By John F. Di Leo -
Getting our heads around apparent irrational exuberance on Wall Street
On Friday, February 1, the market rally continued as the Dow Jones Industrial Average closed at 14,010. Many investors rejoiced, and conservatives wondered if they were living on the same planet as the investment community.
Unemployment is, after all, still at a publicly-declared 8%, a number that can only be reached if you stop counting a jobless person if his unemployment checks have run out, and if you consider an unemployed lawyer, accountant, salesman or buyer as “employed” if he bags groceries or delivers newspapers. The real number can be disputed, depending on how you count some of the grey areas, but proper analysis puts true unemployment at either 15% or 23% in the United States today.
On Friday, February 1, the market rally continued as the Dow Jones Industrial Average closed at 14,010. Many investors rejoiced, and conservatives wondered if they were living on the same planet as the investment community.
Unemployment is, after all, still at a publicly-declared 8%, a number that can only be reached if you stop counting a jobless person if his unemployment checks have run out, and if you consider an unemployed lawyer, accountant, salesman or buyer as “employed” if he bags groceries or delivers newspapers. The real number can be disputed, depending on how you count some of the grey areas, but proper analysis puts true unemployment at either 15% or 23% in the United States today.
Real economic growth in the USA has been almost nonexistent ever since the Pelosi House started doing damage in January 2007, as every step forward has been accompanied by several steps back in this ongoing contraction. Six years of anti-business policies (yes, six, because President G.W. Bush failed to veto the destructive products of Congress during his final two years) have left us with one to two percent growth in GDP at most, whenever we weren’t outright losing ground. The nation slipped back toward official recession in the fourth quarter of 2012 when it was finally admitted that we contracted by something less than a percent. One more quarter like this and they’ll have to admit it. Some cynics wonder if the Obama administration just forgot to cook the books this time, or if they’ve just decided to stop bothering, now that their lord and master never has to face the voters again.
So the question is – How? How on earth can there be a rally in the Dow when Washington, D.C. and several of our states are engaging in policies specifically designed to crush the economy? There are indeed many reasons, not all of them based on an IQ deficiency.
A “Brain Cloud?”
In 1990, Warner Brothers released a comedy called “Joe Versus the Volcano.” It starred Tom Hanks as a hypochondriac whose doctor, Robert Stack, tells him he has a terminal disease, a “brain cloud,” so he should make the most of his remaining time on this earth. Over the course of the film, he meets Lloyd Bridges, an eccentric billionaire, Dan Hedaya, the boss from Hell, Ossie Davis, the limo driver, Barry McGovern, the luggage salesman, Abe Vigoda, the island chief, and Meg Ryan, again and again, playing three very different roles. To say it’s an unusual movie with an unusual premise is putting it mildly.
Some people love it. I still watch it again and again; I find it an absolute delight.
Many people can’t stand it; they find it idiotic, a stupid premise with unbelievable characters in unbelievable circumstances. Here, the question is: How much are you willing to suspend disbelief?
It doesn’t mean that one group is right and the other is wrong. Different people have different tastes in film, especially in comedy. What makes one person laugh hard enough to fall out of his chair may just irritate another enough to head for the box office and demand his money back. Comedy is about taking risks, touching the right audience in the right way. Comedy is about entertaining those who want the kind of entertainment you’re capable of delivering.
How do you put a value on that? 23 years after release, you can still buy a copy of this movie on DVD, rent it on Netflix, or see it for free on cable. Is it worth a five dollar rental or a twenty dollar purchase? Is it even worth your time to watch for free? The fact that three different people will give you three different answers doesn’t mean that any of the three is wrong. They’re only answering the question of what the value of that film is to them. And that’s something that varies from person to person, sometimes, even for the same person, it can vary by the time of day.
Stock as a Medium of Exchange
To understand the stock market, we have to remember what it is, and how it is used.
A share of stock can be described straightforwardly enough: it’s a percentage of ownership in a company, and for many companies, a right to receive a dividend payment once in a while.
The holder of a stock certificate has a piece of that company’s present, and, as long as he holds it, a piece of that company’s future as well. Unlike currency - a piece of paper that’s only worth something as long as the government says so -a share of stock is a legitimate division of the value of a going concern, a real business.
The stock market, however, is something different. Fundamentally, the stock market is a flea market, a gun show, a swap meet, a plates-and-figurines show. It’s a place where the owners of collectibles, or their representatives, meet up every day to trade their holdings. Thousands of traders, many of whom represent millions of clients, are given instructions by their customers or management – buy some of this, unload some of that – watch the prices and buy or sell only if it goes above or below X, or Y, or maybe even Z.
Some of this is automated now. Say a pension fund declares that it wants to be 50% stock and 50% bonds. A certain bond matures today and has to be traded in, but the returns on available bonds today for that money may be undesirable, so they have to replace it with something else, American currency or foreign currency or precious metal holdings or stocks. So today they switch from some bonds to some stocks, not due to a conscious intent to move more into the stock market, but due to a forced choice from among the available options at the moment.
Many of the stock market’s choices work that way today. You have an investment fund to manage, and you must put the money SOMEWHERE. What’s the easiest solution, the one that’s most defensible if people complain about results? Leave it to the computer. Design a decent analysis program – studying size and sectors and price-earnings ratios and so forth –and let the system make the decision for you. “See? I’m not irrationally exuberant, it’s my computer here, making a scientific calculation!”
But much of it, too, is not automated. Much of it is intelligent investors deciding that this or that company is a good choice, for them, for this portion of their balanced portfolios, and so they buy it. This doesn’t mean they’re right or wrong; it just means that they believe this company or that one is a good risk, a good investment. Again, they have to put the money somewhere, as long as they have some to invest, so they make their choices. And often they are right.
These investors aren’t making a conscious judgment about the economy; they’re making a conscious judgment about a single company, studying its management, it’s proven recent results, its promises for the future. These investors are making a very narrowly focused choice from among the vast array of stocks available; they don’t mean to make an assessment of the whole economy as a whole, even though others may extrapolate one from their choices.
How can companies do well in this economy?
This is the key issue. Companies in the Dow Jones Industrial Average, the Standard and Poor’s, and the many other NYSE, CSE, and other stock market groups these days do not constitute “this economy.”
They are big public conglomerates – five billion dollar manufacturing families, ten billion dollar sureties, twenty billion dollar logistics providers. They include television and telephone networks, retail chains, all sorts of different businesses. And they are all big, or they wouldn’t appear on these famous listings.
Big companies are different from small ones, in almost every way. Big companies have lobbyists who might be able to protect them from bad legislation, at least at first, to either carve out exceptions or add in delays. Big companies can change their processes without self-destruction. If a company has manufacturing facilities in forty states, and five of those states turn hostile, it can close its operations in those states, moving those assembly lines to more welcoming states. Or if the whole country turns hostile, it can move assembly lines to other factories abroad, in Europe, Mexico, India, or China.
And that’s exactly what’s been happening for forty years, isn’t it? We’ve seen industry after industry leave these shores, as unions and property taxes and crime and federal taxes and regulations, ever more regulations, have driven them out. The more the red tape has strangled, the more they have been forced to move. They didn’t want to; no American executive WANTS to spend 16 hours one-way on a plane to meet with Chinese factory managers to discuss such a move. But America has been slowly driving business in that direction. Big companies can deal with it this way, and so they do.
For this reason, many of the high performing companies on that 14,000 point Dow Jones chart now do much of their manufacturing, and much of their designing, even much of their software and “back office” work, overseas, even while selling the stuff worldwide, including right here where they used to manufacture it. There’s nothing wrong with that, objectively speaking; if China or India or the Philippines are the right places to make a product, go ahead and make it there. The USA will still be the right place to make many others.
But it is wrong indeed if the reason that China is more competitive is that the laws and regulations of the USA have unnaturally driven up our costs, forcing our manufacturers to look abroad for manufacturing sites… and that, of course, has been the case for many years. Our American national and state policies have forced our large public corporations, for the most part, to be international. That’s a good thing in some ways, a bad thing in others.
So it’s not right to say that the Dow is “wrong” to be at 14,010, on that snapshot in time, the closing bell on Friday, February 1, 2013, A.D. But it would certainly be wrong to say that the Dow is in any way representative of our economy at large. Too many people look to the Dow every day to see if the nation is having a good day. That’s not what it’s for, and it’s sure not a useful way of getting a fair picture of the American business climate.
The Real American Economy
The United States economy is an amalgam of many things. Large publicly traded companies like those on the Dow Jones and Standard & Poor’s indices… other publicly traded companies that aren’t members of any big index so the news reporters don’t notice them… privately held firms that aren’t traded at all… small businesses and sole proprietorships that work out of a single office, a single plant, even a person’s home office.
These are businesses too, real contributing parts of the American economy. Hundreds of thousands of independent restaurants and bars and coffee shops… hundreds of thousands of law offices and accountancy firms… hundreds of thousands of interior decorators and plumbers and electricians and window installers and truckers… hundreds of thousands of tool and die shops, custom metal fabricators, cabinetmakers and grocery stores.
These are real businesses, too, and they tend to be 100% American, or very nearly so. This is not to say anything against the big Dow Jones types (I’ve happily worked for both kinds, myself!), but it’s worth noting that the Dow is actually a terrible indicator of the American economy, because each member tends to have a good deal of foreign activity as part of its total package. The momentary snapshot revealed by their stock price on any given day is a statement first about the company’s management, second about its market share for its own product lines, and only lastly a general statement about the amalgam of countries or regions in which it operates.
The far better indicator would be the small businesses, the ones in stand-alone buildings or in strip malls or office buildings or home offices. How are they all doing? They’re the real American economy; they’ll tell you how the nation is doing, today, after six years of Democrat party extremism under Pelosi, Reid, Obama, and their minions.
A path of destruction
There is no single guide, no corresponding “Dow Jones Industrial Average” of the small business world. We cannot share a single index of private businesses to show what America is really feeling right now.
But we can tell, can’t we? Twenty years ago, if there was a vacancy in a strip mall, it got filled as someone else moved in reasonably soon. If a person lost his job, he got a new one. If a company moved out of a town, some other company moved in.
Today, between a sixth and a quarter of Americans of working age are either unemployed or working at wages and roles far below their ability. Accountants deliver sandwiches, professionals man cash registers at the mall, foremen take odd jobs as handymen or helpers at hardware stores. Nothing against these jobs either, of course, but they should be the rungs going up a ladder, not going down it. Our economy has shrunken by a net of over eight million jobs in four years. There are always job losses and job creations, but in these four years, the net trend has been horrifying.
That companies are able to do more with less is a good thing… that companies have so boosted productivity that they can drop a department of ten down to eight, then down to six, then down to five, is impressive, and good for that company’s bottom line.
But it’s only good for the economy as a whole, and for those downsized employees in particular, if there are always other new companies springing up to employ them, to fight over these talented and experienced professionals, now suddenly back on the market. There should be tens of millions of new jobs being created, by expansions of existing companies or the entrepreneurship of new innovators. That’s what’s not happening, not in the numbers we need, not by a long shot.
Is the 14,000-level Dow right or wrong? It depends on what you mean. It may indeed be right, as a legitimate valuation of the finite number of companies include in it. But it is indeed wrong, if you try to use it as the monitor of the health of the American economy.
Better numbers to look at are the participation rate buried deep in the unemployment statistics… the number of new incorporations issued by the states… the growth of business tax revenues, after factoring out tax rate increases…
But these are hard to find, hard to process. Much easier is the anecdotal evidence. How many people do you know who retired earlier than they intended, rather than be laid off? How many do you know who were unemployed, not for weeks or months but a year or two? How many had to eventually step down to a lesser job, because with far fewer businesses, there are far fewer jobs for so many, many disciplines?
No, the economy is not good. It doesn’t look good at present, and it doesn’t look good for the future. But there are pockets of prosperity, economic islands that may indeed be the places to store your money for a while, in hope of riding out the storm.
Storm Clouds on the Horizon
The slings and arrows of outrageous agencies are beginning to fly fast and furious in 2013. Thousands of new regulations on businesses, dozens of new taxes, stiff impediments to hiring.
Obamacare’s cutoff point has made it disadvantageous for any company with less than fifty employees to add staff; it has even made it advantageous for a company of 55 or 60 to shed some now, to get below fifty when obamacare’s full drop-dead date arrives.
Many businesses saw tax increases in 2013 already, medical implement manufacturers in particular, plus all small businesses that operate like individuals. In fact, all working individuals, from small businessmen to employees of others, saw their Social Security withholding collection skyrocket by about 50%, as it went from over four percent up to over six percent off the top.
Our health insurance contributions – again because of the mandates and meddling in obamacare – are going up, for many of us, by fifty to a hundred dollars per pay period. The IRS has predicted that the worst obamacare family plan - the so-called "bronze level" - will cost $20,000 per year in 2016. So much for obamacare reducing healthcare costs...
All in all, this means that every American worker will have much less take-home pay this year, by many hundreds for the worst paid among us, by the thousands for most of the middle class. Barack Obama promised, so many times, that he would only raise taxes on the rich. How does it feel, to know that now, we’re all rich? The only way this administration has “only” raised taxes on the rich is if “the rich” is defined as “everyone with a job.”
When people have thousands less in their checking accounts, that will be reflected in reduced spending. It has to be. We’ll see everything discretionary – from restaurants to mall retail to theaters to charitable contributions – plummet this year. Businesses will go under, the contraction will continue. As far as the eye can see. Small businesses will be hardest hit, but the cancer will eventually spread to the big companies as well. When people must reduce their buying, everyone with something to sell – big or small – will find their sales dropping as well.
There are solutions – easy ones, too – and everyone in Washington knows what they are. Lowering and flattening the income tax. Revoking the crippling mandates of obamacare, Dodd-Frank, and the many environmental excesses that are driving manufacturing to foreign shores and driving the thought of entrepreneurship out of potential risk-takers’ hearts. Establishing a 21st Century Grace Commission to root out and eradicate unnecessary waste in government.
If we do these things, then our broad economy will indeed look as good as the investors of the rallying Dow think and hope it is. But if we do not – and all signs indicate that it’s another four years before any rational economic policy is promulgated from Washington – then we’re in for ever more contraction, another four painful years that will make America look more and more like a different economic contraction many many years ago.
Hey, Mr. President, the 1930s called. They want their recipe for “Great Depression”back.
Copyright 2013 John F. Di Leo
John F. Di Leo is a Chicago-based Customs broker and international trade lecturer. A former chairman of the Milwaukee County GOP, his columns appear weekly in Illinois Review.
Permission is hereby granted to forward freely, provided it is uncut and the IR URL and byline are included. Follow John F. Di Leo on Facebook or LinkedIn, or on Twitter at @johnfdileo.
So the question is – How? How on earth can there be a rally in the Dow when Washington, D.C. and several of our states are engaging in policies specifically designed to crush the economy? There are indeed many reasons, not all of them based on an IQ deficiency.
A “Brain Cloud?”
In 1990, Warner Brothers released a comedy called “Joe Versus the Volcano.” It starred Tom Hanks as a hypochondriac whose doctor, Robert Stack, tells him he has a terminal disease, a “brain cloud,” so he should make the most of his remaining time on this earth. Over the course of the film, he meets Lloyd Bridges, an eccentric billionaire, Dan Hedaya, the boss from Hell, Ossie Davis, the limo driver, Barry McGovern, the luggage salesman, Abe Vigoda, the island chief, and Meg Ryan, again and again, playing three very different roles. To say it’s an unusual movie with an unusual premise is putting it mildly.
Some people love it. I still watch it again and again; I find it an absolute delight.
Many people can’t stand it; they find it idiotic, a stupid premise with unbelievable characters in unbelievable circumstances. Here, the question is: How much are you willing to suspend disbelief?
It doesn’t mean that one group is right and the other is wrong. Different people have different tastes in film, especially in comedy. What makes one person laugh hard enough to fall out of his chair may just irritate another enough to head for the box office and demand his money back. Comedy is about taking risks, touching the right audience in the right way. Comedy is about entertaining those who want the kind of entertainment you’re capable of delivering.
How do you put a value on that? 23 years after release, you can still buy a copy of this movie on DVD, rent it on Netflix, or see it for free on cable. Is it worth a five dollar rental or a twenty dollar purchase? Is it even worth your time to watch for free? The fact that three different people will give you three different answers doesn’t mean that any of the three is wrong. They’re only answering the question of what the value of that film is to them. And that’s something that varies from person to person, sometimes, even for the same person, it can vary by the time of day.
Stock as a Medium of Exchange
To understand the stock market, we have to remember what it is, and how it is used.
A share of stock can be described straightforwardly enough: it’s a percentage of ownership in a company, and for many companies, a right to receive a dividend payment once in a while.
The holder of a stock certificate has a piece of that company’s present, and, as long as he holds it, a piece of that company’s future as well. Unlike currency - a piece of paper that’s only worth something as long as the government says so -a share of stock is a legitimate division of the value of a going concern, a real business.
The stock market, however, is something different. Fundamentally, the stock market is a flea market, a gun show, a swap meet, a plates-and-figurines show. It’s a place where the owners of collectibles, or their representatives, meet up every day to trade their holdings. Thousands of traders, many of whom represent millions of clients, are given instructions by their customers or management – buy some of this, unload some of that – watch the prices and buy or sell only if it goes above or below X, or Y, or maybe even Z.
Some of this is automated now. Say a pension fund declares that it wants to be 50% stock and 50% bonds. A certain bond matures today and has to be traded in, but the returns on available bonds today for that money may be undesirable, so they have to replace it with something else, American currency or foreign currency or precious metal holdings or stocks. So today they switch from some bonds to some stocks, not due to a conscious intent to move more into the stock market, but due to a forced choice from among the available options at the moment.
Many of the stock market’s choices work that way today. You have an investment fund to manage, and you must put the money SOMEWHERE. What’s the easiest solution, the one that’s most defensible if people complain about results? Leave it to the computer. Design a decent analysis program – studying size and sectors and price-earnings ratios and so forth –and let the system make the decision for you. “See? I’m not irrationally exuberant, it’s my computer here, making a scientific calculation!”
But much of it, too, is not automated. Much of it is intelligent investors deciding that this or that company is a good choice, for them, for this portion of their balanced portfolios, and so they buy it. This doesn’t mean they’re right or wrong; it just means that they believe this company or that one is a good risk, a good investment. Again, they have to put the money somewhere, as long as they have some to invest, so they make their choices. And often they are right.
These investors aren’t making a conscious judgment about the economy; they’re making a conscious judgment about a single company, studying its management, it’s proven recent results, its promises for the future. These investors are making a very narrowly focused choice from among the vast array of stocks available; they don’t mean to make an assessment of the whole economy as a whole, even though others may extrapolate one from their choices.
How can companies do well in this economy?
This is the key issue. Companies in the Dow Jones Industrial Average, the Standard and Poor’s, and the many other NYSE, CSE, and other stock market groups these days do not constitute “this economy.”
They are big public conglomerates – five billion dollar manufacturing families, ten billion dollar sureties, twenty billion dollar logistics providers. They include television and telephone networks, retail chains, all sorts of different businesses. And they are all big, or they wouldn’t appear on these famous listings.
Big companies are different from small ones, in almost every way. Big companies have lobbyists who might be able to protect them from bad legislation, at least at first, to either carve out exceptions or add in delays. Big companies can change their processes without self-destruction. If a company has manufacturing facilities in forty states, and five of those states turn hostile, it can close its operations in those states, moving those assembly lines to more welcoming states. Or if the whole country turns hostile, it can move assembly lines to other factories abroad, in Europe, Mexico, India, or China.
And that’s exactly what’s been happening for forty years, isn’t it? We’ve seen industry after industry leave these shores, as unions and property taxes and crime and federal taxes and regulations, ever more regulations, have driven them out. The more the red tape has strangled, the more they have been forced to move. They didn’t want to; no American executive WANTS to spend 16 hours one-way on a plane to meet with Chinese factory managers to discuss such a move. But America has been slowly driving business in that direction. Big companies can deal with it this way, and so they do.
For this reason, many of the high performing companies on that 14,000 point Dow Jones chart now do much of their manufacturing, and much of their designing, even much of their software and “back office” work, overseas, even while selling the stuff worldwide, including right here where they used to manufacture it. There’s nothing wrong with that, objectively speaking; if China or India or the Philippines are the right places to make a product, go ahead and make it there. The USA will still be the right place to make many others.
But it is wrong indeed if the reason that China is more competitive is that the laws and regulations of the USA have unnaturally driven up our costs, forcing our manufacturers to look abroad for manufacturing sites… and that, of course, has been the case for many years. Our American national and state policies have forced our large public corporations, for the most part, to be international. That’s a good thing in some ways, a bad thing in others.
So it’s not right to say that the Dow is “wrong” to be at 14,010, on that snapshot in time, the closing bell on Friday, February 1, 2013, A.D. But it would certainly be wrong to say that the Dow is in any way representative of our economy at large. Too many people look to the Dow every day to see if the nation is having a good day. That’s not what it’s for, and it’s sure not a useful way of getting a fair picture of the American business climate.
The Real American Economy
The United States economy is an amalgam of many things. Large publicly traded companies like those on the Dow Jones and Standard & Poor’s indices… other publicly traded companies that aren’t members of any big index so the news reporters don’t notice them… privately held firms that aren’t traded at all… small businesses and sole proprietorships that work out of a single office, a single plant, even a person’s home office.
These are businesses too, real contributing parts of the American economy. Hundreds of thousands of independent restaurants and bars and coffee shops… hundreds of thousands of law offices and accountancy firms… hundreds of thousands of interior decorators and plumbers and electricians and window installers and truckers… hundreds of thousands of tool and die shops, custom metal fabricators, cabinetmakers and grocery stores.
These are real businesses, too, and they tend to be 100% American, or very nearly so. This is not to say anything against the big Dow Jones types (I’ve happily worked for both kinds, myself!), but it’s worth noting that the Dow is actually a terrible indicator of the American economy, because each member tends to have a good deal of foreign activity as part of its total package. The momentary snapshot revealed by their stock price on any given day is a statement first about the company’s management, second about its market share for its own product lines, and only lastly a general statement about the amalgam of countries or regions in which it operates.
The far better indicator would be the small businesses, the ones in stand-alone buildings or in strip malls or office buildings or home offices. How are they all doing? They’re the real American economy; they’ll tell you how the nation is doing, today, after six years of Democrat party extremism under Pelosi, Reid, Obama, and their minions.
A path of destruction
There is no single guide, no corresponding “Dow Jones Industrial Average” of the small business world. We cannot share a single index of private businesses to show what America is really feeling right now.
But we can tell, can’t we? Twenty years ago, if there was a vacancy in a strip mall, it got filled as someone else moved in reasonably soon. If a person lost his job, he got a new one. If a company moved out of a town, some other company moved in.
Today, between a sixth and a quarter of Americans of working age are either unemployed or working at wages and roles far below their ability. Accountants deliver sandwiches, professionals man cash registers at the mall, foremen take odd jobs as handymen or helpers at hardware stores. Nothing against these jobs either, of course, but they should be the rungs going up a ladder, not going down it. Our economy has shrunken by a net of over eight million jobs in four years. There are always job losses and job creations, but in these four years, the net trend has been horrifying.
That companies are able to do more with less is a good thing… that companies have so boosted productivity that they can drop a department of ten down to eight, then down to six, then down to five, is impressive, and good for that company’s bottom line.
But it’s only good for the economy as a whole, and for those downsized employees in particular, if there are always other new companies springing up to employ them, to fight over these talented and experienced professionals, now suddenly back on the market. There should be tens of millions of new jobs being created, by expansions of existing companies or the entrepreneurship of new innovators. That’s what’s not happening, not in the numbers we need, not by a long shot.
Is the 14,000-level Dow right or wrong? It depends on what you mean. It may indeed be right, as a legitimate valuation of the finite number of companies include in it. But it is indeed wrong, if you try to use it as the monitor of the health of the American economy.
Better numbers to look at are the participation rate buried deep in the unemployment statistics… the number of new incorporations issued by the states… the growth of business tax revenues, after factoring out tax rate increases…
But these are hard to find, hard to process. Much easier is the anecdotal evidence. How many people do you know who retired earlier than they intended, rather than be laid off? How many do you know who were unemployed, not for weeks or months but a year or two? How many had to eventually step down to a lesser job, because with far fewer businesses, there are far fewer jobs for so many, many disciplines?
No, the economy is not good. It doesn’t look good at present, and it doesn’t look good for the future. But there are pockets of prosperity, economic islands that may indeed be the places to store your money for a while, in hope of riding out the storm.
Storm Clouds on the Horizon
The slings and arrows of outrageous agencies are beginning to fly fast and furious in 2013. Thousands of new regulations on businesses, dozens of new taxes, stiff impediments to hiring.
Obamacare’s cutoff point has made it disadvantageous for any company with less than fifty employees to add staff; it has even made it advantageous for a company of 55 or 60 to shed some now, to get below fifty when obamacare’s full drop-dead date arrives.
Many businesses saw tax increases in 2013 already, medical implement manufacturers in particular, plus all small businesses that operate like individuals. In fact, all working individuals, from small businessmen to employees of others, saw their Social Security withholding collection skyrocket by about 50%, as it went from over four percent up to over six percent off the top.
Our health insurance contributions – again because of the mandates and meddling in obamacare – are going up, for many of us, by fifty to a hundred dollars per pay period. The IRS has predicted that the worst obamacare family plan - the so-called "bronze level" - will cost $20,000 per year in 2016. So much for obamacare reducing healthcare costs...
All in all, this means that every American worker will have much less take-home pay this year, by many hundreds for the worst paid among us, by the thousands for most of the middle class. Barack Obama promised, so many times, that he would only raise taxes on the rich. How does it feel, to know that now, we’re all rich? The only way this administration has “only” raised taxes on the rich is if “the rich” is defined as “everyone with a job.”
When people have thousands less in their checking accounts, that will be reflected in reduced spending. It has to be. We’ll see everything discretionary – from restaurants to mall retail to theaters to charitable contributions – plummet this year. Businesses will go under, the contraction will continue. As far as the eye can see. Small businesses will be hardest hit, but the cancer will eventually spread to the big companies as well. When people must reduce their buying, everyone with something to sell – big or small – will find their sales dropping as well.
There are solutions – easy ones, too – and everyone in Washington knows what they are. Lowering and flattening the income tax. Revoking the crippling mandates of obamacare, Dodd-Frank, and the many environmental excesses that are driving manufacturing to foreign shores and driving the thought of entrepreneurship out of potential risk-takers’ hearts. Establishing a 21st Century Grace Commission to root out and eradicate unnecessary waste in government.
If we do these things, then our broad economy will indeed look as good as the investors of the rallying Dow think and hope it is. But if we do not – and all signs indicate that it’s another four years before any rational economic policy is promulgated from Washington – then we’re in for ever more contraction, another four painful years that will make America look more and more like a different economic contraction many many years ago.
Hey, Mr. President, the 1930s called. They want their recipe for “Great Depression”back.
Copyright 2013 John F. Di Leo
John F. Di Leo is a Chicago-based Customs broker and international trade lecturer. A former chairman of the Milwaukee County GOP, his columns appear weekly in Illinois Review.
Permission is hereby granted to forward freely, provided it is uncut and the IR URL and byline are included. Follow John F. Di Leo on Facebook or LinkedIn, or on Twitter at @johnfdileo.
