I’ve been thinking about the Bureau of Economic Analysis’s plan to change how they calculate real GDP by adding R&D and intangible property of the class known “entertainment, literary and artistic originals” to business investment while treating promised pensions as liabilities. Keep in mind what I’ve mentioned before: that GDP is personal consumption expenditures plus business investment plus government spending plus exports less imports.
Imagine that the Great Recalculation results in real GDP growing substantially faster over the period of the last 30 years than we had previously thought. I’m not saying that’s the case, I’m just saying “imagine”. That would scuttle Okun’s Law.
“Okun’s Law” is the rule of thumb that employment grows with GDP (or, possibly, vice versa) or, more accurately, for every 1% increase in the unemployment rate, a country’s GDP will be roughly an additional 2% lower than its potential GDP. If real GDP increases sharply while unemployment also increases, that’s another nail in Okun’s Law’s coffin.
What if there’s no empirical relationship between employment or unemployment and real GDP? I’m not saying it’s the case but what if it is? What if the rule of thumb has worked in the past but no longer holds today? I think it would mean that the policies of the past have become inoperative. We’d better hope that’s not the case.
Or what if Red has been right all along, that the cost to employ has been going up for years because of endless government policy intervention with regulation and taxation, and yes, also competition, but intervention especially under Obama, and so private enterprise being what it is – the antithesis of government intervention – has adapted? After all, unlike government, it always does.
And if that is true, I ask for the umpteenth time, you can’t really deal with competition other than to strike back at unfair trade practices, although consumers will vote with their pocket book and attenuate that……….what the hell are we doing making it more difficult for the small businessman, subsidizing the big corporate interests, and creating a welfare mentality?
Its employment suicide, and Obama is our present day Dr Kervorkian.
Yes, the cost of employment has been going up. Why, it used to be you could buy yo’self a good nigra slave for 1000 dollahs, feed him on okra and collards, work him 12 hours a day and get him to breed one of your women slaves and have yo’self two little ones to clean stables and take out the night soil. Then, when they grow up, you jess sell them in the market and get back all your investment.
Yes, Drew, it’s awful how you have to, you know, pay people and all, and fill out all that paperwork. It’s particularly onerous when you’re treating employees like shit and thus turning them over every 90 days like your sandwich-making friend.
But you know, here’s a thought I’m just throwing out there. Maybe employers could treat their employees decently and pay them decently and keep them employed for years, in which case all that employment paperwork would shrink relatively. Crazy idea, I know.
You know who spends a lot of money hiring? Assholes. You know who spends a lot less? Non-assholes. I’ll bet you a dollar Costco has far fewer concerns over employment related regulation than Wal-Mart.
“Or what if Red has been right all along, that the cost to employ has been going up for years because of endless government policy intervention with regulation and taxation, and yes, also competition, but intervention especially under Obama, and so private enterprise being what it is – the antithesis of government intervention – has adapted?”
Then there should be some empirical evidence this is true. There is not. We were much more heavily regulated in the 50s/60s. Then we should have had massive growth in the 2000s. We did not. What has gone up is the cost of health care. We had growth because we just kept borrowing money and not paying it all back. That needs to change.
I am not sure that the absolute number matters nearly as much as the trend and relative levels compared with population growth. It also doesnt matter if we have growth but most of us dont share in it.
Steve
“Why, it used to be you could buy yo’self a good nigra slave for 1000 dollahs, feed him on okra and collards, work him 12 hours a day and get him to breed one of your women slaves and have yo’self two little ones to clean stables and take out the night soil.”
That’s sick, and quite frankly, childish, if not moronic, Michael. I think more highly of you. Perhaps your inner sam is coming out. Perhaps too much good scotch. The only description for what you just said is “bizarre.”
Perhaps we should reconvene on the issue later after you take a shower.
“Then there should be some empirical evidence this is true. There is not. We were much more heavily regulated in the 50s/60s.”
This, at least, is not mean spirited and non-sensical, like a certain author. Even though I disagree.
steve, we are regulated out the wazoo compared to the 50’s and 60’s. C’mon, man You tell me you run a med practice. I am an owner and board member in 6-12 companies at any given time and for 15 years. Your proposition that regulation is less today is simply preposterous. Just ludicrous on its face.
As I’ve said a few times before, my brother runs the family construction business which my Dad actually started in the 1950’s. My brother took over in the early 1980’s. In his view, the employment picture is very much different from what it used to be and he’s told me the incentives are to hire as few workers as possible because, as Drew says, the cost of employment has gone way up. It didn’t used to be that way, according to him. And this is construction where there isn’t exactly a huge barrier to entry for the workforce in terms of education or credentials.
Steve, some things were certainly more regulated in the 1950’s, but there are many, many things that were less regulated. Again, construction is a good example whether it’s building codes, zoning, OSHA compliance, abatement, workers comp, various liability requirements, etc. All those things come with costs. At the other end, construction is a lot more competitive largely due to technology changes to bidding. So it shouldn’t come as a surprise that you see a lot of immigrant labor in the construction industry.
I wonder if any tools have been developed since the 1950’s to make it easier for HR folks to manage all the paperwork involved in hiring? I mean, do we have a sort of. . . let’s call it a device . . . that would store all the necessary paperwork after it’s filled out? Something that would allow copies to be made instantaneously without the use of carbon paper? And perhaps a means of checking to see how a given form should be filled out and then instantly forwarding it to the relevant agency? And store it in a sort of accessible and unlimited filing cabinet?
Gosh, that would be great. And then if there were a way to take all of that and in some far, far distant future to reduce it to a single portable object of some sort, perhaps even some amazing telephonic device small enough to fit in your pocket.
Drew, you and your little business buddies are full of crap. I’ll bet a dollar a lot of what they whine about is not government regulation, but burdens imposed by insurance companies and by the tedious minions of the HR department of the hiring company itself. For example, if hiring is just so darned hard why do so many companies decide to enforce a pee test on new hires?
I recently hired a woman as an hourly employee. How hard was it? I called my accountant and said, “Hey, Pam, take care of this, would you?” Couple forms, all done, barely noticed it had happened.
And again: if you turn employees over less frequently then obviously the size of the paperwork drops dramatically. Right? And how do you avoid turning employees over? By paying them decently and treating them like humans.
Don’t blame the government because your corporate friends are jerks.
BREAKING: It seems devices such as those I speculate about above already exist. They’re calling them “computers.” It seems you can now fill out all your forms and comply with the various laws quite easily using one of dozens of “softwares.” I’ve even heard that there may be an “app” for that. A construction boss could do it all on-site using his portable telephonic device! It’s an age of marvels, I tell you.
Michael,
I’m specifically talking about the cost of employment, not any administrative hassles associated with hiring, which aren’t an issue unless it’s the federal government (it took a year to get me hired and there were reams of paperwork). My brother can usually have someone working the next day.
The issue is, again, the “cost of employment.” To keep those costs down my brother and firms like his hire the minimum number of people. That’s not something that smartphones and computers have much effect on for my brother’s business. YMMV.
I tend to give my brother and my Dad before him a lot of credibility when it comes to these things. They have remained in business since the 1950’s unlike almost all of their competitors. My brother survived the recent collapse in construction – many, many other firms did not. He’s doing better now, but he’s still not paying himself and is still working 80+ hour weeks. In theory, he could hire someone and cut down to 40 hours a week. In practice, that’s not possible for a lot of reasons.
Oh, one more thing. Drug tests are often required. Any company that receives federal contracts or grants must drug test – that’s federal law. It’s also required for certain types of jobs. Elsewhere requirements vary by state, but drug screening during the hiring process can give substantial discounts on various types of business insurance.
Andy, Red (Drew)- During those earlier years the government actually set the prices for the transportation sector. The set the prices for brokers, set interest rates, and made it difficult fr rbanks to act across state lines. The government essentially set energy prices via quota or subsidies, and not just for oil. I think people forget how much govt controlled in the past compared with what it controls now.
So, we have (correctly) stopped actually controlling huge sectors, in our economy. How do you weight that against regulatory burdens which have increased in some areas? I think that those very blunt controls were worse than the what we have now. YMMV.
That said, we mostly talk about federal issues. I think that if you add in state and local you might be able to make a case that we are more regulated now, especially in the construction sector. My brother in law writes construction bonds, for over 30 years. Construction has always been heavily politicized and subject to al kinds of regs, often to make some special interest happy. The ADA has hit them hard. Still, if you are talking about the cost aspect which Andy brings up, it is health care costs by far for most of us. Other businesses have other costs, but we all have health care.
Steve
What if the rule of thumb has worked in the past but no longer holds today?
The rule of thumb of yesterday is being changed to fit the lunacy of today’s rationalizations. That doesn’t make it work better. All it does is give some kind of validation to that window of thinking.
For instance, Dr. Steve, in a prior thread, says that HARP is working well. However, where did perpetual, unchanging debt (structuring debt where one is treading water by addressing only interest payments), for the common man, ever help ease him upward to more financial security?
Is stagnation good? According to the new government rubric there is such an implication, when they gloriously remind us that we are in ‘recovery.’ For many people, of the same partisan ilk, such reassurances suffice. But, for those of us, raised on ideas of savings, prudent spending, lowering personal debt, salaries that increase over time, a good work ethic and/or education meaning a better life for our families etc., today’s stats don’t encourage any confidence in the polices or expectations being issued by today’s governmental power brokers.
Regarding the complexity of running a business: I wholeheartedly agree with those who say it is much more difficult than it used to be. Even though we are a hole-in-the-wall kind of business, size-wise, it nevertheless takes more time and effort to keep up with the current-day bureaucratic and governmental taxing demands, as well as the increasing costs of doing business. For us, the rising prices of housing materials are also a major factor which seems to continually adjust our overhead upwards.
IMO, simplicity is the key to growth. However, with every bill coming out of DC today, we are going in the opposite direction, by creating a monstrous labyrinth of confusing, sometimes conflicting policy mandates. From the EPA to the PPACA, or any number of other governmental acronyms created to confine a business’s operational bottom line, they become nothing but more regulatory turn-styles to squeeze through, which in turns tends to limit the number of employees an employer is willing to take on and basically take care of.
@jan- What new laws/regs/taxes are you talking about? Which are federal and which are state/local?
Steve
@Michael Reynolds,
A guy I know manages the local Costco. He tells me their Administrative costs related to hiring and training are slightly less than half what Wal-Mart shells out because Costco has half the turnover rate. He claims they also have greater productivity becauce they’re able to retain employees and thereby benefit from their accumulated experience. Also their people aren’t miserable and often enjoy their jobs. Apparently when you like coming to work you perform better.
“Drew, you and your little business buddies are full of crap. I’ll bet a dollar a lot of what they whine about is not government regulation, but burdens imposed by insurance companies and by the tedious minions of the HR department of the hiring company itself. For example, if hiring is just so darned hard why do so many companies decide to enforce a pee test on new hires?”
Seriously, Michael??? Seriously? You are becoming a charicature here. A very small man. At the risk of sounding arrogant, and you know I respect you greatly for what you do, look in the mirror and ask yourself some questions. You are way, way out of bounds here. Just foolish.
What new laws/regs/taxes are you talking about? Which are federal and which are state/local?
Maybe to you it makes a difference, which are local, state or federal. But, for a business, a cost is a cost, no matter who or where it is generated.
As for how government has effected our business, I would say the permitting process has gotten way out of hand, both in the initial fees and the elongated time to get permit approval (similar to what is happening to federal permits for gas/oil exploration). Also more and more permits seem to be needed for increasingly minor repairs and upgrades. Businesses, where our S. CA work obligations are located, are always at a juggernaut with local government, in order to meet the long list of ever-growing requirements mandated. However, the most frustrating part of government oversight is how the regs can change, from when you first inquire about them, then apply the paperwork, to the actual on-site inspector suddenly reconfiguring or reinterpreting them for you, to the business owner’s detriment. Basically, such bureaucracy and confusion translates into longer lag times, holding costs, and consequently greater dollar investments — oftentimes, for doing nothing more than carrying on daily business operations.
But these abuses are especially common and applicable to smaller business entities and new start-ups. The bigger developers seem to manipulate fairer trade agreements with government, whereas each hand greases the other with some kind of mutually beneficial pay-off. For example, a developer pays a low and moderate income housing fee, in return for a favorable variance, softening zoning requirements, and thus giving approval for more living units and/or less parking needed than would normally be required under their standard housing plan and provisions.
Product changes are another problem we’ve noted in the housing sector. The EPA is constantly altering the components in these products, which in turn dilutes the durability and sustainability of them, increasing labor costs because they have to be reapplied more frequently. Whether you are using paints, water protection products — you name it — there is simply no longevity to them anymore! Then you have all the flawed replacement products from China — a whole other matter, I know. But, as we are not manufacturing these items in the states, an owner has fewer options available on assuring some kind of quality control in replacement parts for housing repairs. For instance, we are having dozens of turn-off valves being re-installed, because the old ones froze, over a short period of time. These new valves are pricey brass ones, with advanced technology, in hopes they last longer — another additional expense not counted on.
Worker’s compensation insurance is another predictive annual cost increase, despite the fact we’ve never had a claim!
Here in CA, we also have some of the highest state taxes, with another surtax recently levied on higher income earners. We gratefully haven’t hit that threshold, and don’t intend to. I wonder, though, how many others here are like us, who are committed to keeping their income lower in order to circumvent the burden of giving a higher chunk of it away? And, how is such expansion-of-profits leeriness helping employment opportunities or growth to local, state or federal economies?
Apparently when you like coming to work you perform better.
Enjoying what you do for a living, and where you do it definitely adds quality to one’s work. Unfortunately too few employers seem aware of this relationship.
@jan- Rules, taxes and regs matter a lot to me. What you describe is what I see. It is what I hear when I talk to small business owners locally. People start out talking about what an as*hole Obama is and how he has created so many new regs that hurt them. What I see, and when I ask others, is that state and local regs are usually our biggest problems. It seems to be a problem in red states and blue states, especially local laws and regs. I suspect it is worse in blue states, but I have not seen it quantified.
I do know a bit about state mandates for health care. If you look at those state by state, you dont find, at least I cannot, any relation between the state’s political affiliations and the number of mandates.
Steve
You make a fair point, steve. Certain industries, like airlines, were regulated. I would note that deregulation has made air travel available to Everyman.
But you are going for “the big examples” while ignoring the average widget maker. Where the real volume and impact is. There are a bazillion of them. And that’s where employment growth comes from…….or not.
Steve,
I used to think the blunt instrument was worse but now I’m not so sure. The methods were blunt, but fairly simple and easy to understand. Today regulation is much more complex. It’s bad enough in some areas that hiring specialists is required in order ensure compliance.
The more I think about it the more I think there needs to be a hard divide between government and private functions. I think this, which I’ve linked to before, lays out some of the problems pretty well. For a long time I believed that we could get the best of both worlds by commingling the public and private sector. I think the reality isn’t working out so well.