American Monkey Business

(faqs.org)
(faqs.org)

By: Wayne Brown

How many bad ideas can you generate before people quit following your lead?  I found myself wondering about this yesterday as President Obama announced his ideas for spending $50 billion dollars on the infrastructure as an extension of the stimulus spending process.  It wasn’t enough to just redirect some of the $300 billion dollars in original stimulus money to this project, which by the way, seems to be just sitting idle waiting for someone to come up with a way to waste it.  Have you ever noticed that government runs on a one-way road?  Once we decide to do something, we don’t turn around even when it proves to be a bad idea.  How many bad ideas add up to a lack of leadership skill?  We should know the answer to that one by now.

 

Consumer spending is shutting down slowly in the USA.  Business investments have slowed.  When those two things occur generally the economy goes into a recession and tends to hang there until there are changes that stimulate both of these factors.  Part of the consumer spending issue is driven heavily by those who have either lost their employment or who are living in fear of losing their employment.  The consumer is preparing for the worst.  Consumers force businesses to prepare for the worst as well.  In this case, you could call it a “trickle up” effect which starts at the lowest level of the economy and works its way to the top of industry.

 

The above noted situation makes the lack of jobs in our economy the number one concern in getting things moving again.  Never mind the stimulus spending package which threw away $800+ billion dollars of the taxpayer money.  The real emphasis there was never on job creation and this administration knows it.  The stimulus package was all about bail out in the financial and housing sector and it continues to be about that, especially in housing, where the president is proposing to bail out homeowners who have lost home equity value.  The administration has dumped tons of money into Freddie Mac and Fannie Mae when it should have long since let them go. These are outmoded institutions that really have no basis for existence in our current world with the exception of mishandling taxpayer dollars.  Most likely, the $300 billion that is sitting idle in the stimulus package will eventually flow down this drain to the sewers of waste.

 

Meanwhile, the President looks for more ways to toss taxpayer money out knowing that it will be caught by groups like unions, etc. who represents significant voting blocks for the upcoming election.  Again, here is yet another example of Washington using taxpayer dollars to buy votes.  Infrastructure construction is only going to funnel funds in particular directions within the government food chain.  In many cases, it will have minimal trickle down effect within the economy.  In the meantime, many businesses hang in limbo existing in fear of increased taxation and the impact of government run healthcare.  These questions go unanswered by the current administration as talk continues about dropping the Bush tax cuts on over one-third of the small businesses in the country.  This may be the “utopian bad idea” for this administration.  Without motivating this sector of American business, the American economy will continue to languish in recession with slow minimal growth, if any.

 

This administration has the oil industry in limbo and current discussions indicate more tax increases for the American oil producers.  Here again, we have another bad idea about to be put into action.  This move to raise taxes on the oil industry will artificially inflate the price of gasoline at the pump and eventually trickle down into the consumer’s pocketbook.  This move can only further depress consumer spending and continue to stall the economy.  Here again is another bad idea in the making.

 

Politicians can argue economic theory all day with regard to whether the market is supply side driven by the producer or demand side driven by the consumer.  If supply exists and there is no demand, then producer cash flows dry up and companies either cut back or go out of business while existing inventories languish on the shelf.  If demand exists and there is a low supply, prices generally go up until demand levels off.  If demand is limited and there is a good supply then price wars may be the order of the day as producers compete for the limited consumer business.

 

 All of these scenarios come with a different set of circumstances, constraints, and potential woes.  The point here is to say, there is not one economic model that fits all.   In fact, in a country the size of the USA, there may not be one economic theory that will best fit the need of the entire nation.  Too many politicians are not willing to accept this reasoning and far too many of them believe the government is the best party to analyze the economics and apply solutions.  Unfortunately, this is far too often a bad decision in the making.  Economic markets fare better when left to their own natural rhythm.

 

We cannot tax our way out of a recession.  Washington apparently does not subscribe to this thinking at the present.  The suggestions that are being put forth today say “let’s tax the business sector so the government will have the funds to provide supplements to the business sector to stimulate job growth.  In some sectors, this would be referred to as a “circular error” in thinking.  The government cannot take money from a given sector of the economy only to give it back under some other premise and expect that it will improve anything.  To do this is nothing but a bad idea in the making.

 

We can argue all day about the Bush tax cuts and the implications they have for small business in this country.  In fact, if this administration lets the cuts lapse for those business grossing over $250,000 annually, the claim is they are “only taxing the rich”.  In truth, they will be taxing mom and pop in many instances.  Many small businesses operate as Sub-Chapter S Corporation.  Under the terms of this corporate charter, the stockholders must receive all proceeds of the assets of the corporation on an annual basis. Basically, this type of corporation has no “retained earning” or asset value over time.  This is typical of a small “mom and pop” business that might gross $500,000 per year in sales.  Eventually, that gross sales figure ends up as the “taxable income” for mom and pop for the year.  Some people would consider them rich while others realize that total receipts have little to do with net income.

 

Consider that mom and pop have a few employees which generate payroll, FICA tax, Social Security, and Medicare taxes.  The employer is matching those taxes of the employee.  Of course there is also operating cost like rent, electricity, water, broken down machinery, transportation, etc.  Eventually, when we take all of these things out, we get down to the bottom line which is really “the unretained earnings” of the corporation or better known as what mom and pop get paid.  One might be surprised to find out how little that amount might be in many businesses of this size.

 

In most businesses, payroll and associated taxes plus benefits will take as much as 30-35% of the total revenue.  Products and supplies necessary for the business to produce will eat up another 30% to 35% leaving mom pop with about 30 to 40% of the pie with which to pay the operating cost like electricity, rent, etc and derive a personal income.  In most businesses with a $500,000 annual sales business, mom and pop will be lucky to gain a net bottom line of 5% to 10% of the gross income.  For most of us, that is not a lot of money, in this case $25,000 to $50,000 dollars possibly. This may be all the business owner receives or it may be in addition to a modest salary included in the payroll.  From a Washington politicians’ view, “we are taxing the rich” in this scenario.  Obviously, doing so is another bad idea in the making.

 

If the tax cuts expire, mom and pop’s income does not increase.  If their sales remain the same, eventually the increase in taxes must to come from the net bottom line of mom and pop’s share of the proceeds.  In effect, what this does over the course of the year is cause mom and pop to pay more tax money into their quarterly submissions.  This reduces cash flow and could possibly result in someone in the company losing their job to offset the increased impact on cash flow.  It also may push cash flow demand to a point where mom and pop will have to raise prices in the hope of capturing more gross sales to cover cash flow demand.  If consumer demand is soft, that may not work.  In fact, it could work to reduce the overall annual revenue as a result of the price increase further cramping mom and pop’s ability to survive as a business.  In the end, letting tax cuts to small businesses expire is a bad idea in the making.

 

When we look around our country and ask a few questions such as “what is wrong with the housing industry”, one quickly concludes that it is “the government”.  “What is wrong with the financial industry?”  Could it be the government?  Soon we’ll be saying “what is wrong with the oil and gas industry…the government?   What is wrong with the consumer….the government?

 

Government needs to get out of the way of business.  Government needs to get out of the way of the consumer.  Government needs to get out of the business of trying to manage the economy.  Government needs to get back to doing what government was designed to do: provide a military; protect the citizens against harm and provide an infrastructure in which commerce can function.  Outside of those items, government needs to get out of our life.  Otherwise, anything else the government intends to do for us good citizens is just “another bad idea in the making.”

 

 

© Copyright WBrown2010. All Rights Reserved.

 

More by this Author


Comments 21 comments

breakfastpop profile image

breakfastpop 6 years ago

Brilliant review of the mess we are in. Send it to the clowns in Washington who are completely clueless about running this nation, unless it's running it into the ground. Thumbs up, Wayne.


RunAbstract profile image

RunAbstract 6 years ago from USA

I love the way you tend to stay on top of the issues, and report on what is going on in terms that anyone can understand. I also enjoy your opinions on the same.

At this time in current events, it may be wise to look at the past.

When the German economy was on the rocks, employment was "stimulated" with the building and maintainance of roads and railways. (Sound recently familiar?) Great way for folks in the hungry public to make some money to feed their families.

But all that "good" work was done just before the Holocaust began. Spooky to me.


Tom Whitworth profile image

Tom Whitworth 6 years ago from Moundsville, WV

Wayne, by now it's plain as the nose on your face, Obama won't be satisfied until he get's it all!!!!!!!!!!


Wayne Brown profile image

Wayne Brown 6 years ago from Texas Author

@breakfastpop...We need some folks up there that do have business heads then maybe the government will have some positive cash flow! Thanks Poppy! WB

@RunAbstract...Thank you for those nice words. I am really not that politically driven but sometimes my cup runeth over and I have to vent. Infrastructure investment is something the government should drive but at this point I do not see that move creating the amount of job stimulus needed in the country. We have to get the production worker back on the assembly line to really get jobs moving. In addition, many of these government contracts will be stipulated by regulation to go to companies which are "unionized" thus it will probably not put too many of us "common folks" back to work. The unions look favorably on this move and that is the basis for it with elections coming up. Otherwise, there is no great intellectual insight going on here. Everybody knows we need to improve and maintain our roads. But, everybody also knows we cannot afford it now or prior to now. In addition, rather than take idle stimulus money the President is asking to outlay an addition 50 billion dollars which he says is "already paid for"...I don't buy it. Thanks much for the good comments...hope you visit again soon! WB

@Tom Whitworth...Tom, I think that goal has almost been achieved! WB


rkhyclak profile image

rkhyclak 6 years ago from Ohio

Great overview of our mess. Wish I could write like this :) I'm going to repost on FB if that's ok with you!


Wayne Brown profile image

Wayne Brown 6 years ago from Texas Author

@rkhyclak...Sure, no problem reposting FB. Good luck with those who like to argue with you! You know you can write like this, just do it! WB


sheila b. profile image

sheila b. 6 years ago

Don't you wonder about that stimulus money sitting there unused? What are they saving it for? That's what I'd like to know.


eovery profile image

eovery 6 years ago from MIddle of the Boondocks of Iowa

All Obama knows is spend-spend baby spend. He will do his bext (or worst) to spend us out of this recession. He isn't going to be blamed for not trying to get us out of it.

Keep on hubbing!


Wayne Brown profile image

Wayne Brown 6 years ago from Texas Author

@sheila b....Oh I feel certain it is reserved for Fannie Mae and Freddie Mac. They got loads the first round but no one had the guts to give it all to them at once...wait for it, it's coming. There's not a better pipeline for theft! WB

@eovery...Obama and his employer, George Soros, subscribe to the principle that Americans will take instructions better once they are broke and have nothing...then anything seems good. In order to get there, he must first totally bankrupt the country, then the people will be bankrupted by default as the economy comes crashing down on top of them. Then we humble Americans will no longer have cake to eat. We will be proud to bow to others in the world and we will take whatever we are given and be thankful. All the time, Soros will be smiling as he breaks the back of the greatest capitalist country of all times and it only took the work of a few idiots and an apathetic public. Sounds like a fairy tale?...if we don't shift the balance of power in November, it will more likely become a nightmare! WB


suziecat7 profile image

suziecat7 6 years ago from Asheville, NC

We are in a mess for sure. Great overview of it.


Wayne Brown profile image

Wayne Brown 6 years ago from Texas Author

@suziecat7...Thanks much Suzie. I agree, we are in a huge mess. This President and This Congress will break this country's back if we don't get a change soon. When Hilary Clinton starts raising the mantra of national security, you know things have gone too far. Thanks for the read and the good comment. WB


TimBryce 6 years ago

Wayne -

Great piece. Dead on. He hasn't got a clue what he is doing and it is clear he has no problem lying or cheating the American public. This is a change we could have done without. The only thing good I can say about the O-Bomb is that he has awoken the American voters who are now about to throw him and his cronies out of office. I can't wait for November 2nd.

All the Best,

Tim


Wayne Brown profile image

Wayne Brown 6 years ago from Texas Author

@Tim Bryce...Thanks Tim, I appreciate the good comments! WB


poetvix profile image

poetvix 6 years ago from Gone from Texas but still in the south. Surrounded by God's country.

I agree w/ everything you said here and further, love the straight forward way you presented it. I think this is really well written.

I have to wonder though, since we all know recent American political history shows nothing but bad move on top of bad move, why? Is it really just "bad decisions"?

Our leaders are not young and nieve (sp). Further, the vast majority of them come from money and have really good educations. Do we really believe that all of this is just mistakes, bad decisions, poor leadership? Or is it something a little, or a lot more sinister? Just my opinion here... but I think we have more than one fox in the hen house. They are destroying us, fast!

We had best, as a collective, get them and their ilk out now while we still have a country left to save.


Wayne Brown profile image

Wayne Brown 6 years ago from Texas Author

@poetvix....In Congress, I think it is greed and power driven along with the desire to remain there for half a century...probably die in office. With our current president, I do not believe he is that stupid. The billionaire socialist, George Soros (who despises capitalism yet made his fortune under it)is the guy pulling the string behind Obama. He predicted that at least a $600 billion stimulus package would be launched before the 2008 elections were even held. The quickest way to destroy America is to attack its economy. That's like controlling the horse's head and making his rear end follow. I think Obama and his circle of friends which includes Soros have an agenda to take America on a socialist journey. In fact it is already started with the healthcare initiative and it continues to build as he talks of reforming everything that he describes as not working. Sure we have 30 million uninsured people in this country but no one ever cites the figure that says how many are that way by their own choice because they refuse to spend any money in that area. Immigration will be reformed to dilute the population more rapidly...this will help to soften our cultural beliefs and offer more opportunity for class warefare. Socialist and communist do their best work just like assasins...amid chaos. Right now this country is in chaos in many direction thus it becomes easier and easier to suggest a socialist agenda. The unfortunate side of things is that the younger generations have little fear of socialist practices since they were never taught to fear it. Now, there's little time to teach it and show them enough examples to say that it does not work. The utopian romance of all of us sharing equally from a big pot appeals greatly to them because they understand too little about the theory of how things get to the pot. Ultimately socialism and communism is flawed. For all its greed, etc., capitalism still provides the best way of life for the majority of people. But the short answer here is, yes, I believe there are some sinister things going on here that will not bode well for America if we do not get it stopped in November. Thanks for the read and the great comments. WB


Uber-Lib 6 years ago

Why must you provide facts? I will not stand for it! GOODBYE!


Wayne Brown profile image

Wayne Brown 6 years ago from Texas Author

@Uber-Lib...Gee, I am sorry dude. Obviously, facts are a turn off for ya! LOL! I would not want you to violate your principles but thanks for coming by anyway...it was fun! Bye! Stop by anytime, you're always welcome! WB


Harvey Stelman profile image

Harvey Stelman 6 years ago from Illinois

Wayne, All Progressives are the same, but B.o. had the House and Senate also. H


Wayne Brown profile image

Wayne Brown 6 years ago from Texas Author

@Harvey Stelman....Harvey, I don't disagree but that label they wear of "Progressive" is just too mundane for the cliffs they want us to jump off. Progressive is a nice mask to hide a socialist or a communitst for that matter. In my mind, there is not progressive about any of that! Thanks for the good words. WB


maven101 profile image

maven101 6 years ago from Northern Arizona

Hi Wayne...I see you are in good form...Your sagacious commentary is worthy of a spot on the Wall Street Journal...I can see you have given this a lot of thought and research, all of which I totally concur...what thinking person would not agree with your pertinent points ?

Your last paragraph nails it...Government has become way too complicated and diverse...I guess when you have a preponderance of lawyers sitting in congress this will be the natural result...Obfuscation, denial, and buck passing...Time for change, real change...Remember in November...Thank you for this intelligent and necessary message that needs to be sent to every organ of communication...Lets roll, my friend...Larry


Wayne Brown profile image

Wayne Brown 6 years ago from Texas Author

@maven101...So glad you liked it Larry. We do so badly need government to quit being the caretaker for us as individuals and just manage our infrastructure and military. Those in government still believe that the government can protect a fool from himself...not a wise undertaking unless the supervision comes with the orders to shoot to kill. Those in Washington see a need to make themselves needed so they can justify the level of greatest they have attained and then justify that many more benefits for doing the job. At the same time, they are always pass around the pork. We not only need a house cleaning, we need to be sprayed for bugs, and then fumigated to get the stench out of the Capitol. Maybe then we could get back to what was envisioned for this country. Thanks for some great comments! WB

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Click to Rate This Article
    working