Friday, September 19, 2014

Kudlow's Plan


For John, BLUFWe need to get the money flowing again and getting people hired.  Nothing to see here; just move along.



On the "Financial Exchange" on WRKO this morning Mr Larry Kudlow was on, espousing his solution to our economic doldrums.

Mr Kudlow's plan is to reduce corporate income tax and to allow corporations to repatriate the billions they have overseas with a minimal tax (he suggested 5%).  Mr Kudlow believes that such an action would get money moving again in the economy and thus stimulate employment and possibly give us a 4% growth rate.

I like it.  It might not work, but nothing else is working.  Right now the unemployment rate is going down not due to people getting jobs but due to people dropping out of the labor force.


The Bureau of Labor Statistics calculates six different measures of unemployment, U1 through U6, measuring different aspects of unemployment:

U1:  Persons unemployed 15 weeks or longer, as a percent of the civilian labor force.

U2:  Job losers and persons who completed temporary jobs, as a percent of the civilian labor force.

U3:  Total unemployed, as a percent of the civilian labor force (official unemployment rate).

U4:  Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers.  (U3 + "discouraged workers")

U5:  Total unemployed, plus discouraged workers, plus all other persons marginally attached to the labor force, as a percent of the civilian labor force plus all persons marginally attached to the labor force.

U6:  Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.

NOTE:  Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months.  Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work.  Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.


We usually see an unemployment rate based on U3.  Thus we don't actually consider someone who is out of work and has stopped looking and is living in his or her parents' basement or is couch surfing amongst friends and relatives.

But, back to Mr Kudlow, the fact is that tax policy is social policy.  Taxes, intended or not, influence how people, including business people, operate.  If the tax burden becomes heavy enough people do things that circumvent the law.  That is why such a large percentage of cigs sold in the Boston area are from the gray market.  It is human nature.  If you do sometime to me that I believe is unfair, I will try to circumvent it.  If your tax on me seems unfair, I will try to work around it, sometimes even if it costs me to do that.

Having said I agree with Mr Kudlow, I don't wish someone to think I am "big business".  Notwithstanding the myths that are out there, a lot of Republicans are "small business".  It is the Democrats who are big business.  The relationship is that Democrats provide the things that make big business work.  For example, a lot of series of regulations has much less impact on a big business, which has lawyers and accountants to deal with such things, and which can absorb them into the overhead.  On the other hand, a small business finds such regulations to be much more of a burden, having a smaller financial based to support the needed lawyers, accountants and other administrative personnel.  It isn't the nth instance of the regulation that is expensive, it is the first instance.

Let us support Mr Kudlow's plan, but let us not think that big business is the savior of the nation.  We need to be protecting and supporting small business.  By protecting, I mean from Government.

Regards  —  Cliff

Here are a passel of definitions:

Labor force (Current Population Survey) The labor force includes all persons classified as employed or unemployed in accordance with the definitions contained in this glossary.

Labor force participation rate The labor force as a percent of the civilian noninstitutional population.

Marginally attached workers (Current Population Survey) Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.

Marginally attached workers (Current Population Survey) Persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Discouraged workers are a subset of the marginally attached.

Unemployed persons (Current Population Survey) Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.

Unemployment rate The unemployment rate represents the number unemployed as a percent of the labor force.

2 comments:

Craig H said...

The "free market" also chooses taxing authorities, and people need to respect that countries (or any other tax jurisdiction) are in competition with each other for lowest cost and highest quality. The US is currently losing. (Ironic, since all that taxation is currently failing to gain us a cleaner environment, more effective citizen healthcare or better education compared to many other nations). Unless and until we demand our government deliver its services (from national defense right on down) at highest international value, we're going to continue to lose pieces to our economic engine until our debts rise up to crush us. (We can look to places like Greece for what that outcome resembles). It's a dire future our major political parties are forcing upon us (with our democratically donated consent).

Cynthia Ann Harlan Krieger said...

When Congress allowed corporations to replace pensions with IRA accounts, is when Congress assigned most of the middle class to hell-on-earth; though most of them do not know it yet. However, when they come of social security receiving age--they will.

With its citizens living longer, how many employers will give work to an 80 year old female with easily another 16 years of life expectancy? She seeks work because she has not enough of a social security retirement for her to live on without working. At some point, there will be legal caps on the upper age of the working force, laws barring age discrimination aside. It is only then that AARP will realize that well-funded corporate & military pensions are a true gift from heaven, income tax issues regardless.

My advice to individuals seeking a more secure retirement is to purchase an annuity (basically a privately negotiated pension) from some insurance or finance company such as American Express. Annuities are expensive and you should make sure you choose a well rated company. However, I believe there is less risk of loss to your retirement IRA income than placing your retirement funds into a Mutual Fund and trying to manage it yourself. At this point in time, I do not believe that the IRS allows an individual to use his corporate contributions to his IRA retirement account to purchase a privately sourced annuity. Maybe congress will widen up and realize that this option is the easiest way to supplement an individuals retirement income without overhauling social security, and with no need to privatize social security either.

Truth in disclosure mandates that I inform you I am not a certified financial planner nor its equivalent and I do not, at this time, hold any stocks in insurance companies or American Express or any other financial company most of whom sell/offer retirement annuities. Lastly, you should know that an annuity is not a whole life insurance policy and as a smart consumer you should be aware of the differences.

It is my understanding that when you purchase an annuity you are buying a regular stream of future revenue payments, usually monthly, which are paid out for a specified period of time. It is a legally binding contract between the two parties, and as such there are reserving requirements binding on the company agreeing to pay you in the future. You may also incur an obligation to pay into the annuity for a specified period of time, prior to receiving any monies from them. In return for your monthly payments into the annuity, the organization will invest your money and receive all of the benefit therefrom, with the only obligation back to you being the guaranteed revenue stream in the future.