Thursday, September 3, 2009

The "New Normal" in the United States

The financial meltdown that has resulted in the loss of millions of jobs in the US began in June, 2007. While it was important that the federal government do what was necessary to stabilize the banking system and perhaps to provide for extended unemployment benefits to help those out of work, all the other bail out schemes have done nothing to bring about an economic recovery. In fact, Obama's SwindleUS Pork Barrel Spending Plan, most of which has not even been spent and massive deficit spending have made matters worse. If the federal government had simply lowered taxes for all, we would be out of recession by now and jobs would be growing again instead of shrinking.

Since that did not occur, the recession has gotten worse and it has caused American companies to create the "New Normal" business environment in the United States. The term "New Normal" was defined by a leading economist who clearly determined that the financial crisis would be a game changer. American companies are re-inventing themselves in response to the financial crisis and in the process eliminating millions of jobs in the US. This major cost reduction process is the reason the stock market has gone up in the last six months.

However, the "New" Normal is not so "New" after all. American companies have been shrinking their US labor forces for years as a result of high taxes, government regulations, increased litigation and union demands for higher and higher wages and benefits. Companies have been voting with their feet for years. And, to make matters worse, there are fewer major American companies as a result of mergers and acquisitions. This is the reason that 70% or more of Americans work for small businesses, which are the back bone of the American economy. Major manufacturing jobs have been leaving the US for more than 30 years. The auto, steel, textile and furniture industries along with many other manufacturing industries are either dramatically smaller today in the US or completely gone. These jobs are now primarily in Asia Pacific or Latin America and some are now going to Eastern Europe.

Ten years ago, companies started moving service jobs overseas as well. Outsourcing back office service jobs and certain information technology functions to India and other countries is now rather common because the cost is about one third the cost in the US. Again, this is being done to avoid higher compensation and benefits, high US taxes, and employment regulations and litigation that is rather common in the US. Most important, these young college graduates in India that get paid around $600 a month do a great job and appreciate the work because it brings them a middle class life style and the ability to buy goods and services.

So where does that leave workers in the US who are facing the "New Normal". Major US companies are using the financial meltdown as an excuse to do what they have been doing for years anyway. The meltdown has just accelerated the process. These jobs are never coming back. And, there is no guarantee that so called "green jobs" referenced by the Obama Administration that today require huge government subsidies because the technology is not there to make them economically feasible will actually be in the United States. Europe is ahead on "green' technology. And clearly solar panels, batteries and wind turbines can and will be made in China and other countries even if the companies making them are American. This is assured because Cap and Tax Regulations proposed by Obama and the Democrat Socialists who control Congress are going to cause these jobs to go overseas where these regulations do not exist.

It is just astounding that President Obama and his Democrat Socialist colleagues do not see the correlation between their legislative actions and job losses. Just look to bankrupt California for the whole story. Even though unemployment is now at 11% in California, the state legislature is still proposing new taxes and regulations that will push even more businesses to leave the state and further erode the tax base. The latest two big companies to move factories out of California are Toyota and Boeing; yet California State Legislators still don't get the message and neither does President Obama.

As such, manufacturing jobs in the US will not be a primary source of middle class incomes in the US. The notion that an unskilled factory worker will earn $70 an hour fully loaded to screw in a bolt is the "Old Normal". Those jobs are either gone permanently overseas and or gone to robotics. To keep good jobs in the US in the next 50 years we should be maximizing the energy sources that we have like clean coal, natural gas, oil and nuclear as a bridge to newer technologies. This does not mean more pollution if done properly; but it does mean good, high paying jobs in the United States. Of course, Obama and the Democrat Socialists that control Congress refuse to permit additional development of these energy sources. Ironically, as one more nail in California's coffin, the federal and state government in California are denying water to farmers in the central valley of California, the fruit basket of the country, to grow food. This has resulted in the loss of billions of dollars in revenues to farmers, higher food prices and the loss of jobs and tax revenues going to California which badly needs this tax revenue. By the way, this is being done to protect the Delta smelt, a small fish. Clearly, environmental wackos that wrote Cap and Tax tied to the Democrat Socialist Party are out of control and it is impacting our entire economy.

In any case, even with health care rationing that is inevitable with ObamaCare, with the aging of Baby Boomers, there will be job growth in health services. And, clearly we need more plumbers, electricians, mechanics, painters and carpenters. In other words, there will always be a need for skilled blue collar workers assuming that for whatever reason they choose not to go to university to become scientists, engineers, teachers, or accountants. The worst possible growth in jobs under the Democrat Socialists will be new government jobs because those jobs will mean more regulations and bureaucracy and less freedom for all. Government jobs actually stifle growth in the private sector which is absolutely essential to a real economic recovery.

However, if there are going to be more government jobs, they should be outsourced to companies allowing them to earn a reasonable profit on the work. In addition to the outsourced government jobs that might be good for the economy, assuming it is productive and not just make work, the end result will be corporate tax revenues for the government. Even though there would be profit, the likelihood is that private enterprise can do government work cheaper, more efficiently and with less corruption than if the work is actually managed by government. Look to the Post Office, which is $7 billion in the red, as an example
of mismanagement.

The "New Normal" represents a fundamental change in America. President Obama and the Democrat Socialists that control Congress do not see this train coming because they do not understand Economics 101. The bail out of the auto industry is an attempt to maintain the "Old Normal"; but in the end thousands of auto jobs were lost anyway because there is too much global capacity in the auto industry which has caused inevitable job losses. Everything President Obama and the Democrat Socialist are doing to raise taxes and add more stifling regulations will just accelerate the process of job losses in the US that has been happening for years any way. It is just Economics 101 and it is inevitable.

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