It’s been a long time since we’ve seen gross domestic product (GDP) grow at such a robust rate. Not since the third quarter of 2003 has the United States experienced this type of growth. However, that’s all for the good news. Once this number is broken down, it reveals glaring weaknesses.

First off, about two-thirds of the 5.7 percent uptick is attributed to inventory replenishment. This marks an end to businesses’ panicked inventory liquidation and nothing more. Eventually, restocks are in order regardless of market conditions. Considering the mass liquation that has taken place, this number should have been much higher. Furthermore, private inventory investment does not address unemployment.

735,000 jobs were lost in the last six months of 2009. (1) The economy is continuing to shed jobs, as year-over-year GDP growth has remained flat. (2) One key indicator of a strengthening economy is real nonresidential fixed investment, as it indicates the level of confidence business has in the economy. The 2.9 percent increase seen in the fourth quarter does not come close to offsetting the 14.6 percent decline from 2008. (3) Upon digging deeper into the employment numbers, wages and benefits rose a meek 1.5 percent in 2009 – the smallest change since the series began in 1979. (4)

Some will tout the 18.1 percent increase in U.S. exports. (2) However, it is naïve to think the United States can play the same game as China. The pain felt and problems associated with a weak U.S. dollar are far greater than any reduction in the trade deficit. A weaker dollar leads to inflation and makes the prices of imports more expensive. Needless to say, there will be a lot of consumer frustration at the gas pump this summer.

After going inside the numbers, more evidence illustrates that none of the “growth” is real. Last quarter, positive GDP rode the coattails of government injected stimulus. This quarter, inevitable inventory replenishment along with growth being derived from government gimmicks is supposed to excite people. The key here is that sectors that are not benefiting from government stimulus are severely lagging such as equipment and software – down about 16 percent from 2008. (3)

History has proven that the government cannot prop up the economy. During the Great Depression, GDP grew at an average rate of 9 percent per year between 1933 and 1937. However, unemployment remained extremely high, and then the economy suffered another severe downturn in 1937 and 1938. The measures being taken today are not only planting the seeds for inflation, but are creating the conditions for the same kind of unstable environment seen during the Great Depression and the 1970’s.

President Obama’s $3.8 trillion budget will set a record breaking $1.56 trillion deficit for 2010. It is clear that Obama remains steadfast in pursuing anti-growth policies. Taxes on those who produce and provide jobs; burdensome regulation that serves as barrier to entry as well as escalating compliance costs for small businesses; increasing the government’s already huge presence in healthcare; and cap and trade which will increase taxes along with skyrocketing utility costs will ensure the current economic environment for years to come.

How long are people going to fall for the “if we didn’t act, things would be much worse” bit? How well is government-funded “growth” working? How many will be happy with positive first quarter 2010 GDP growth when it is very possible unemployment will continue to rise? Going inside the numbers reveals an ugly truth.

(1) http://74.125.95.132/search?q=cache:2RMn_rCSxRQJ:www.bls.gov/news.release/empsit.nr0.htm+735,000+jobs+lost+in+last+six+months+of+2009&cd=3&hl=en&ct=clnk&gl=us

(2) http://www.bea.gov/newsreleases/national/gdp/2010/gdp4q09_adv.htm

(3) http://www.richmondfed.org/research/national_economy/national_economic_indicators/pdf/all_charts.pdf

(4) http://www.bls.gov/news.release/eci.nr0.htm

The arrogance of the Obama Administration and Congress has cost Democrats a Senate seat in the bluest of blue states. Scott Brown emerged victorious last night against a very liberal candidate in Martha Coakley. It seems that the 2008 liberal playbook of talking points needs revision. Listening to liberal candidates blame George W. Bush is a bit like watching the Chicago Bears offense run the same play over and over for no gain after it worked on the first try.

Scott Brown’s victory brings many positives to light. The Democrats have effectively lost their supermajority power, which means that markets and the public no longer have to fear their ability to ram through catastrophic legislation. Gridlock is also very bullish for the market. This victory also sends a very chilling message to Democrats across the country that the heavy hand of big government is being rejected by the people. This was a Senate seat in Massachusetts and was occupied for decades by the late Ted Kennedy! Never in my lifetime would I have thought the seat would have gone to a Republican, especially only one year after the public and the media fawned all over President Obama. My first column after Obama was elected stated that he would make the best case for classical liberal/free market ideas. However, my optimism certainly didn’t extend to Massachusetts. If the Obama Administration and Pelosi-Reid led Congress respond with the usual arrogance and ignore the public’s message, then November is going to be a very dismal month for Democrats.

Now for the bad news…

Scott Brown’s victory may be just what the country needs in the short term, but ignoring the bigger picture does pose long-term problems.

Scott Brown was not even close to being the ideal candidate. His record, especially fiscally, is very disturbing to say the least. In fact, Brown has an 11-year record of voting for expanding government that includes the following:

• Brown urged voters to vote AGAINST “Ballot Question One” in the 2008 election that would have ended the Massachusetts state income tax. In addition, he failed to publicly endorse and take a stand on the biggest tax and spending issue facing Massachusetts this year – a ballot initiative to roll back the sales tax from 6.25 percent to 3 percent. It is estimated that Massachusetts families would have had 32,929 new private sector jobs if the measure was passed. (1)

• Brown not only supported and endorsed the Massachusetts health care reform bill (also endorsed by Ted Kennedy) known as “Romneycare,” he played a key role in its design. “Romneycare” actually served as a model for “Obamacare,” as the bill forced all Massachusetts workers to buy health insurance or be subject to a penalty tax. It is very ironic that voters now sent him to the Senate to vote against “Obamacare.”

• Brown’s voting record does not show any sponsorship of a bill that cuts taxes, eliminates wasteful spending or shrinks government during his entire 11 year tenure in the Massachusetts state senate. (2)

The long-term concern here is populist outrage. Such outrage puts America in a perilous situation, as this type of outrage played a key role in Obama’s victory in 2008. The public was so angry and fed up with George W. Bush, many cast a blind vote for Obama without realizing that the agenda was the same – especially from an economic standpoint. People closed their eyes and ears to reality and did not take the time to actually listen to him on the campaign trail. Now that the anger has switched ideologies, folks on the right are repeating the same mistake. People are so caught up in their anger towards Obama and his policies, they are ignoring the fact that a lawyer with a fiscal record that would make some Democrats jealous was just sent to Washington to stop the very same agenda! While there is no doubt Brown will ride the populist wave and vote against big government, the concern lies in what he will do when “Father Time” quells the anger.

It is apparent in 2008 that a vote for Obama was simply a vote against Bush. Conservatives and libertarians must not make the same mistake and vote for candidates that do NOT represent their ideology to simply vote against Obama. Voters need to examine potential candidates’ records very carefully, and not fall back into the “lesser of two evils” mentality. Otherwise, the left, once again, gets to turn populist rhetoric in their favor by casting blame on an ideology when its principles were never enacted. Fake allies pose a much greater threat and can do far greater damage than known enemies. The tenure of the Bush Administration and John McCain’s unsuccessful presidential bid should have proved that conclusively.

Classical liberalism has made a comeback. The ideas of limited government and free markets were never dead. They were dormant. President Obama has allowed these ideas to be resurrected. It is now time for voters to make wise choices, examine records, hold their candidates accountable and vote based on IDEOLOGY not PARTY. Let’s not get caught up in the Democrat vs. Republican war, as America has seen where that leads.

November, 2010, poses one of the best opportunities in decades to get candidates in office who understand economics and will fight for free market principles. While I am thrilled to see people embracing these ideas and rejecting the current statist agenda and equally thrilled to see the Democrat machine take a hit in Massachusetts, I don’t want voters to lose sight of the long-term picture. Scott Brown is not the long-term solution we need to put America back on the path to prosperity.

(1) http://www.centerforsmallgovernment.com/feature/warning-to-tea-party-activists-and-supporters-town-hall-meeting-protesters-and-tax-cutters-living-in-massachusetts-who-are-even-considering-voting-for-scott-brown-for-us-senate-january-19th/

(2) http://www.votesmart.org/voting_category.php?can_id=18919&type=category&category=10&go.x=13&go.y=12

BY: MIKE PORTER

We hear it every day in the news as more American jobs continue to be lost overseas. Politicians always claim to have the answer to our problems and offer to come to our rescue promising to stop global outsourcing for good. Why shouldn’t they, right? If they succeed, then everyone who has a job will have the politicians to thank. When President Obama was on the campaign trail, he said “When I am President, I will end the tax giveaways to companies that ship our jobs overseas, and I will put money in the pockets of working Americans…” several times. (1) Many on the left as well as some moderates repeat rhetoric similar to this and only talk about the negatives of outsourcing. Language like this sounds great on the campaign, but is there any truth to it? Is outsourcing really a bad thing for our economy, and should it be stopped to save America? Nothing could be further from the truth, and in all actuality, outsourcing helps the U.S. economy in many ways. Why do politicians say things like this? They either do not understand how everything works themselves, or they do not think you are capable of understanding the truth about outsourcing. I think it is a little of both, and once you learn about outsourcing, they may lose your vote. These benefits help not only the companies that choose to outsource, but also employees and consumers. There are also some things you can do that can aid in protecting yourself should you run into an outsourcing situation at your company.

Let’s begin by addressing the myth surrounding the jobs lost as a result of outsourcing. There is no disputing the fact that some jobs are lost overseas when companies choose to outsource. To deny this claim would be absurd; the point of outsourcing is to move some jobs that are currently being performed by people in the United States to countries with cheaper labor costs such as India, China, or Poland. On the surface, this sounds cruel, as it does mean some people who are working in factories or in highly skilled Information Technology positions will be out of a job. The fact that critics leave out is the number of state side jobs that are saved as result of outsourcing. Moving some of this labor overseas could mean the difference between a company staying in business or going out of business. Losing some jobs in the short term is certainly a better option. Companies often take the savings gained from outsourcing and reinvest these savings in order to expand and create better jobs in the United States. For example, just after the North American Free Trade Agreement (NAFTA) was passed, Zenith Electronics Corporation sent over 10,000 jobs to Mexico. However, they continued to employ over 6,000 people in the United States. (2) Today, Zenith employs thousands of people in the United States because they were able to save some money by utilizing overseas labor. If Zenith could not take advantage of NAFTA, the likelihood of Zenith going out of business would have been very high. As a result, the job losses that would occur from Zenith’s bankruptcy would have had a much greater impact on jobs and the economy. The leveraging of capital also saves the government from having to bailout companies who are “too big to fail.”

Companies aren’t the only ones that benefit from outsourcing. You, the consumer, also benefit each time you purchase products. Many of the products sold at retailers such as Wal-Mart are assembled in factories overseas and can be sold at a cheaper price than if they were manufactured in the United States. Critics of outsourcing always like to talk about the loss of jobs and the ensuing problems, but they rarely factor everything into the equation. Opponents do not complain when it comes time to buy something at their favorite store that is cheaper as a result of outsourcing. During difficult economic times, people need a low cost option. In addition, outsourcing helps U.S. based companies take advantage of cheaper labor, which allows them to compete with companies overseas.

It has been established that the consumer and the company benefit from outsourcing, but what about the employee? Is it possible for employees to benefit from outsourcing? The employees who remain employed by the company can benefit from additional skills as a direct result of outsourcing. For example, some employees may take on more of a management role and work with employees abroad. This provides opportunity for the employee that would have been difficult to obtain if it were not for outsourcing. In some cases, the overseas labor will take on more of the “mundane” tasks, which will free up the state side employee to focus on more meaningful activities. Moving simple, repeatable tasks tend to be focus of outsourcing. These same tasks also inclined to be more of the everyday tasks that many domestic employees dislike. Why not move these tasks over to another team of people for a lower cost? What if I were to tell you someone else was going to do all of your simple and tedious tasks you hate doing in order to free you up for more interesting work?

Employees who are let go as a result of outsourcing also benefit. While they may have lost their job, this change will force many people to pick up new and improved skills, which will land them a better paying job. This applies to non-skilled labor as well as highly skilled labor and everything in between. While short-term job loss is never good, the long-term benefit of a more skilled workforce is more than an offset. In many cases, companies who are engaged in outsourcing are always in search of talent. In several instances, American based companies like IBM or Hewlett Packard (HP) will hire most of the people who were outsourced to work for them and their outsourcing efforts. A quick search on IBM or HP’s website will illustrate how they are constantly looking to fill open positions here in America even though they employ thousands of people overseas. How many of these jobs would be lost if IBM or HP could not leverage their assets by going overseas? Furthermore, what about the thousands of companies as well as new companies that are able to start up and survive as a result of outsourcing some of their information technology operations to IBM or HP?

Outsourcing also benefits other countries. One may ask why America would be interested in other countries benefiting from outsourcing and how another country’s prosperity is beneficial to the United States. To begin with, the shifting of some labor over to another country will benefit the economy of that country. Improved economies in foreign countries will improve their citizens’ way of life and expose the benefits of capitalism in their country. This has resulted in increased demand for U.S. products and services performed by people right here in America as well as overseas. For example, Coca-Cola has shown continued profits while domestic sales remain flat. In July of 2009, Coca-Cola announced their second-quarter profit rose 43 percent due to increased sales in China and India while domestic sales fell one percent. (3) Without overseas sales, Coca-Cola most likely would have had to lay people off or cut back on some employee benefits. Improving the lives of the people in these countries has allowed their citizens to have the extra income to spend on something like bottles of Coke. Poverty stricken countries are not going to have the improved lifestyle or the spare cash to spend on soft drinks without American help through outsourcing. Situations resembling the jobs saved at Coca-Cola as a result of outsourcing will never make headlines; however it happens quite frequently. One would think most people would embrace the idea of private companies making investments domestically as well as overseas to improve the lifestyles of millions of people all over the world – all without taxpayer dollars.

What about the retailers who hire people to sell these products? How many of the 2.1 million retail jobs would a massive retailer like Wal-Mart lose should they be forced to sell products at higher prices? (4) What would happen to the benefits a company like Wal-Mart is able to provide for all their U.S. based associates? One of the primary concerns in today’s political arena is people who do not have access to health insurance. Outsourcing has given many companies the ability to provide their employees with health insurance. This is a fact that protectionists fail to acknowledge. Wal-Mart was able to add $870 million dollars into employee profit sharing and 401K plans which are funded regardless of whether or not the employee chooses to fund their retirement account. (5) It would be highly unlikely this retailer would be able to provide these benefits if they were not a successful company. Wal-Mart thrives on their ability to be a low-cost provider which can only be achieved through selling many products made overseas. If we are seeing this kind of result from one single retailer, imagine what the effects would be for other retailers and suppliers who provide raw materials to overseas factories all over the world.

Regardless of how you feel about outsourcing, the statistics show outsourcing isn’t going away any time soon. Therefore, what can you do about outsourcing, and how can you protect yourself should your job become outsourced? You should acquire as many skills as possible both on and off the job, show up on time with a good attitude every day and learn as much as you can about the field in which you work. Additional skills and business knowledge will make it easier for the company to move you into different roles should your current role be lost to outsourcing. If the worst case scenario actually happens and you are laid off, you will have additional skills and business knowledge that could easily be taken with you to another company. Employees who learn new skills are helpful to themselves, their employers, and the economy as a whole.

What can our government do about outsourcing? Given the many benefits outsourcing provides, the government should do very little. Our government should allow private firms to decide whether or not outsourcing will be a good strategic move. In several cases, companies have cancelled outsourcing contracts and pulled their operations back to the United States on their own. One example is a decision made in 2009 by AT&T to bring over 4,000 jobs back to the states that had previously been outsourced overseas. (6) If our government is concerned about job losses as a result of outsourcing and wishes to provide better job opportunities for America, it should focus on the following:

* Encourage business to succeed and allow poorly run companies to fail
* Eliminate unnecessary and costly government regulations
* Remove its pro-union stance which results in the high cost of labor
* Provide a tax-friendly environment
* Create an atmosphere that encourages investment and profit

There is no such talk from the Obama Administration. Instead, this administration has taken a more protectionist view by opposing companies who choose to outsource. The truth is protectionism has never worked throughout history and actually provides a motive for companies to outsource. Furthermore, these protectionist actions make a recession worse.

Finally, outsourcing is not easy to accomplish. There are many barriers which will always keep companies in line when they consider outsourcing. In many cases, there will be language barriers and cultural differences that will not positively impact the bottom line. There are also logistical issues with outsourced employees, as it becomes more difficult to manage and communicate. Companies also have to obey the labor and tax laws which exist in the country in which they choose to outsource. Some overseas labor laws are worse than the United States, and some companies could find themselves hiring U.S. employees for work that was initially intended to go overseas. Executing an outsourcing program requires careful planning and the assistance of many people stateside to accomplish. Many companies, such as AT&T, reconsider and scale back some or all of the work that had been outsourced. A study done in 2009 by oDesk, a company that assists with outsourcing, has found many U.S. firms have been outsourcing to American based companies using American labor instead of overseas, and wages for these employees have increased! They discovered while rates for U.S. employees tend to be higher, their feedback scores tend to be higher as well. This same study has shown work being done in the U.S. grew at a rate of 367 percent from 2007 to 2008. (7)

In conclusion, outsourcing will not destroy the American economy. These fears have been played out by useless politicians since America’s beginning back when states would outsource and move labor to other states that had a lower cost of living. We see how detrimental that was to the United States, right? History has shown us that the government’s attempts to prevent what the market is trying will only cost America more jobs and opportunity. You have a choice every day as a consumer to research and only do business with companies who minimize outsourcing. However, be prepared to pay more money and have less money to save should you decide to take on such an initiative. No one likes to see jobs go away, but our government’s attempts to stop it are just wasteful, protectionist nonsense. The market will always work in spite of what politicians do, and no one is bigger than the market itself. Our government needs to step back and let this play itself out. If our government would just assume the role intended for them by our country’s founders, then we will all be better off.

(1) http://www.barackobama.com/2007/11/03/remarks_of_senator_barack_obam_30.php
(2) http://www.nytimes.com/1993/11/14/weekinreview/nafta-and-jobs-in-a-numbers-war-no-one-can-count.html?pagewanted=1
(3) http://www.nytimes.com/2009/07/22/business/22coke.html?_r=2
(4) http://walmartstores.com/Careers/
(5) http://walmartstores.com/careers/7750.aspx
(6) http://www.xchangemag.com/articles/telecom-outsourcing/att-brings-4000-outsourced-jobs-back-in-house.html
(7) http://www.odesk.com/blog/2009/02/freelance-job-growth-accelerates-in-the-us/

When in doubt, it is always safe to pander to the masses. President Obama’s approval ratings have taken a severe hit; but there is no better way to try and change direction than to have sharp words for Wall Street bankers and to portray himself as siding with the little guy. However, there are many facts the President left out of his little P.R. stunt.

During his interview on 60 Minutes Sunday evening, he said “I didn’t run for office to be helping out a bunch of fat cat bankers on Wall Street.” Is that so Mr. President? If one has paid any attention to President Obama’s first 11 months in office, they would be very well aware of the fact that he has not only continued, but has expanded the Bush/Paulson bailout plan. He has also recently considered bailouts for the ailing newspaper industry.

The President may claim that he has no intention of helping Wall Street fat cats, but one is left to wonder why these fat cats were so generous in their donations to his presidential campaign. (1) Goldman Sachs was President Obama’s second largest donor contributing nearly $1 million to his campaign. The top ten list included Citigroup, JP Morgan Chase & Company, Google, Microsoft, Morgan Stanley and General Electric.

These fat cats have invested heavily in this administration since they not only get rewarded for their irresponsibility; they also stand to profit immensely off of their proposed policies such as Cap and Trade. Cap and Trade would do absolutely nothing to address climate change concerns, but it would give the government tremendous power while companies like Goldman Sachs would profit off of the commissions. Goldman Sachs currently owns a 10 percent stake in the Chicago Climate Exchange. All of this would be at the CONSUMER’S expense. President Obama can spew rhetoric all day long that talks about heavy taxation and regulation, but the truth is that these taxes and regulatory costs are passed onto the consumer. It’s quite comical to think otherwise.

General Electric (GE) also made the list and is currently being repaid with the receipt of lucrative government contracts. The company also started a joint venture called Greenhouse Gas Services which will invest and manage the trading of greenhouse gas credits. During the fourth quarter of 2008, the company’s stock declined 30 percent. However, that did not stop the company from spending $4.26 million on lobbying. (2)

It’s interesting how the left widely publicized former Vice President Dick Cheney’s connection to Halliburton Corporation, yet they turn a deaf ear to amount of influence General Electric has had on public policy not only through lobbying, but through the promotion of its agenda via its ownership of NBC Universal along with Jeffery Immelt’s special connection to President Obama. Mr. Immelt sits on the President’s Economic Recovery Advisory Board. Mr. Immelt has all but run GE into the ground, yet he is being consulted for economic advice? These types of connections make the former Vice President’s look like small potatoes.

President Obama claims he will put pressure on banks to open up their purse strings and loan money to small businesses. There is the saying that “ignorance is bliss,” but this is not the case. Obama denies what really caused the crash of 2008 – the Federal Reserve’s policy of cheap money which allowed for the financing of reckless lending practices backed and regulated by the government. He’s never spoken seriously or has expressed real concern for the weakness of the dollar, the amount of debt that burdens the nation and a dangerously large federal deficit – the largest in history. Instead, he continues and expands on the Bush administration’s (the same administration he loves to blame) absurd monetary policy while encouraging banks to stray from prudent lending practice all in the name of saving the economy.

When all of the facts are examined, one can conclude just how much Obama cares about “the little guy.” He shows his concern by condoning a monetary policy that weakens the purchasing power and net worth of every American. He supports bailouts of failing companies (many that are run by those fat cats he says he doesn’t wish to help) that prevent opportunity. Propping up failure comes at the expense of growth and innovation. He does not address any of the burdensome regulation and mandates that prevent small businesses from expanding and hiring people. Larger corporations enjoy economies of scale, which allows them to spread out and pass the regulatory cost onto the consumer; but the small business owner cannot. It’s no coincidence that there has been a surge in the hiring of temporary workers over the past several months since these mandates do not apply to temporary workers. In addition, temporary workers can be let go much easier than employees, which is a wise move for employers in precarious economic times. All that the President offers is a promise that banks will give small business the option of assuming more debt – just what it needs!

The little guy doesn’t need the Obama Administration’s statist agenda and the enactment of the same failed policies that have prolonged and made recessions worse in the past. Such polices create a very volatile economic atmosphere – not the kind that puts people back to work and ensures prosperity for all.

(1) http://www.opensecrets.org/pres08/contrib.php?cycle=2008&cid=N00009638

(2) http://www.washingtonexaminer.com/politics/Obamas-hidden-bailout-of-General-Electric_03_04-40686707.html

All who are disappointed in Hoffman’s narrow loss … do not despair any longer. Hoffman may have lost the election, but those who stand for conservative principles won last evening. The results sent a clear message to the Republican Party – a message that apparently needed to be repeated and will continue to bear repetition until Republican leadership understands that liberal candidates are toxic.

Doug Hoffman not only fought against his Democrat opponent, Bill Owens; he also fought against the Republican National Committee – the committee that spent $1 million backing their liberal candidate Dede Scozzafava and ran ads AGAINST him. The Republican’s “one million dollar baby,” Ms. Scozzafava, was pro-bailout, pro-tax, pro-stimulus and leaned toward supporting a public option for healthcare. In spite of these very liberal positions, the Republican National Committee (RNC) felt she was worth a $1 million investment. After all, RNC elites concern themselves only with party affiliation – not the candidate’s principles and core beliefs. After Dede benefited from the RNC’s lucrative investment, she turned around and endorsed Bill Owens after she dropped out of the race. Mr. Owens owes the RNC much gratitude for his victory.

The RNC still has not learned from its painful past – the 2006 and 2008 elections. I wrote in the first column I published after Barack Obama won the election that conservative principles (especially fiscal) will make one of the most prominent comebacks in decades. The Republican Party still doesn’t get it, which is why America just witnessed an independent running against TWO parties almost emerge victorious. RNC chairman, Michael Steele, can continue his “big tent” policy with calamitous consequences. All he will have in the end is an empty tent. The key factor here is to have a political party that actually stands for something and has core principles. Deviation from core principles or letting liberals define what the party should stand for will allow Democrats to continue to win in areas of the country that had a century of Republican leadership.

This past election is about short-term pain for long-term gain. Either conservatives are going to take back the Republican Party so it will stand as the party of personal and fiscal responsibility or there will be plenty of independents following in Doug Hoffman’s footsteps. Mr. Hoffman’s bravery showed that it is VERY possible to win as an independent – to defeat BOTH political parties. As the U.S. dollar continues to weaken, as more people begin to see that the third quarter GDP results were artificial, as the reality of inflation or stagflation sets in, voters will reject liberal fiscal policy as well as any politician that advocates it regardless of the “D” or “R” after their name. The newly elected Republican leaders and governors in New Jersey and Virginia should keep this in mind.

Michael Steele’s “big tent” Republicanism and George W. Bush’s “compassionate conservatism” has failed on every level. History has shown over and over that “Liberalism Lite” is not the formula for success and leads to disastrous losses for Republicans. Herbert Hoover’s abandonment of conservative economic principles led to decades of Democrat reign in Congress along with four terms of FDR. George W. Bush followed in Herbert Hoover’s footsteps, and America now has one of its most liberal Presidents. If “Liberalism Lite” leads to “Ultra Liberalism,” then conservatives are better off going to war with Republican elites because the elites will soon realize that the tent doesn’t expand or even exist without the base. It is better to lose elections in the short-term than allow radicals to give America an economic makeover.

The near-term is going to be a bumpy ride. However there is a greater danger in giving liberals the opportunity to paint liberal Republicans as conservatives and convince voters that fiscal conservatism is to blame. American citizens need a real option, and when that option exists, blame will be distributed properly. If it takes an independent third party to stand for the kind of economic and monetary policy America needs, then the country is better off being run by Democrats until things get sorted out. Both political parties steering the country in the SAME direction (one faster than the other) is a far worse fate. It is possible that Mr. Owens may be more conservative than Ms. Scozzafava – the Republican Party’s $1 million baby!

Congratulations to Doug Hoffman and everyone on his staff for an eye-opening election that caught the entire nation’s eye. Whether one is a Reagan Republican, a Ron Paul Republican or whether they are socially liberal, libertarian or conservative, one thing that unites all of these constituents is ECONOMIC POLICY. If the Republican Party doesn’t change its ways, this is only the beginning of the rise of the independent conservative and libertarian candidates.

Not so fast. Estimations for positive GDP growth began early this summer; however, a closer look at how this was achieved will reveal a bleak outlook in the future.

The key contributions to growth in the third quarter are listed below:*

• Real personal consumption expenditures increased 3.4 percent in the third quarter, in contrast to a decrease of 0.9 percent in the second.
• Durable goods increased 22.3 percent, in contrast to a decrease of 5.6 percent.
• Real residential fixed investment increased 23.4 percent, in contrast to a decrease of 23.3 percent.

The Economic Recovery Act of 2009 had very little impact on the numbers as the federal government's contribution to GDP growth was up just 2.3 percent.* In addition, the money spent thus far has exceeded total output from quarter to quarter. However, much of the growth is attributed to the government’s “Cash for Clunkers Program” and the $8,000 first-time home buyer credit.

The costs of these government programs have well exceeded $1 trillion. Was this exorbitant cost worth 3.5 percent “growth?” More to the point, there wasn’t any REAL growth! The government has essentially printed money it doesn’t have to BUY growth. This is similar to individuals borrowing money on their credit line, going out and buying goods and claiming that their personal wealth has increased. Money shifting hands is not growth. Speaking of money shifting hands, how many people borrowed more than they can afford to take advantage of these programs betting on the fact a strong recovery is in sight? Does the word “bubble” come to mind?

Now, let’s have a look at the more discerning part of this report.

“Current-dollar personal income decreased $15.5 billion (0.5 percent) in the third quarter, in contrast to an increase of $19.1 billion (0.6 percent) in the second.”*

This is a cause for concern. 4.1 million jobs have been lost in 2009, and unemployment currently stands at 9.8 percent. People who still have jobs have been reduced to four-day work weeks in many cases. With personal income declining and no change in the high unemployment status, it’s time to look beyond the textbook term for an end to a recession.

“Personal current taxes increased $4.8 billion in the third quarter, in contrast to a decrease of $119.1 billion in the second.”*

Current-dollar personal income has declined, but personal current taxes have increased. Many individual states have raised sales taxes, property taxes and income taxes to cope with very large budget deficits. If people’s personal income increased, an increase in tax liability would have made sense.

“Disposable personal income decreased $20.4 billion (0.7 percent) in the third quarter, in contrast to an increase of $138.2 billion (5.2 percent) in the second. Real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent.”*

Translation – people are barely getting by. Households and businesses have cut down expenses as far as possible. This is not a good situation for a consumption-driven economy.

Finally… “Personal saving -- disposable personal income less personal outlays -- was $364.6 billion in the third quarter, compared with $533.1 billion in the second.” “The personal saving rate -- saving as a percentage of disposable personal income -- was 3.3 percent in the third quarter, compared with 4.9 percent in the second.”*

A key indicator of real recovery is an increase in the personal savings rate for obvious reasons. An increase in personal savings is indicative of job growth and an increase in personal income. People then have dollars to invest to strengthen the markets.

In the end, what does all of this sum up? It reveals how just how effective government intrusion in the economy really is. What do we have in exchange for 3.5 percent GDP growth?

• A very weak U.S. dollar (Take no notice of the short-term bounce it has received from the GDP news, as it will be temporary.)
• A real possibility of a V-shaped recovery, inflation and stagflation if the government does not reverse course soon
• Personal income and savings declining and taxes rising
• A jobless recovery thus far
• An economy currently reliant on excessive government spending to produce positive growth with government spending exceeding the rate of growth

Considering how fast and how much the U.S. economy has declined, growth should have been much higher – possibly 6 or 7 percent. Perhaps that would have been possible with less government intervention and a focus on a strong U.S. dollar. For those naysayers who still believe that a weak dollar is critical to recovery, it is important to state that the U.S economy is not one that relies on exports. In addition, do people really think the U.S. will ever outdo China in terms of labor cost?

I’ll save my celebrating until the United States’ government looks backward in time and remembers the effects of Keynesian “stimulus.”

In spite of the burdensome and complex regulations that preside over financial markets, criminals like Bernie Madoff can pull off schemes that destroy the lives of many innocent people. One is left to wonder how a person can manipulate the system with such ease. Perhaps criminals like Madoff devise their schemes from the “legal” ones resembling Social Security. Is that a bit of a stretch? Probably. However, the parallels are quite interesting and close enough to make the assertion with the stark difference being intention, of course. The government does not intend to rip people off – it just doesn’t foresee the economically catastrophic consequences of programs designed to help people.

The definition of a Ponzi scheme is “a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned; or an investment swindle in which high profits are promised, and early investors are paid off from funds raised from later ones.” A Ponzi scheme is essentially a pyramid scam since it relies on future investors to pay returns to the initial investors.

An examination of the Social Security system reveals some similarities to illegal pyramid schemes. Social Security is a “pay as you go” system. A payroll tax exists in which funds are taken from a worker’s paycheck and distributed to those who currently qualify for benefits. The government does not have individual bank accounts set up in which the money you contribute can grow until you reach retirement age. Therefore, the Social Security system relies on “new investors” to pay returns to the people who are eligible.

The Social Security tax burden is equally shared by the employer and employee. However, just because the employer pays half, does NOT mean that it doesn’t come at the employee’s expense. Businesses designate a certain amount of dollars that they deem an employee is worth. The government takes their cut from payroll taxes, and the employee is left with the difference, which translates into lower gross pay. If a company affords a $50,000 salary for an associate, the 12.4 percent employer/employee Social Security burden reduces gross pay to $43,800. (1) This does not include other payroll taxes such as Medicare tax and income tax.

Social Security has built the “pyramid” over the years, and a pyramid scheme is an unsustainable business model. Eventually, there are too many people requiring a return and not enough people buying into the scheme. Before life expectancy increased and differences in population growth (“baby boomers” vs. “generation X”) took hold, Social Security was able to thrive since there were more people paying into the system than drawing on benefits. For example, in 1950, the ratio of people aged 20-64 was about 7.25 to 1 to people aged 65 and over. (2) This means that there were 7 people paying into the Social Security system for every one person collecting. This number does not include those under the age of 20 who were also working and paying into the system. In 2007, the ratio has fallen to about 4.7 percent. Due to the falling ratio, the government has raised tax rates and delayed benefits to younger generations to adjust for longer life expectancies.

Bernie Madoff’s investors probably didn’t know how their money was being invested. They were simply promised a very high return. Social Security was sold to people under the guise of financial security in later years. How many individuals know what the government does with Social Security dollars? How many know that the government spends Social Security funds on other programs? These “loans” are called “intergovernmental holdings.” The Treasury department issues bonds to the Social Security Administration; and those bonds are held in a “trust fund.” Bonds are simply a promise of future tax increases, which means that taxpayers are funding other government programs via Social Security. Would you mind if Vanguard or ING Direct borrowed from your 401k contributions to pay other investors? Only the government can make loans to itself with other peoples’ money, require a loftier investment from people in the future to pay off the loan, and no one winds up in jail.

What would happen if workers’ were given a 12.2 percent increase in pay today with a stipulation in place that a certain percentage of one’s salary had to be placed in a retirement fund? Imagine if workers actually had a say in how their money is invested, and they were given quarterly statements that show an account balance to assess their progress. Imagine retirees being able to pass on their savings to their children and grandchildren instead of receiving a $255 death benefit.

Isn’t it time that people take control over their financial future instead of contributing to a government slush fund? How secure is Social “Security” when a worker pays into the system all of their life, but dies at age 66? The surviving spouse has a choice between taking their benefit or their deceased spouses’ – whichever is greater. They do NOT get both, and children are not entitled to benefits unless they are disabled or under the age of 16. The rules are complex and have some exceptions; however, the key point is that people should be able to designate freely who their beneficiaries are and be able to KEEP all that they invested.

The Social Security pyramid is going to collapse. The ratio of those paying into the system versus those receiving benefits will continue to drop. It is estimated by 2016, a deficit will exist, and the deficits will be made up by redeeming trust fund assets. (3) America’s economic performance will determine how long it will take the government to deplete the trust fund.

Social Security will have disastrous economic consequences if the move to abolish the program is not made soon. It all boils down to individual as opposed to statist control over your golden years.

(1) http://www.ssa.gov/OACT/ProgData/taxRates.html
(2) http://www.ssa.gov/OACT/TR/TR08/V_demographic.html#167717
(3) http://www.ssa.gov/OACT/TRSUM/index.html