Investment and Jobs

Summary

Most people incorrectly believe that by investing in stocks they are creating jobs.

• Buying stock does not create jobs.
• Companies holding on to cash costs jobs
• Mergers and acquisitions cost jobs and lead to inflation.
• Vulture capitalism costs many jobs.
• Outsourcing to other countries costs workers 3 times what one would expect
• Federal bailouts and infrastructure investment help the economy more than tax cuts 

Look for ideas about tax reform soon

Buying Stock Does Not Create Jobs

Most people think that by investing in the Stock Market, they are investing in companies. Actually, if you buy a share of stock, you are usually buying a piece of a company and gambling that the share price will go up. The company does not directly benefit from changes in the share price, so you are not actually investing in the company, but buying part of the company from somebody else.

When a stock offers dividends (a periodic bonus) the share price is usually steadier and the shareholder tends to make more money. This is how a company gives shareholders a portion of the profits (because the shareholder owns part of the company).

While the share price tends to vary with the company's success, a lot of price changes are based on  guesses about the future and lead to wild stock price swings. There are ways to improve these guesses using computer models, but they are still just guesses and should usually be left to professionals (usually mutual fund managers).

The advantage of buying shares on a stock market is that you become a limited liability partner in the company (corporation). This means that if the company loses money, the creditors cannot ask you to pay the company's bills (you can lose your investment, but not more).

Actual Investment in a Company Creates Jobs

The easiest way actually invest in the expansion of a company is to lend the company money (buy bonds sold by the company). Lending the company money allows the company to expand or buy new equipment. Expansion means that the company has to hire more people. Upgrading old equipment sometimes allows more efficiency with fewer employees (the company lays people off), but new equipment usually means an expansion in business and a net gain in jobs. When a bond expires, the value is fixed (assuming the company is not bankrupt). Before that date, the value depends on how well the company is doing and general interest rates.

A second way to invest in a company is to buy shares directly from the company. The opportunities for this are limited. An initial stock offering or an offering of additional shares in the company provides stock that the company sells through specialized investment houses (arbitragers). Purchase of  these shares is investment in the company.

The best way to create jobs is to invest in new companies. This involves either creating a new company, investing in a new company, or buying stock in a venture capital fund.

Companies Holding Cash Costs Jobs

When a company sells stock or gets a loan, not all of the money is spent immediately. The money that is saved for the future should be put to work by investing in other companies. Some can be used to buy stock in other companies (or put in the bank), but most of the money should be in actual investments.

Mergers and Acquisitions Cost Jobs and Lead to Inflation

Sometimes a company will buy another company in order to gain valuable resources (such as skilled workers, patents, or contracts. Most company presidents want to streamline the combined company:

• Use the same forms and software throughout the company (requires retraining or layoffs)
• Merge duplicate offices or divisions (requires layoffs and/or relocation of employees)
• Eliminate parts of the combined company that are not part of the central role of the company (spin-offs or layoffs).

Mergers and acquisitions usually cause inflation, because there is a loss of competition.

Vulture Capitalism Costs Many Jobs

Vulture Capitalism is the opposite of Venture Capitalism. Venture capitalism is investment in new businesses (high risk, but very high potential reward). Vulture capitalism is squeezing all of the money out of a company and then closing the company.

A vulture capitalist buys a company that is either distressed or has a low stock price. Then, resources (divisions, equipment, contracts, trademarks, patents, and so on) are sold off until all that is left is the name. In the mean time, most of the employees are laid off and pension funds are raided. Finally, the name is sold.

Often spinning off resources results in requiring workers to relocate and reducing worker pay.

An example is the purchase of AT&T by Southwestern Bell, which followed the above plan (except) that the combined company was renamed AT&T (fraudulently taking advantage of the public trust built under the AT&T name in earlier years).

Outsourcing a Job to Another State or a Foreign Country Costs Many Jobs

As a rule of thumb, every dollar of new employment brought into a local economy adds $3 to the local economy (through purchases and services used by the new person, and purchases and services paid for by existing people serving the new person, and so on). Assuming round numbers, this means that every new person hired adds between $100,000 and $150,000 to the annual local economy (depending on the base income assumed). Laying off a person costs between $75,000 and $100,000 from the annual local economy (unemployment insurance reduces the cost of a layoff). However, the lost taxes bring the overall loss up to the $100,000 to $150,000 range.

Outsourcing to another state causes 3 local layoffs for each person relocated or laid off by the company. Because of bad tax and quality laws, outsourcing to a foreign country costs 4 to 5 layoffs to the local, state, and US economies.

For example, outsourcing telephone customer service to India results in:

• Loss to the local economy of at least 3 times the salary of the person laid off
• A reduction of service quality
• Employees being paid around half of what US employes would be paid
• No import duties charged on the services and no taxes paid in the US (increasing import duty collections on services would greatly reduce outsourcing services to foreign countries)

Outsourcing of manufacturing to a foreign country

• Creates a very complex import duty situation,
• Loss to the local economy of at least 3 times the salary of the person laid off
• A reduction of product quality (poor inspection, rampant bribery, poor environmental controls, and so on)
• Employees being paid around half of what US employes would be paid

Federal Bailouts and Infrastructure Investment Help the Economy More Than Tax Cuts

Tax cuts for the rich are like buying stock in companies, most of the money is saved, not spent. Tax cuts for the poor make very little difference to the national or local economy, because the amount of money is small.

Tax cuts for the middle class help the economy, but the multiplier is smaller than creating new jobs. For the past 15 years, the middle class has been shrinking as people are paid lower salaries and are laid off.

Federal bailout of a US financial institution helps the US economy if it avoids layoffs. Federal bailout of a foreign financial institution hurts the US economy and increases inflation.

Federal bailout of US manufacturing firms helps the US and local economies by maintaining 3 times the jobs as the layoffs averted.

Maintenance of schools, roadways, bridges, public parks, waterways, levies, and other public "commons" has fallen behind by 15-20 years. Road widening in metropolitan areas and pavement upgrades in rural areas are 5-10 years behind. The Katrina rebuilding and the BP cleanup are still not complete.

Investment in infrastructure would help alleviate these problems, provide jobs, and would speed growth of existing and new companies.

Illegal Alien Questions Rise Again in California

In Los Angeles county (southern California), police officials are investigating the idea of allowing illegal aliens to drive without drivers licenses.

This idea is wrong for several reasons:

• Nobody should be allowed to drive in California without taking both a written test and a driving test. The driving test in California is strict. California drivers licenses are accepted in several other countries (when accompanied by a passport) and all of the USA.
• The primary form of legal identification used in California is ones drivers license (one must show an original birth certificate or a passport to obtain a California drivers license). Non-drivers may obtain a similar identification card.
• Drivers licenses are available to aliens (people who are visiting the country), provided the other requirements are satisfied. The drivers licenses of people under 21 years of age and aliens have distinct marks.
• Part of the issue relates to vehicle registration and insurance.

There is already a way for aliens to drive in California, provided they have met the requirements, so what is the issue?

The issue is that many people live and work in California who have no legal right to be here (borders are part of the "Sovereignty" of every nation). Unless the US opens its borders to all, then it is not reasonable to allow over 12 million people to live and work here illegally (5% of the US population).

Because of the widespread immigration of those without valid visas, whole subgroups of exploited and underpaid people have developed and various industries have grown to rely on the ability to underpay workers. The recent problems in Georgia (when the state started checking work permission for farm workers and food rotted in the fields) are an example.

The ability of companies to exploit illegal laborers (undocumented workers) has reduced the price of necessities, while making it harder for legal workers to earn enough to take care of a family. The average (median) per worker income in 2010 was around $54000/year. The poverty level (substandard housing, poor food, poor medical care, and so on) is approximately half of the median income. This means that a fair minimum wage is over $12/hour. Since illegal aliens earn less than half of this, they become a drag on the the workforce and the congress has no incentive to set a reasonable minimum wage.

The US cannot deport 12 million people, but the US can afford to insist that all workers are either citizens or have work visas.

This problem is also related to the exporting of jobs to other countries, a problem that is ruining the US, Japan, and much of the EU.

Nudity and the US

This comes from a situation in KatzForums, in which I downloaded links to a lot of material, much of it Playboy magazine or the equivalent from around the world.

This was my response to a thread complaining about it:

Sorry Capitalism56,

I was searching for and downloading that type of link (and being polite to the poster). There may have been more items near the top of the lists, because saying "Thank You" bumps threads (that is a flaw in the web site).

Mr. A. (whoever he is) had nothing to do with this. In fact, if each of my "Thank you"s wound up sending him a PM, I am quite sure he is not happy with me.

What I copied links for is not, by standards of a reasonable person, Pornography. The limitation to people over "The Age of Consent and Contract" is for protection from extremists, not because of the nature of the material. Very little of this material even depicts the genital area of the models. Most are clothed.

There are no sexual acts, no blasphemy, no advise to break the law, no violence, no animals or children, and nothing else that could cause harm to a reasonable, sane person.

The taboo against people showing skin is much stronger in the US than most of the civilized (but non-Islamic) world. It comes our history. Many of our early citizens fled to this continent, because they believed that life is for work and prayer, and that any time spent solely for pleasure is sinful. Those among us with that belief still have a huge effect on our society (relative to their population), because we believe that you have a right to your beliefs and taboos.

Perhaps, we need separate sections in E-books for non-fiction, fiction, and art. Most of these fit into the non-fiction category, along with National Geographic, People, and the New York Times. Is that what you are afraid of, the truth?

I live in the USA. In this country the majority of experts in education, public health, and child psychology believe that the taboo against the depiction of nudity (as opposed to pornographic photos) is hurting our society. They have called for sex education to begin at approximately the age of 10 years. The recommendations include exposure to pictures of men and women with no clothes on and a discussion of the differences. Other aspects to be taught at that age are more "pornographic", including sexual abstinence, the relationship between sexual contact and diseases, and where babies come from.

Finally, almost every healthy child has seen the genitals of other children by age 5 and the breasts of a grown woman from birth.

Again, i am sorry if you had to look harder for your favorite books. I am sorry [I]for you [/I]if you were trained that pictures of skin are dirty or offensive.

Katz has separated the adult films into a different web site, not banned them. This is largely so they do not appear in the main "new topics" list for people who are disturbed by their existence.

I have to admit, this taboo has hurt me personally. I am separated from my wife, partly because I didn't know enough about intimacy (not just sexual). When I asked a question about sex as a child, my father's answer was to hand me a college textbook, that was typical of the environment. I am working hard to overcome the effects of this mistreatment.

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P.S. The prohibition against nudity in the Islamic world has nothing to do with the woman disobeying the Quaran. It is the belief that some men might have inappropriate thoughts if they see the face of a beautiful woman.

A Law Against Anmoying Behavior

As I was driving today, I heard a radio host (on KTLK 1050, Los Angeles) discussing a new law passed in a medium sized city in Michigan. The law bans annoying behavior. Since there is no way to define what is annoying, this law might be struck down by the courts (actually, they can apply it to one individual annoying another or they can use say that annoying behavior is any behavior that would annoy a "Reasonable person". Still, it gives police a blank check for annoying behavior of their own.

The host said (paraphrasing here) "I understand outlawing profanity and strong cologne, but how do you define annoying?" He then went on to discuss hearing frequent profanity from employees at McDonalds, while he had his young daughter with him.

There are several problems. First he used the word profanity, which means using the Lord's name in vain. He meant obscenity.These two words are often confused. Just as people often confuse pornography with obscenity.

The disturbing the peace laws already prohibit hate speech and other speech that is likely to lead to physical harm. In many locations, the law (or work rules) prohibit any behavior tht offends (not annoys) another person. Wearing strong cologne in an enclosed space also qualifies as a harmful act (for example, it can trigger asthma attacks).

The proper thing to do about obscenity in McDonalds is to speak to the manager. Obscenity on the job is not permitted in any respectable restaurant or store. McDonalds, inc. has strict rules about the use of obscenity where customers can hear it (Kruck made sure of that while he led the corporation). Since these are at-will, hourly employees they can be fired on the spot for such an offense. The manager will probably warn the staff, not fire anybody.

If you are offended by activity at a store or restaurant and have informd the manager, you can revisit the site and see if the problem has gone away. In the case of Mcdonalds, you have the right to return to the restaurant, buy a cup of coffee (or whatever), and listen for at least 15 minutes. You also have the right to observe behavior from the counter (which can help identify the misbehaving employees).

There are federal laws that prohibit exposure to high levels of airborne toxic compounds (such as those in most cologne). There are also workplace laws that can be applied. Nobody has to stand for strong cologne in an elevator where they work, just ask the boss to speak to the offender. As a customer, you have the right to speak to a manager.

I suspect the Annoyance Law was a way to clear beggars from the street. Since the supreme court has stated that begging and grifting are protected speech, cities have been trying to find other ways to "remove the problem." I doubt obscenity was on the minds of the city council members.

If an action (in public) offends you and would offend "a reasonable person," contact the appropriate authorities (be they police or managers). You don't have to stand for it. But if somebody just annoys you, they are probably not doing something illegal.

Why has the US been going down hill?

Since January 1981, the presidents of the United States have been mired in a variety of criminal conspiracies. It has become clear that the presidents have deliberately put the good of corporate officers above the good of the nation.

Wait, I am not a nut. This is Real.

How bad is it?

The total jobless numbers in the US are higher than they have been since the great depression. Relative to inflation, professional salaries are down over 50%. Relative to inflation, the pay of low paid hourly workers has dropped to about 1/3 of what it was 25 years ago. The middle class in this nation has dwindled significantly.

In practical terms, our national infrastructure is falling apart. Over 40% of bridges do not meet minimum standards established by the government, interstate highways have suffered similar neglect, the country needs approximately a 50% increase in chemical plants (including fuel refineries), the same situation exists in many other industries. Electrical generation and transmission capacity are unacceptably poor, and there is no plan to fix these problems.

The US dollar is worth about 60% of its value 10 years ago. That means that price of products produced abroad have gone up over 65% (about 5% per year) plus the inflation in the companies we import from (about another 5% per year). This is due to purchase of foreign goods, corporations sending jobs abroad (thus transferring dollars to other countries) and the US government borrowing money to operate (much of it from foreign entities) and spending that money outside the US (e.g., the occupations of Iraq and Afghanistan.

The solution to all of these problems includes development of macro-economic plans at all levels of government.

Economics

Economics is more art than science. Our understanding of macro-economics is based on using statistical studies to develop models of how changes in one area affect other areas. Unfortunately, when it comes to the national level, the statistics are weak and the models leave out almost all detail.

In 1980, Ronald Reagan became fixed on the idea of "Trickle Down" economics. This is a concept (not supported by any generally accepted models) that in a "Free market economy." government actions to benefit the rich will eventually also benefit the people they purchase from, trickling all the way down to well paying jobs for the poor. This has continued to be government policy, even though it has never worked in 25 years.

For over 2000 years, governments have known of several ways to grow an economy. They include

• Make sure all people receive the basics of life (bread).
  
• Direct the people's attention away from the negatives (circuses) and toward the positive (goals).
  
• Improve public confidence in the nation (speeches).
• Create worthwhile jobs that help the nation (infrastructure).

The words in parentheses are used to summarize historical categories. For example, it is said that the Roman Emperors kept the empire going with "Bread and Circuses". To survive the great depression, national leaders gave soothing and uplifting speeches; the depression did not start to lift until the government started to guarantee food and shelter and too provide jobs by investing in national infrastructure (roads, dams, electrical generation, etc.).

Real economic models are much more complex. For example, the Federal Reserve uses a spreadsheet that is 64 columns by 64 rows, with an equation most of the boxes. These studies are necessary for planning, but are worthless unless the specific advice they yield is studied and implemented.

Multi-part Solution

Part of the solution the nation's problems is to charge import duties on all work that is outsourced from US businesses. This means that if money is spent in other countries to buy goods or services for use within the company, import duties should be charged on the money that is spent. The duties should be high enough to partially equalize the cost of doing business in the US and in other nations. The import duties should be simplified (one set percentage for friendly nations and another percentage for other nations). The use of penalty duties should be minimized and temporary (e.g. there is a 100% duty on televisions and memory chips).

A great opportunity exists in reducing the amount of money the US government spends in foreign countries. The US needs to stop destroying and rebuilding other nations and spend that money to reduce the debt (reducing inflation) and improve the infrastructure (every dollar spent on infrastructure pays back three to five dollars in benefits). In a time of guerrilla warfare, isolationism is a valid defense strategy.

Privatization of infrastructure should cease. In many cases, it should be reversed. Especially in fields like transportation, electrical transmission and communication, local plans are necessary, but they must be collected into a coherent interstate plan. Monetary policy (operation of banks and trust companies and the creation of dollars) must be coordinated by federal government entities. Fake private corporations (those backed by the US government) must be brought back into the government (e.g., deregulation has caused two banking crises in the past decade).

Before the Reagan administration, taxes on inheritance were high enough to prevent the hording of funds within a single family. Now, those taxes are almost gone. You cannot take it with you should also mean you cannot give it away. Gift and inheritance taxes should be raised to at least 50% (the minimum to avoid inter-generational hording). An exemption should be used to permit a reasonable inheritance for middle class and poor people (about twice the median net worth).

Income tax should be simplified to a level tax system. If everybody paid the same percentage (after exemptions), this would save billions of dollars each year. Special tax incentives for individuals (such as the homeowner interest tax exemption) should be eliminated. Income tax for companies should be based on the change in book value of the company and should equal the same percentage (no exemptions) paid by individuals.

The government (at all levels) must invest in infrastructure. The jobs created by this investment will also help reduce crime (this brings up a matter for later discussion).

Health care must become part of the infrastructure. This country wastes at least 25% of our health care costs, because we do not have a single payer system and do not have coordinated plans for development of providers.

Conspiracy

Every politician knows that for-profit corporate lobbyists are performing criminal actions with most bills they endorse or oppose. Campaign contributions imply control over the candidate for reelection contributions. Thus there is an implicit quid pro quo in these contributions (this means the politician conspiring to sell votes).

For-profit corporations should not have first amendment rights. Specifically, only individual people should be allowed to donate to election campaigns and the amount donated should be limited (no more than 5% from any one source). Political education corporations should have similar donation restrictions. Finally, political education funds should be spent only in the territory in which they were collected (e.g., no television ads for a California referendum paid for by a corporation in Florida).

Summary

The nation is in trouble. Unemployment, inflation, and infrastructure are a disaster. The tax system does not collect enough taxes, encourages outsourcing, and encourages the centralization of wealth. Regulation or outright takeover by the government is necessary in many infrastructure industries. Political contributions must be controlled to avoid the current quid pro quo system.

For every dollar spent on infrastructure, there is at least three dollars of benefit (there is some trickle down, plus advantages to people and business). On average, the taxes on the extra benefit should pay back at least half of the initial investment in the first year. Well planned improvements will pay back in full in just a few years.

Simplification of federal taxes should save billions of dollars. Elimination of tax breaks for special interests will raise tax collections considerably.

Next Time

Everybody deserves a shot of the American Dream: Self sufficiency and independence. Not having to worry about the future. A house may be part of that dream, but it is not The Dream as advertisers have tried to convince us. So hold on to the real dream.

Jesse Jackson and the N-word

Over the past 40 years, political correctness has changed what is acceptable language to use in public within the United States. For the most part, this has been a good thing. It has caused legislatures to reword laws so that they are gender neutral and reduced the use of hate words in public. Like any movement, it tends to be carried to extremes, but it has made significant contributions to "domestic harmony."

The first generally accepted example of political correctness was abolishing the use of hateful words against the African-American communities. Surprisingly, this is also the ethnic group in which hate words continue to be the biggest problem. Even well educated people in the African-American community continues to use hateful terms against other African-Americans; terms that they would not tolerate if used by a person of another ethnic group.

Why would they do that? It is not a lack of education. It is caused by people not understanding the logic of the situation. Reverend Jackson should understand it as the Golden Rule, but clearly doesn't (as translated from the Bible): "Do not do to another what you would not want another to do to you". Any other! Using language such as that recently attributed to Reverend Jackson is a sign that he is not comfortable with his heritage, and so he belittles his people.

African-Americans do not have a patent on hate speech. Many ethnic groups suffer from from epithets specific to their race or religion. My ethnic group still suffers greatly from hate speech and prejudice (as a small minority, we work quietly against these problems).

As descendants of slaves, most African-Americans deserve a hand up in education and avoiding prejudice. But in return, they have an obligation to assist the process. Reverend Jackson shows us that even those famous for fighting for equality do not always follow-up with action of their own.

The issues of self confidence and respect for one's race apparently are behind Reverend Jackson's recent hate speech against one of the presidential candidates. Reverend Jackson is apparently afraid of those with self confidence and who expect others of his race to work toward self respect.

What do you think?