So sayeth Peter Drucker, author
of thirty-five books, mostly on management, economics and
politics. Many see globalization as a problem for the US as
it has cut into our manufacturing base, and this has been
painful for those people working in this area. However, that
problem is not going to be solved by jawboning the Chinese
into playing fair. They have the advantage today with cheap
labor. This of course will change eventually, but for now
our efforts should be in pursuing new opportunities. The non-farm
new jobs report for December showed an increase of 167,000
new jobs. More importantly, the report showed an increasing
trend to service sector jobs. In effect, we are reconstructing
our economy to a more entrepreneurial base. That is where
the opportunity lies, and unlimited American imagination and
initiative will continue to push us in that direction.
The new Congress may decide that the only way to solve our
“debt problem” is to raise taxes. However, the
real opportunities lie in cutting taxes. It has been shown
that lower corporate taxes result in more job creation, and
lower personal taxes result in more consumer spending; both
of which result in more revenue for the government. There
is talk floating around Washington again to raise the cap
on annual income subject to Social Security payroll tax currently
at $97,500. If the cap on this tax were eliminated entirely,
it would be the largest tax increase in history. Statisticians
estimate up to a $1.5 trillion tax increase. Congress would
be drooling at the thought of spending that much money. The
problem is that Congress does not create jobs; private enterprise
does. This “problem solving” plan would eliminate
thousands of jobs and cripple the ability to create new jobs.
The economy and the stock market would not view this favorably.
Now if we can just force Congress to cut back spending on
pork and direct more money to necessary areas of the economy.
One of the main responsibilities of the government is to protect
our country and its citizens. With the world teeming with
terrorists, we should be spending more on defense thus creating
even more jobs, and defense spending should not be outsourced
lest we outsource our privileged technology.
Then there is the gnashing of teeth about the problem the
housing slump created for the economy as a whole. The media
only reports on those few areas where speculation in the housing
market drove prices to extreme levels. It is mostly the speculators
that are being burned. Most of the rest of the country did
not participate in this frenzy. The law of supply and demand
will take care of this problem. In the meantime, there are
plenty of opportunities to buy houses at reasonable prices
if one does their homework. Historically, low mortgage rates
also add to this opportunity.
The Fed of course can’t decide which problem it has
– inflation or recession. We think neither. Inflation
is under control, and an economy growing at 2% a year rather
than 4% will not cause a major increase in inflation. Slow
steady growth is called for at this time after that rapid
growth of the past several years. No need to try and micro-manage
the economy.
Government meddling in the pharmaceutical industry could lead
to price controls. New legislation will be put before Congress
on Friday, January 12 (we will be at the printer) to allow
the government to negotiate drug prices directly with pharmaceutical
companies. If this legislation were to pass, you can expect
price controls. We have been down that road as far back as
the Revolutionary War when shortages of food items caused
prices to escalate further compounded by unscrupulous merchants
deliberately hoarding items to increase prices. The masses
revolted and demanded price controls on necessary items. Quasi
controls were tried for a time but failed to stem the violence
between merchants and the public. Controls were soon dropped
with the argument that the controls flew in the face of the
fight for freedom. Price controls were tried in the 1970s
to stem the increase in the gasoline prices. That failed also
as it created more shortages and long lines at the gas stations.
Likewise, price control on drugs would only exacerbate the
problem by causing more shortages and hindering research for
new drugs. The average cost for research and development for
one new drug is one billion dollars. If we are to discover
new drugs to fight AIDS and cancer, pharmaceutical companies
need to be allowed to make a reasonable profit.
Granted, capitalism is not perfect, but it is superior to
any other system. Just look around. Who has the highest standard
of living in the world, and who leads in technological and
biological developments? We do because the system allows us
to pursue opportunities.
Random thought for January 2007:
Life is what happens while we are planning for the future.
- Anonymous
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