Sept 9, 2011

Jobs should not be the number one objective of a political campaign. Growth should be the primary objective. Why? Growth creates jobs but jobs do not create growth. If you think otherwise, go to Cuba where you will find a nation fully employed and yet you will also find perpetual stagnation. Neither should debt reduction be objective number one. Reducing debt doesn’t create growth either. But growth does reduce debt. As income increases along with prosperity, revenues to both the private sector and government rise, and the percentage of debt falls; so long as spending is not increased. And it isn’t tax increases that reduce deficits. Growth increases revenues while increased taxes reduce growth and revenues. John Kennedy and Ronald Reagan were two Presidents that understood this well and produced successful economic policies that saw increased revenues and led the nation to prosperity.



That’s why the candidate I will pull for in this election will be the candidate who pushes a growth agenda. But which candidate do I want to win the primary? The candidate most likely to defeat Barack Obama. Any candidate running today would make a better president than Obama. Every candidate running would, on net, help America more than hurt it. So the most important question is which candidate will beat Obama in the general election? That is who I will vote for in the primary election, and I hope that person will know something about growth, because it is a growth message that can win the general election.


To push an agenda of creating jobs as an end in itself will do nothing to create prosperity. If they are government jobs they will simply be too expensive a liability to taxpayers and a drag on the economy. It is private jobs we need. Private jobs are lasting and come at only the employers’ expense, not the taxpayers.


Besides, jobs are a lagging indicator. The unemployment rate falls only after the economy has been growing for about six to eight months after recessions end. Employers hire only as demand increases. Artificially creating jobs does nothing except take money from individual tax payers to pay for temporary workers. And stimulating the economy through redistribution or money creation always comes to a bitter end. At the end we are left with stagnation along with all the new debts incurred, as we have seen.


As bad as democrats are at understanding this point about jobs versus growth is republican’s lack of understanding about when to raise taxes. That is the thing that bothers me most about the field running in the republican primary. During their last debate they were all asked to raise their hands if they would vote against a tax increase even if they were offered a ten dollar decrease in spending for every dollar increase in taxes. All raised their hands. That's nuts! Ronald Reagan would be rolling his eyes at that display. He was asked once whether he would increase taxes if government decreased spending and his answer was, "if the price were right." That is the correct answer.


Reagan eventually struck a deal with Tip O'Neil to raise tax rates one dollar in exchange for three dollars in spending cuts by the Congress. Unfortunately, O'Neil lied to Reagan and refused to cut spending. The point is that there are times when tax increases are justified. A 10:1 ratio of cuts to tax increases is a deal I would never pass up. Yet tragically, I would have been the only one on that stage with my hand in the air. The thought that the next President of the United States would turn down 900 billion in spending cuts for 100 billion in tax increases is a bit depressing.





The whole concept of "entitlement" is finally being challenged around the world. There are riots in many countries over spending cuts. But, the rioters are being fought back fiercely by those who know what the fight is all about. This is true from Greece to London to Italy to Wisconsin.


The Governor of Wisconsin asked unions to pay a little bit more for their benefits which were bankrupting the state. They said “no”, and protested in the capitol building and in the streets and brought government to a standstill. Finally, despite their protests, the Governor won the day and the protesters dispersed. In a last ditch effort unions spent millions on advertising and launched a re-call effort to tip the balance of power away from the fiscally conservative state congress back to a pro labor congress. They lost. At the end of the day, rather than tens of thousands of labor supporters showing up at the capitol to protest, only a few hundred protesters showed. The fight against ending certain entitlements in Wisconsin ended in a whimper. A similar drama is playing out in almost every corner in the world.


Those that believe they are entitled to other people’s money are at war with those that aim to keep it. In California, one of the last bastions of liberal thought, the new Governor, Jerry Brown, is telling everyone that if the government can’t raise taxes they will have to cut police, firemen, and teachers. Not one mention of the fat cats of government being cut instead. Instead, their pay goes up in spite of a recession. The average worker and his employer have been forced to cut their budgets while the EPA’s budget, for example, has increased along with their number of employees. The EPA has 29% more workers now than before the recession ready to regulate us even more. The mere thought of suggesting that we tax the labor union rich, or the top bureaucratic rich, is never mentioned or proposed. That would be unthinkable!


There are a few brave souls saying "no more.” They understand that there is a difference between the "fat cats" who are makers, and the fat cats who are takers. They understand that the heads of oil companies and jet-flying executives work 8, 10, 12 hours a day producing things. The heads of labor unions and government agencies produce nothing—they simply control and regulate people. And in the rare instance that some government workers do produce a product, it is inevitably an inferior product that cost a lot more.


In the Primary ahead we must pick a candidate to run against Obama who will focus on a growth agenda while being able to articulate the case for reducing the size of a bloated, unfair, and in many cases—totally useless government. (See The Next Big Thing and The Extra Mile in the archives for more on growth.)





Let me conclude, by telling you a story that exhibits the kind of candidate I am looking to vote for. Once upon a time in Puerto Rico, almost all elected officials sought office to secure a job. The newly elected President has broken that mold and has cut government spending, cut government programs, and actually balanced the budget! His popularity in the polls has…plummeted. When asked about his prospects for re-election his answer was, "I don't care about being re-elected.”


He went on to make the following important point. He said that he did not aspire to office to get a job. He loved the job he had before, and is looking forward to going back to it. He wanted to be President to solve the problems others were unwilling to solve for fear of not being re-elected. He became President and then took the action that a businessman would take. He cut expenses and increased revenues.


This is what I am looking for in any candidate seeking office: an individual that is looking for temporary employment in order to solve problems. Not a candidate searching for a perpetual paycheck, superior benefits, or prestige and status. Even worse are the ones that tell us how bad things are and how bad their opponent is, without having a clue how to change things for the better.


We need a candidate that understands what will work in our efforts to restore freedom and prosperity, and how to implement those initiatives. Identifying and voting for such a candidate is my primary objective.


Market Update:

We have a lot to talk about this week. Greece had a failed auction today, selling only half the bonds needed to pay its debts. A possible default looms. (See my Mid-Year Review--A year of L, and the second part of that article, Death of the Euro; available in the archives.) The Euro is now in free fall. The German stock market has fallen out of bed to a 5 year low versus the Dow led by bank stocks. And for the week, Gold and the Dow were manic-depressive even though the week ended relatively flat.

Meanwhile the dollar soared as long term interest rates hit a 60 year low. So what does this all mean to stocks and metals investors and traders?


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