Productivity is measured by the amount of output that a worker can produce each hour. Over the long term in the USA, productivity has increased by just under 3% per year. Let's examine what this means. Simply put, as each year goes by, America gains the ability to produce 3% more goods and services than in the previous year with exactly the same labor force. Put more in the language of economics, the USA can have 3% growth in GDP with no change in the labor force. Now, of course, this is the long term trend. Fifty years ago, the growth in productivity was slower and it has accelerated during the last twenty years. In other words, during the last twenty years, the USA could have between 3.5 and 4% growth in GDP with no change in the labor force.
These are key numbers and they have enormous impact on the people of America. Under president Obama, the USA has never had a year with economic growth that hit 4%. That is why job growth under Obama has been so anemic. Output has grown, but no new employees are needed. Of course, this is an overall measure for the economy, so there are some places where new employees are needed and others where some folks lose their jobs. Overall, however, it is the anemic economic growth under Obama that has led to the continuing high levels of unemployment and underemployment.
This lack of growth under Obama is the main reason why the current debate over economic philosophy between Obama and Republican Mitt Romney is so important to the future. Just yesterday, Obama was out on the campaign trail raising still more money and chastising Romney for his economic outlook. According to Obama, Romney believes that "if he and his fellow millionaires and billionaires are getting richer, then the rest of us are too." While this is not anything that Romney has ever said, it is illustrative of Obama's view of market capitalism. Obama does not want the wealthy to get richer; this is a constant of his philosophy.
So let's examine Obama's view. Let's think of it anecdotally. Let's think about a private company that employs 400 workers and which is not doing well. The sales of its products are flat, and competition from abroad is preventing any price rise that could restore profitability. Right now, the company is barely breaking even. There are many such companies in America as I write this, and they employ millions of workers.
Now let's apply the Obama economic plan to these companies. First, we will raise taxes on the owners of the company. Because it is a private company, it pays its taxes through the individual tax returns of its owners rather than as a separate entity. So Obama is raising taxes on the company. What does this do? First of all, it does not raise much tax revenue since the company is just about breaking even, so there is little profit to tax. Secondly, however, it discourages new investment in the company which will make it more able to compete since the investor will get to keep less of any profits that result from that infusion of cash. In other words, the higher tax rate means that the company is less likely to recover or grow.
Second, Obama is imposing Obamacare on this entity. One thing that everyone recognizes is that Obamacare will result in a substantial rise in healthcare costs for employers. Until now, because money has been so tight, the company has been giving its employees low cost insurance which does not meet all the requirements of Obamacare. The new policy to be provided results in a substantial increase in costs.
Third, Obama's EPA is stepping in to require new and expensive steps to be taken to reduce pollution at the company's plant. The cost for this change is very large, and the company does not have the cash to pay for it.
Fourth, in order to pay for the extra costs of Obamacare and the EPA, the company goes to its local bank to borrow funds to cover these new Obama-imposed requirements. Under the Dodd-Frank law that Obama had passed, however, the local bank can no longer make this loan due to the restrictions of that statute. Our example company is not able to borrow the necessary funds anywhere.
Fifth, the owners of the company sadly shut it down and layoff all of the employees. The town that was supported in large part by the people working in the plant also suffers a major disaster. Hundreds go on unemployment, but there are no jobs available for these folks to take. Many eventually have to move elsewhere in search of work, but they find that the story of their company is being repeated across America.
Obama can be happy since the wealthy folks who owned the business did not get richer. But the real truth is the answer to Obama's taunt of Romney. When the rich get poorer, it does not help the rest of us do any better. Indeed, it hurts everyone.
But what would have happened had one of those "evil" private equity companies come into the picture rather than having Obama's government aparatus crush the company? Let's say that a private equity group (let's call it Main Capital) came in and bought the struggling company with which we began this discussion. Because of the difficulties in which the company found itself, Main Capital is able to buy the firm for a relatively low price. The old owners do not get as much as they would have liked to receive, but they do get their money out of the company. At this point, the success or failure of the company is a risk taken by Main Capital.
Now, Main Capital takes a sharp look at our enterprise and decides that what is wrong with the company is that it operates inefficiently; it uses old machinery to make its products which results in a much higher cost per until. Main invests $5 million of its own money to outfit the plant with all new equipment. As a result of the new equipment, ten percent of the workers of the company get laid off. These 40 people go on unemployment, but the costs of the company go way down. As a result, prices get cut, market share is taken back from the imports, and profits start to rise quickly. Soon, the orders received by the company are so large that it has to expand. More equipment is purchased from the funds generated by the new profits and additional workers are hired to run these machines. Indeed, 100 new employees are brought on board. Not only do the 40 people who were laid off get their jobs back, 60 other folks get work as well.
After a few years, Main Capital sells this thriving company and makes a major profit on its investment. In Obama's words, the rich get richer. But all of the original employees and the new employees get jobs. The town where the plant is located is thriving and many folks there make nice livings as well.
But what happens if Main Capital fails. Let's say that it buys the company, puts in its $5 million extra and the company is a flop. The answer is simple: Main loses all of its investment. All the folks working at the plant lose their jobs. The town suffers. In other words, if Main fails you get the same result as when Obama succeeds.
We need a president who understands this difference. Obama has got to go!
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