity in their jobs to be able to compete with a Chinese worker willing to work for a dollar a day. When government actions lower household income, it is harder for households to save. Lower savings means less capital to increase productivity. Shrinking savings or shrinking the purchasing power of savings is a guaranteed ticket to lower standards of living.

Go back and read all that again. If you can grasp all of that, then at the lowest common denominator, the historically proven safest form of protection from government's power to print currency is gold. There is a limit as to how much borrowing and taxing the public will tolerate. Politician's have no limits on their desires to promise or spend. Spending has always exceeded the public's tolerance of taxing and borrowing.

The reason Americans don't know how to plan for retirement is that no one can know how much savings and income from investment will be needed to overcome the destruction of hnw by the government's borrowing and printing. It's that little plug number that nobody can do anything but guess at. Before 1913, Americans did not have that problem. There have been three phases to the dollar:

• Not worth a continental
• Sound as a dollar
• It's our currency, but it's your problem

We are presently in the third phase. You don't want to see the fourth phase, and you certainly don't want your children or grandchildren to see it. The Founders recognized that the power to tax is the power to destroy. The power to inflate is even worse. Inflation creates the illusion of wealth while it quietly transfers your purchasing power to government. The politicians that run the government use that purchasing power to buy the votes they need to get themselves re-elected. If politicians had good ideas, they wouldn't need to buy votes. Socialism is a viscious cycle that eventually impoverishes everyone. Socialism is the economic equivalent of cancer. "Professional" politicians are the cause, and the sole means of spread.

Section. 8, Clause 5: To coin Money-Note that it doesn't say print money. The War on Terror is more than a smoke screen, but the real threat to the American people is the government of the United States which has almost completely escaped its Constitutional restraints. Ignorance of the Constitution and our history is the problem that allows "professional" politicians to continue their malicious assualt on the Constitution. Use that link to the Constitution and this link to educate yourself. I hope you will take this opportunity to become part of the solution instead of part of the problem.

[Toddsterpatriot]

Household net worth (hnw) is a summation of assets.

Correct

Assets fluctuate in value.

Correct

What is valued at $49 Trillion today may only be $25 Trillion tomorrow.

Correct

Even the purchasing power of your cash is subject to change.

Correct

When the government prints more of those dollar bills, each already existing dollar bill will buy less.

Correct

Even if hnw remains at $49 T, it might purchase only $25 T worth of goods and services tomorrow.

You make me laugh. If your assets sell for $49T they can buy $49T.

Together there is a chance that their net present value already exceeds that $49 Trillion of hnw and maybe by a wide margin.

That's entirely possible.

If government takes enough of your income that your income no longer covers your standard of living, your net worth or your standard of living or more likely both are going to fall.

This is true, but you over-analyze my point. US household net worth is the sum total of the net worth of every American. If the government takes money out of my pocket and puts it in my parent's pocket the net impact on household net worth is zero.

If you can grasp all of that, then at the lowest common denominator, the historically proven safest form of protection from government's power to print currency is gold.

Obviously.

Yup, since 1980 gold trounced the performance of the S&P 500. And I love the dividend gold pays. Keep buying that gold.

Better to remain silent and be thought a fool than to open your mouth and remove all doubt.

Good advice, too bad you didn't follow it.

[Reaganghost]

"You make me laugh. If your assets sell for $49T they can buy $49T."

One last parting comment: If you examine the chart of the NASDAQ

you will note that people who bought in 2000 and sold in 2002 suffered a lose in their purchasing power. And if I am correct about what I believe is going to happen in the future, you are going to see that people who own the S&P are going to suffer a loss of some substance over the next few years. In fact, I will predict that it might be a decade before the S&P gets back to its current level after the next leg of the bear market. It was about two decades before the DOW recovered from the last depression. Right now it takes almost 25 ounces of gold to buy the DOW. Sometime over the next decade, we will almost certainly see a time when it will it will take less than five ounces of gold to buy the DOW. During the last depression, we saw a time when it only took one ounce of gold to buy the DOW. I won't be shocked to see it happen again.

By 1984, I was debt free. I retired at age 44 in 1986. I have doubled my net worth since then. Assets go up and down, whether they are gold, stocks or cash. If you track gold and the stock market, you will note that, not always, but in general they tend to trade inversely with each other. My advice would be that this is an excellent time to sell some stocks. And sometime before the end of the year, probably October or November, would be an excellent time to convert the cash from the stocks into ounces of gold. I expect to still be around five years from now. Touch bases with me then and let me know if I owe you an apology or you can thank me when the time comes.

[Reaganghost]

Before I replied, I had not checked in on the markets today. I note that gold is up sharply. I have made over $8,000 today; how are you faring?

[stocksthatgoup]

[Toddsterpatriot]

Great Nasdaq chart. If you look at the far left, you'll see the Nasdaq in October 1984 was near 250. Last month it closed at 2157. That looks like about a 760% gain. What did gold do over the same period? 30% gain? 40% gain?

[Toddsterpatriot]

You have 1000 oz of gold? You're a brave man. I'm doing just fine, thanks.