If Elizabeth Warren wants to promote labor, she should protect entrepreneurs

For the past three or four months there has been a lot of jawboning over the Trans Pacific Partnership (TPP) trade agreement.  The Administration touts the agreement as necessary to the United State’s ability to compete in an emerging Asia-Pacific market.  According to the Administration:

“President Obama’s trade agenda is dedicated to expanding economic opportunity for American workers, farmers, ranchers, and businesses. That’s why we are negotiating the Trans-Pacific Partnership, a 21st century trade agreement that will boost U.S. economic growth, support American jobs, and grow Made-in-America exports to some of the most dynamic and fastest growing countries in the world.”

The Obama administration believes the TPP will aid American business sales of product in the Asia-Pacific region by reducing tariffs on both sides of the Pacific Rim, in some cases to zero.  Think of a tariff as a tax schedule on products entering a country.  These taxes can make selling products overseas a bit onerous because the taxes will increase the price of the goods faced by the overseas end-user.

The Administration also hopes to increase transparency of laws and regulations in the Asia-Pacific market which, they believe, will facilitate entry into these markets by small and medium-sized enterprises (SME).  The Administration argues that small businesses account for two-thirds of new jobs created in the private sector and that easing entry into new markets will serve to maintain SME contribution to the American economy’s growth.

Regarding labor, the Administration’s focus appears to be on how labor is treated overseas versus ensuring against job losses here in the United States.  Critics, such as Senator Elizabeth Warren, Democrat of Massachusetts, argues that the President’s trade agenda does little to protect U.S. workers.   As an example, Senator Warren, in an opinion piece for The Washington Post, observed that under proposed provisions of the TPP, a Vietnamese company could challenge American labor law in an investor-state dispute settlement court, basically a panel of international arbitrators.  But if an American labor union wanted to challenge wage practices in Vietnam, it would have to go through Vietnamese courts, thus tilting the advantage to multinational corporations.

Mrs. Warren continues to place too much emphasis on labor as some protected class and not enough on the true economic engine, the entrepreneur.  Labor is an activity, a resource that is applied to capital to generate returns and income.  Demand for labor is driven not just by derived demand by consumers for goods and services but by what capital has determined to be the necessary skills and knowledge possessed by labor to deliver those goods and services.  Demand for labor is driven by the value labor brings to the capital the entrepreneur deploys.  Until Mrs. Warren and other progressives start understanding this, their arguments about the plight of the “labor class” will be invalid.

Where Mrs. Warren’s emphasis should be is on the benefits TPP would bring to the very entrepreneurs that will do the hiring of the labor Mrs. Warren wants to protect.  Employer firms with less than 500 employees employed 48.5% of workers on private sector payrolls in 2011, according to data cited by the Small Business and Enterprise Council.  You can’t talk about labor without talking about increasing access to markets by entrepreneurs.

What is missing so far from the TPP conversation is a substantive discussion on capital access and formation.  I don’t see this discussion on the part of the Administration and it is definitely missing from Mrs. Warren’s rhetoric.

Posted in Economy, entrepreneur, Political Economy | Tagged , , , , | Leave a comment

Is capital abandoning the entrepreneur as well?

Where small firms have suffered low rates of business formation, lukewarm employment growth, and near stagnant growth in employee wages, is there public policy that can reignite entrepreneurship?

Politicians on the left and right have been touting the virtues of small businesses as “job creators for the past four election cycles during which time the United States has been trying to dig itself out of the 2007 recession.  According to the Small Business and Enterprise Council, 99.9% of all U.S. businesses had fewer than 500 employees and firms with less than 20 workers made up 98% of all U.S. businesses.  In 2008, small businesses accounted for 46% of America’s gross domestic product, down from 48% in 2002.

And out of the 100 friends you may have, roughly 18% of them are likely employed by a firm that employs less than 20 people.  Out of those same 100 friends, 35 of them probably work for a firm hiring fewer than 100 employees.

But small businesses have been on the decline, not living up to the narrative politicians and policymakers have painted around them.  According to a report by Goldman Sachs, during the period 2007 to 2012, 600,000 small businesses and 6 million jobs associated with them have disappeared.  In addition, job growth, usually attributed to small businesses, has been sourced by big companies, along with increased revenues and wage growth.  While job growth averaged 42,000 a month between 2010 and 2012 for companies with more than 500 employees, small firms saw employee losses of 700 per month during the same time period.  Income growth has been near stagnant for small companies as well.

So what’s to blame for this change in small business fortune?  Goldman Sachs argues that part of the fault lies in new bank regulation.  New bank regulations have made business credit scarce and more expensive.  Banks find it less cost effective to finance smaller businesses and small businesses don’t have ready access to the less expensive public capital markets as their large business competitors do.

This reality check on capital availability for the entrepreneur has me asking if capital is abandoning the entrepreneur?  If banks are tightening lending to small businesses and the decline in small businesses is occuring at he same as the decline in lending, are there then any alternative capital markets that small businesses can turn to?

According to a report from Oliver Wyman, a consulting firm, government can use public policy tools to create an environment that offers alternative capital market mechanisms for flowing capital to small businesses.  For example, with the decline in the number of initial public offerings entered into by small and medium business enterprises, government sponsored clearinghouses can provide investors transparency regarding equity and debt issued by small business enterprises and tax incentives for investors holding publicly-traded shares in small business.  Government can also provide education to small business enterprises on the environment for issuing debt or equity.

Other benefits that government could provide include reducing capital gains taxes for investors who hold debt or equity issued by a small business enterprise and reducing the costs of regulatory compliance faced by small business enterprises that seek the efficiencies provided in capital markets that financial markets don’t provide.

Encouraging greater access to capital markets by small businesses provides benefits to businesses and investors.  The capital markets are more efficient than banks.  Capital markets distribute risks more efficiently and promote economic stability that results from immediate feedback that the markets provide to investors and businesses alike. By encouraging the use of capital markets, especially by reducing the costs to access the markets, government can make it easier for a business to access additional pools of funding.

Posted in business, capital, economics, Economy, entrepreneur, entrepreneurship | Tagged , , , , , | 1 Comment

America has a disease #BaltimoreRiots

America has a disease. Part of the illness lies in the hypocrisy and ineptness of its leadership. The disconnect between political and religious leadership with the masses is as palpable as rotting meat. These so-called “leaders” don’t have the gravitas to quell a disturbance. Those who are tonight speaking the “language of the unheard” aren’t listening to the mayor, their community leaders, and sure as hell wouldn’t listen to Barack Obama if he took a drive up I-95 to give a speech.

Why is leadership out-of-touch? Simple. Leadership is insular. It has rarely anything in common with the masses with the exception of skin tone and maybe, maybe, sharing a pew during a Sunday-go-to-meeting. Listening to the rhetoric of so-called “black” leadership I could draw no further conclusion that all I am hearing is empty, hollow, hotep slogans and assorted political bullshit. Leadership should be able to anticipate and relate. Leadership in‪ Baltimore‬ has failed.

No, rioting as I said earlier is ineffective. It’s not the language the media and the social elite are prepared to process and respond to. It should, however, put citizens on alert; that an incident of ineptness and injustice as projected by the death of Freddie Gray while in police custody is a scab that when pulled off will reveal a lot of pain, pain that America, hiding behind its hype and faded glory, is too afraid to address.

Unfortunately for the masses of the unheard, they adore and vote for an inept leadership that not only has failed at building communities, but have failed at showing people the path to empowerment and personal liberty. When you give the masses just enough in terms of housing, food, and education and deprive them of the tools for leadership and independence, this will be the reaction when the institutions controlled by inept and adored leadership fails.

America is due for a reckoning. Unfortunately an embedded leadership won’t provide the masses the tools to achieve that reckoning and the masses are too enamored with its well-dressed, over educated yet highly inept leadership to demand more….

Posted in Baltimore, black American, riots | Tagged | Leave a comment

Of ‪#‎Gentrification‬, ‪#‎capital‬, and moral arguments

Culture by definition is not expected to be static and when its eradication is sped up when capital seeks to occupy a vacuum. Culture, the skills, arts, etc., of a given people at a given time are, in my opinion, contingent on a particular eco-system and eco-systems are subject to change. Some change slower than others but none are guaranteed to last indefinitely.

This reality is overlooked by “black” Americans who are taken aback by the changes in their neighborhoods driven by an influx of capital with the purpose of making their neighborhoods more affluent or upscale with the endgame of selling renovated property for a capital gain.

I am extra mindful of this today given that 50 yards from my window here in the West End of Atlanta, an annual street festival is taking place to showcase, I suppose, the upside of an otherwise stagnant neighborhood. You see more whites in the neighborhood during this event than any other time of the year. Were it not for the white flight of the 1950s and 1960s the West End, which was once its own town, would still be majority white. But white flight like the capital held by whites ebbs and flows like a tide and the tide of investment is pounding the beachhead of this southwest Atlanta neighborhood.

With foreclosed properties and average household incomes around $23,000 to $25,000 a year, the West End is a target rich environment of distressed properties. Capital abhors a vacuum and as events like the street festival brings its annual scouts to the area, capital should attach itself to the profitable opportunities it finds.

The push back against gentrification usually poses arguments that mix morality and community economics. “If rents get too high, where will the people go?” “The neighborhood has been ‘black’ for decades and we’ll lose our culture if this continues.” “The white man likes our culture but doesn’t like us so he’s pushing us out.”

The arguments are heartfelt, coming from a morality honed from the brutality of slavery, the violence and humiliation of Jim Crow, and the systemic discrimination so engrained in the economy that at times it is analyzed and accepted so dispassionately by those whose histories have nothing in common with blacks. In the end, however, given the current decisionmaking process that accompanies capitalism, its impact on eco-systems, and no guarantee of a static culture, the arguments, no matter how morally driven, make no difference. Neighborhoods will change.

The question is, if one wants to maintain a neighborhood’s culture; that certain feel, look, and rhythm, what changes in the mindset of its inhabitants are necessary?

First, property owners will have to address the differences in investment approaches in their own ranks. Some property owners welcome the potential change. They want new capital and the benefits that come with it: new consumer and job opportunities. Other property owners are willing to sacrifice increases in commercial activity in exchange for maintaining the community’s “blackness” which usually means keeping blacks in the majority of the community’s populace.

Yes, affinity brings comfort but that affinity could devolve into familiarity breeding contempt if opportunity and capital do not flow into a community. “We look alike but we poor together” just doesn’t fly.

Community leadership should focus on aggragating investment capital from within the commmunity in order to spend that capital on one or two projects that provide labor with job opportunities while generating returns to investors. Opportunities and income should be recycled in the community first increasing the level of affluence in the community. Leakage of income, output, and opportunity should be minimized.

In addition, community leadership should be more aggressive in incubating business startups. Work needs to be done to encourage a diversification of businesses while mentoring startups around the pitfalls that all too often lead to their early exit.

In short it will take action. Moral arguments made to government officials provide no long term solutions. Continued investments and strategic partnerships hold the key to tweaking gentrification where affluence can be generated within a community for the people already there…..

….. but you have to want it…..

Posted in Atlanta politics, black American, capital, Economy | Tagged , | Leave a comment

On social media or any media, Hillary Clinton isn’t giving much substance on the issues

Looking at Hillary Clinton’s Facebook page, I was taken aback by the lack of any discussion of issues.  I figured that this was probably driven by how the page was constructed, so I visited the former senator, first lady, and secretary of state’s website to see if I could get some more information on her policy stances.  I get there and see … nothing.

It appears that Mrs. Clinton is in listen, see, and strike mode, at least according to this article in The Washington Post.  Here’s an excerpt:

Clinton’s domestic and foreign policy platform is being developed by three Democratic strategists. The roles of Maya Harris, Ann O’Leary and Jake Sullivan were first reported by Politico.

“I will be rolling out very specific policies over the weeks and months ahead that I think are going to be at the core of not only a successful campaign, but much more importantly, getting our country to work again,” Clinton told reporters.

Mrs. Clinton is opting for coffee shop meetings with small groups of voters as she prepares to lay out her policy agenda in either May or June, according to The Post.  During those meetings and prior to her announcement she has been painting a broad picture of what she will focus on: growing the economic class and economic fairness.  Narrowing down that picture based on her past statements may be difficult, however.

In a recent piece in The Economist, Hillary Clinton is best described as opaque.  It is hard to understand, for example, where she will come down on trade and finance, bashing trade yet seemingly open to ideas on building out American infrastructure.  The two may seem unrelated until you consider that it makes little sense improving your infrastructure unless you are going to use it to move goods and services not only within your own borders but globally as well.  A woman who has traveled to 112 countries since her husband’s presidency and serving as secretary of state should appreciate that.

And like a seasoned politician, Mrs. Clinton has been playing the left and the right when it comes to free markets.  Free markets for free people on the one hand while arguing that corporations and businesses, or at least the tax breaks they get, aren’t responsible for job growth.

So far Mrs. Clinton has the luxury of some time before getting more detailed about what she wants to do for America.  Senator Ted Cruz, Republican of Texas, and Senator Marco Rubio, Republican of Florida, have focused their initial salvos at Mrs. Clinton versus maintaining a detailed and higher road (which may be too much for Mr. Cruz to drive on.)  What they should be doing, according to an article by Peter Morici, is putting an early squeeze on Mrs. Clinton by arguing the negative impacts on American labor resulting from trade agreements with South Korea. By his estimates, the Obama administration’s trade pact with South Korea has cost the United States 100,000 good paying factory jobs.

As a side note, coming out hard and fast on trade would give Mrs. Clinton a two-fer.  She could put a little breathing room between herself and her husband further establishing her independence from Bubba.  She could also score some points with labor in the manufacturing sector who have suffered for twenty years post the North American Free Trade Agreement.

But Mrs. Clinton more than likely will stick with the gradual approach she has taken so far before providing specific policy details.  I don’t expect her website or Facebook page to do more than ask for campaign donations until then.

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Ooops. I’m about to agree with Paul Krugman….

Oops. I’m about to make history and agree with Paul Krugman on the need for a better informed electorate, a point he makes in the piece you can find here. I agree that we need a more informed electorate but we have to go beyond just informing the electorate on economic issues. The electorate has to learn how to vote on economic issues. It has to learn how best to use the political mechanism for increasing our access to capital, an access to which commercial and political elites create a substantial bottleneck.

Posted in Political Economy | Tagged , , | 1 Comment

#Atlanta: Of teachers, students, and scandals

I walked into my dentist’s office to see her and a few patients gathered around the television, intently watching the verdicts in the Atlanta test cheating scandal. Eleven teachers, principals, administrators were found guilty on racketeering and other charges.

I have mixed feelings about the case. I met a couple teachers and one principle who was forced out of their jobs as a result of the scandal and could appreciate the pressure some of them may have been under to meet these “no child left behind” standards.

Standardized tests, in my opinion, don’t say much about how much a student has learned. They are inefficient in that teachers spend too much time “teaching toward the test.” This approach does nothing for the critical thinking skills of students where the first thing on a child’s mind is how do I use the process of elimination to get to the best choice.

Critical thinking takes honesty and energy and requires more than just spitting out a best choice. America seems to have a non-chalant attitude towards these types of tests, accepting them as some right of passage; resigning itself to this unscholarly fate that the focus should be on passing and worry about learniung later if ever.

The cheating scandal will likely be Atlanta’s version of the Kennedy assassination where almost 52 years later the city of Dallas still can’t shake Jack Kennedy’s ghost. Atlanta can move forward, however. The first step would be for the city of Atlanta to advocate these damned standardized tests away. The second step is to get more parents upset about these tests and voice their concerns about how unrelated such tests are to the development of our children.

It will require consistency but the alternative is unacceptable; leaving more than quite a few of our children behind.

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Religious Freedom Restoration Act: Let the consumer gods take care of the consequences

The progressive branch of the political elite have been spinning the narrative that Indiana’s brazen version of the Religious Freedom Restoration Act is a license for commercial interests to discriminate against certain social groups, most notably the gay community.  Mike Pence, the Republican governor of Indiana, wrote an opinion piece in The Wall Street Journal defending the Act, going as far as saying that the law does not give businesses a license to discriminate.  Mr. Pence is right that there is no explicit license to discriminate, but the Act does make it a little easier for a business to consider more explicit acts of discrimination.

Under the Indiana law, a claimant must demonstrate that a state action (an action by a government entity) or the action taken by an individual based on state action is a substantial burden on the claimant’s ability to exercise his religion and that the action does not further a compelling state interest, an interest of the highest order:

“When a law threatens certain fundamental rights, the laws defenders assume the burden of proof to justify it. They have to convince the court that (1) the challenged law served not just an important public purpose, but a genuinely compelling one; (2) the law was well-tailored to achieve that purpose, and (3) the purpose could not be achieved by some less burdensome method.”–Professor Bette Novit Evans

The law makes it clear that it will fend off government attacks on religion but it does not make it clear that it will force parties into a market relationship where one party, based on religious grounds, opposes initiating a transaction with another party.  Indiana wants to leave that choice open to individuals to enter market relationships and that is a good thing.

Discrimination has always been a part of religious practice.  Try attending a Methodist service and insisting that the clergy follow Islamic rituals or replace Genesis chapter 1 with a reading from Charles Darwin or Christopher Hitchens.  You would be asked to leave and not come back.

The rules and philosophies of a religious practice automatically erect a wall between the followers and non-followers.  Part of religious exercise is to interpret teachings handed down over hundreds of years and applying highly subjective and emotional beliefs in a 21st century world that strives to equate the races and has grown more tolerant of differing views on sexual preference and other alternative lifestyles.  Unfortunately for the religious, while times may have changed, the interpretations of religious readings and teachings may not have kept up with changing views in society leaving the religious with no choice but to erect barriers in the name of religious self-preservation.

But does a changing society have a right to impose new rules of association on religious communities?  The answer is no.  Individuals and entities that make up the religious community have a right to associate with individuals and groups of their choosing whether those interactions are personal or commercial based.  You can’t force the religious to have a “come to Jesus” moment and hold hands with the unannointed.  It won’t happen.

Nor can you protect the commercial component of the religious community from the consequences of their choice to discriminate, which will be loss of business.  For those of us who see the reality of the Act, that it will lead to certain businesses attempting to discriminate against particular consumers, we should relish the thought that in due time these businesses will be called out and find themselves on the receiving end of the discriminatory practices that they wished to engage in.  Consumers, who have a myriad of choices for goods and services, will have the final say.

Posted in civil rights, economics, religion | Tagged , , | 4 Comments

It’s about consumption security not income inequality

The Republican Party has taken the bait from the progressive narrative on income inequality and, according to a post in The New York Times, its potential candidates for the GOP nomination for president have rumblings apparently in line with the position taken by America’s upper crust.  For example, the usual buzz terms, such as tax cuts and reduced regulations have been used by Senator Ted Cruz, Republican of Texas, and neither he, Jeb Bush, or his fellow senator Marco Rubio of Florida believe that government intervention is the best approach to resolving the problem.

This position appears out of line with a significant portion of Americans, even their fellow Republicans.  According to the Times, 69% of Americans believe that the U.S. government should take initiatives to close the gap while approximately half of Republicans feel this way as well.

The wealthy don’t share the rest of America’s sentiments.  While a significant portion of the wealthy consider the ga to be a problem, only 13% of the wealthy, according to the Times, believe that government should be taking any action.  This sentiment holds even as the wealth gap is at its widest in years. According to a survey conducted by the Pew Research Center, median net worth for upper-income families is 6.6 times that of middle-income families and 70 times that of lower-income families.

Although the Democrat Party has been sounding the charge for the barbarians to storm the walls of the wealthy, the Party’s all but crowned nominee, Hillary Clinton, has not exactly been a chalkboard of specifics and statistics on the issue.  Mrs. Clinton has been vague when it comes to policy proposals, probably because she may not want to alienate potential donors with whom she now shares more in common with than we ordinary folks.

One problem I see is how both Republicans and Democrats conflate the issues of “wealth gap” and “income inequality.”  They are not the same.  In theory an individual can make $36,000 a year and have a $200,000 in assets while a person making $80,000 a year may have negative wealth.  Should government risk putting together a policy package that provides. say, tax cuts, expanded earned income credits,  Medicaid, and an increased minimum wage that flows in part to a consumer that has moderate or even low-income from wages but has assets that can generate additional passive income?  To me such a policy would only aggravate the problem, assuming a problem even exist.

Yes, wealth has been moving more to those with capital versus those without but in a capitalist, market economy that is the norm, not a shocker.  I also don’t think that low and moderate income Americans are losing too much sleep over what Mitt Romney or Warren Buffet rake in from their investment income.  What Americans are concerned about is consumption security; the ability to buy food, clothing, transportation, and electricity so that they have a safe and stable life for their families.  If there is to be any effective public policy in the poverty space, this realistic focus should be the starting point and selling point.  I’ll get to why I say selling point in a minute.

First, let me propose this.  To abate consumption security while providing a platform upon which the poor can begin building wealth, the U.S. should abandon its social welfare program and replace it with an annual consumption voucher for the working poor.  Along with a Medicaid/Medicare program financed in part by the working poor via premiums, the working poor will be able to supplement the income they receive from their current jobs, using this supplement to not only consume but to build wealth.

Such a program should meet the needs of the political elite to reduce budgets while providing the commercial elite with additional revenues and wealth derived from additional consumption of goods and services.

Just how much would a voucher program cost?  According to the U.S. Bureau of Labor Statistics, there are approximately 5.6 million working poor families in the United States.  At $30,000 per working poor family, the total bill for this voucher program would be approximately $165 billion a year.  This is considerably less than the $370 billion a year spent on safety net programs such as food stamps, refundable portions of the earned income tax credit, in-kind assistance transfers, and other direct cash payment programs.

We may ask aren’t we doing this now, but under a voucher program, we directly address a market problem.  Consumers living in poverty who are willing but not able to make purchases to address the most basic of needs would get a direct cash infusion and make their own consumption choices.  They wouldn’t need the hand holding of numerous government agencies and why should they.  The working poor are already demonstrating responsibility by getting to a job that contributes toward taking care of their families.  Rather than bringing additional and onerous rules to bear on the working poor, streamlining the requirements for aid by offering a once a year cash payment reduces the stigma on the poor while making the state administratively efficient.

The selling point here is that given the reduction in administrative costs, taxes need not increase.  That should soothe the fears of the wealthy.  In addition, communities within which $30,000 of direct spending is made available should enjoy the multiplier or ripple effect such spending creates.

This is not a new idea, providing the poor with vouchers, but what would be new would be for the GOP to aggressively push this alternative to the current welfare state and educate the voting public on its benefits.

Posted in Democrats, poverty, Republicans | Tagged , , , , , , | 2 Comments

Fifty years after ‪#‎Selma‬, we still don’t get it….

Earlier today on C-SPAN there was a panelC-SPAN: Voter access and elections administration on voting access and election administration. There is an irony here; that every panelist is a member of the socio-economic group known as “white people” while there are no members of the socio-economic groups known as “Hispanic” or “black” people; groups that have been historically denied the vote.

Adding to the irony is that this group of panelists is able to excitedly utter the word, “Selma” with some reverance as they emphasize the customer service aspects of voting, you know, the complaints about long lines and being turned away because someone does not have the right ID. It’s easy for this group to focus on inane complaints about long lines and ID when most voters have waited overnight to buy concert tickets and iPhones. Assinine.

The real and only issue about voting in a consumer-driven, market based, capitalist political economy is how to best translate the vote into an effective mechanism for manipulating capital and wealth flow such that economic development is better allocated in as many communities as possible which leads to a significant decrease in crime, delinquency, unemployment, hunger, and other stress and social ills related to a poor economy….

Oh well, I guess both black and white people are happy with the popularity contest aspect of voting such that the question of strategic political action remains too far outside the box. (Let the choir sing, “We shall overcome someday…..”)

http://www.c-span.org/video/?325054-1/discussion-future-us-election-laws-policy

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