The Wrongologist

What’s Wrong Today:

Is it that the Wrongologist has a hate case
for Messrs. McCain and Graham? Or could it be that they are simply WRONG again?
This time it is their posturing on the possible cuts to Military Spending.   One
fallout from the failure of the Super Committee is that the Pentagon will face additional cuts to its spending over the next decade of $600 billion.  So, Sens. John McCain and Lindsey Graham woke
up to warn us that “these cuts represent a threat to the national security
interests of the United States”. Their good friend, Republican Representative
Buck McKeon, (R-CA) joined in by saying, “I will not be the Armed Services
Committee chairman who presides over the crippling of our military”; while DEFSEC, Leon Panetta, weighed in saying he sees
America becoming a “paper tiger”.

So What’s
Wrong? 

Gigantic cuts and a weakened
nation, right? So, how much will the defense budget decline over the next
decade? How vulnerable will we be?

The Budget will grow,
albeit in nominal terms. Prior to the Super Committee, the defense budget was due to
increase some 23% between 2012 and 2021. Now, according to analysis by Veronique
de Rugy, the
Pentagon will have to make do with a 16% boost. According to Todd Harrison of the Center for Strategic and
Budgetary Assessments, that means, adjusted for inflation,  funding would fall by 11% from
FY2012 to FY2013, then grow by slightly more than the rate of inflation for the
rest of the decade. His report indicates by the way, that “war funding is exempt from any Budget Caps“.  As Lawrence Korb says, the “sequestration will
return defense spending in real terms to its FY 2007 level, the next to last
year of the Bush administration, when no one was complaining about devastating
levels of spending.”

But these numbers have not
quieted Mr. Panetta, who said in a letter to McCain and Graham:  “We would be left with our smallest
ground force since 1940, the fewest ships since 1915 and the smallest Air Force
in its history.”  Almost.  America has the fewest ships since 1916, despite a 70% increase in defense
spending between 2001 and 2010. Now, is it that America’s military needs yet
more money, or has the nature of warfare changed and  has new technology made
our weapon systems more efficient?

Mr. Panetta says the Sequester plan
“invites aggression”, while Messrs McCain and Graham claim America
will face a “swift decline as the world’s leading military power”.
What Bloviating! America spends as much on defense as the next 17 countries combined (most of whom are American
allies). Our main military competitor, China, spends about 17% of the amount America
spends on defense. China’s numbers will continue to grow, but to give you a
sense of where China stands in relation to America, look at its big military
accomplishment from this year: the successful refurbishment of an old Soviet aircraft carrier, its first. We have 11 aircraft carriers, another in
construction, and one more in reserve.

We don’t have a small number of
ships and planes because we’re too cheap to buy more; we have them because
that’s what the Pentagon wants. Modern war makes a small number of super advanced
weapons systems more effective than yesterday’s hardware.

Some chicken hawks insist that we
should maintain the Pentagon budget as a percentage of GDP. Bill Kristol, for
example, claims that we should never allow defense spending to fall below 4
percent of GDP. WRONG!  Social Security for example, is
tied to population growth and living standards, so as those go up so will
outlays. But this doesn’t make much sense for national defense: The United States is no harder or easier to defend
when our economy grows, so it’s foolish to say that defense spending as a
percentage of GDP should remain constant. It should go up when we’re at war, or
when external threats are high for some reason, and it should go down in other
times.

Spending on cybersecurity (particularly given China’s constant cyber attacks) needs
to increase in the future, but it’s a tiny part of Pentagon spending. We’ll
continue to keep troops in the Middle East and elsewhere. We’ll continue our drone attacks
in Pakistan, Yemen, and elsewhere. But drones are relatively cheap. As scary as
terrorism might be, the fact is that it’s primarily an intelligence expense. On
a pure military basis, it’s simply not a big-ticket threat.

Can we afford to reduce defense
spending to 2007 levels? Of course we can. 
We might need to spend our money differently. Perhaps the Pentagon will
decide it would rather have a thousand more drones instead of a single
additional supercarrier group. That makes sense since the mission of supercarrier
groups is becoming fuzzier all the time in an era of primarily asymmetric
warfare.

Another fuzzy area is the cost of
privatizing the military. Many occupational specialties that were
traditionally filled in house such as food services, communications,
transportation, and security in large part no longer exist in the military, but
are instead hired out to private corporations at increased cost.  Privatization
has dramatically increased the cost of operations, and at times, may have degraded the quality of services to the troops.  BTW, U.S. Army recruiting ads
used to advertise 212 military occupational training opportunities.  Now
there are less than 100.

The Sequestration requires the
Pentagon to find additional cuts of about $50 billion per year in its budget. Post-expense
cuts, we will still have the most powerful military on the planet by a factor
of five or six. That should make everyone in the country except for Messrs McCain, Graham and Panetta feel
safe.

To pretend that these cuts would make
us virtually defenseless is to insult our collective intelligence. It is a foolish use of the dog whistle; it is both pandering and WRONG.

The Wrongologist does not like to post opinions only, preferring to add fact
and data. However, I have copied below an opinion from the Health Affairs blog.
 James Capretta says some things about moral courage that I did
not consider regarding the failure of the super committee:

“In theory at least, it had immense and
unprecedented power.  If the select committee had been able to produce a
consensus plan on deficit reduction, that legislation would have been
guaranteed an up or down vote in the House and Senate — with no amendments
allowed from the other duly elected members of either body.  No corner of
the federal budget was beyond its potential reach.  It had the power to
change tax laws, Social Security, Medicare, Medicaid and every other program too. 
And once the committee settled on a deficit-cutting plan, the super committee’s
recommendations would have been rushed to the House and Senate floors for
votes, with just one month separating the deadline for committee action from
the final votes in Congress.  That would have made it very difficult for
opponents of the plan to get organized and stop it. In sum, the super
committee was twelve members with the power to literally rewrite U.S. fiscal
policy from top to bottom  — all in one piece of highly privileged
legislation.

All that was needed to unlock this unusual
concentration of power was seven votes.  The debt ceiling legislation
which created the super committee stipulated that seven of the twelve committee
members had to agree to a deficit reduction plan before it could be
“fast-tracked” in the House and Senate.  It further stipulated that the
twelve super committee members would be appointed by the respective House and
Senate party leaders (with three appointments coming from each).  This
meant that the committee would have six Democrats and six Republican members,
and that the seven-vote requirement would preclude the committee from advancing
any proposal that did not have some level of bipartisan support behind it.

Of course, in the end, that proved to be a bridge
too far…”

So, What’s Wrong?

While the Wrongologist had zero expectations that ANY productive outcome
would ensue, this post highlights an astonishing fact that he had not
considered: Not one in six Democrats, or one in six Republicans was willing to
cross his party line even when a fast-track, no filibuster opportunity to remake
American domestic policy is dangled in front of them. I know that
passing bipartisan legislation is not why most members of Congress are in
Washington. If it were otherwise, then the legislative outcome would reflect
it.

Moral leadership?  Do we have the
right to expect that just 7 of 12 could form a common view? That just one in 12 could do something that in 2011, would be considered incredibly brave?

If just one of them had acted with moral courage, we could count that as
something to be thankful for on this Thanksgiving day. 

Still NOBODY could think (or act) beyond their assigned ideology. In truth,
we all knew no one would.

Hoping for a happy and safe Thanksgiving for all.

What’s
Wrong Today:

Here are two points
on a curve generously supplied by two Chairmen of AIG, the former Chairman, and
the current Chairman:

First, On Monday, Maurice Greenberg, the former
chairman of AIG sued the US Treasury and the Federal Reserve Bank of NY for $25
billion.  The lawsuit against the Treasury contends that the
takeover of AIG discriminated against the company and its shareholders by
charging onerous interest rates on loans extended by the government and by
taking an 80 percent interest in the company over the objections of shareholders.

Between 2008 and 2009
the funds we put into AIG’s bailout
were increased at least four times, swelling to $182.3 billion in taxpayer
money, comprising loans
from the Fed plus purchases of questionable mortgage assets.

Second, Steve Miller, the current chairman of
AIG, when asked by Bloomberg
TV’s Betty Liu for his views on Occupy Wall Street, said that:

·        
Most
Americans lack the gray matter to understand the global economy

·        
You [the taxpayers] got your money back and a profit

·        
What
would have happened if Wall Street had been allowed to just implode? I think it would have been devastating for
our whole economy and that would
have been far worse for Main Street than what did happen….

So,
What’s Wrong?

Arrogance and mendacity. What’s in the coffee at AIG
headquarters? How can two guys who have held the same job see the facts so
differently? Easy, it suits their respective wallets and worldviews:

·        
Greenberg
wants the courts to return the supposed value his AIG shares had before the
government bailed it out. In other words, he is looking for a personal bailout
from taxpayers, saying that he was treated “unfairly” by the NY Fed and the Treasury.
He says he deserves a bailout because things weren’t really that bad at AIG. 

·        
Miller
wants us to believe that the average guy is ignorant about how Wall Street and the
country works and can’t understand that saving AIG was good for Main Street, because
things were REALLY that bad at AIG.

One guy now thinks he
needs a personal bailout because things weren’t that bad. The other guy justifies
the actual bailout because things were really, really bad, even though you and
I can’t understand it.

A few facts:

• It’s been almost three years since AIG was bailed out. AIG
  still owes taxpayers $49.4 billion. But Mr. Miller, you
  said on TV that we got our money back!
• A significant amount of the original
  funding, $52.5 billion, was placed in special
  purpose investment vehicles
  created by the Federal Reserve Bank of New York to take shitty
  mortgage bonds and other loan-backed securities off of AIG’s balance sheet
  and the balance sheets of its “Too Big To Fail” bank clients. If we are
  going to get this money back, the Fed will have to wait until these
  questionable securities mature, if they don’t default in the interim, or,
  sell them whenever we can in the markets. Since we know that the Fed tried
  to sell some earlier this year and it didn’t
  go well,
  it’s very difficult to say if or when this money will ever be recovered.
• What did U.S. taxpayers get for
  the risking the rest of the money given to AIG? Common and preferred stock.
  We now own about 77% (down from
  80%) of the company via preferred and common shares. This means
  that should AIG go bankrupt and by the way, their
  latest quarter was bad,
  US taxpayers will be among the last to be
  repaid. We’ll stand at the back of the line and watch as
  bondholders and other secured creditors get their money back first.
• Experts say that we need to sell
  the AIG shares for an average of $28.72 in order to break even. Today’s
  price is $20.93.
  And this is before we know the outcome of the European train wreck. Even
  if things don’t collapse, we can’t just dump 77% of the company on the
  market; we’d need to sell in small lots over time. It is doubtful that we
  will get all of our money back.
• Isn’t this the position Mr.
  Greenberg would be in IF we hadn’t bailed out AIG? And he wants another $25
  billion!

For Mr.
Greenberg:
The Wrongologist does not defend the bailout; He was against it at the time and
remains against it today. We should never have paid 100 cents on the dollar to
all of AIG’s trading partners. He has no idea about the merits of your law
suit. Perhaps the Fed and Treasury were inconsistent in how they treated AIG
vs. others (Citigroup). However, you
sir, are overreaching. We put up $182 billion and bought your shares so
that you would not buckle the economy with bad investments by your people, many
of whom still have their jobs three years later.

For Mr.
Miller:
Your argument is that
the bailout was structured to protect the taxpayer? Sorry, it was structured
to
keep AIG’s employees and partners from
feeling any ill effects from AIG’s bungled attempts to make money on
nothing.

BTW, it’s
not that we don’t “understand how
this country works”; we
understand it all too well–it works for you and your buddies on the AIG board
and Wall Street.

But it’s
not working out so well for the rest of us.

And it
remains as WRONG today as it was when Paulson and Geithner convinced the
government to do it.

What’s
Wrong Today:

Few of you saw it,
but our Washington ignorati have launched part of their plan to hamstring Dodd-Frank
and the Commodities and Futures Trading Commission (CFTC). See this from Reuters:

“Republicans and
Democrats in the U.S. Congress on Monday agreed to a measure that would set the
U.S. Commodity Futures Trading Commission’s budget for fiscal 2012 at $205
million, $103 million less than what was requested by the Obama
administration.”

But, this year the
CFTC had a budget of around $170 million. So, funding in 2012 will be up by
about 20%. Sounds ok, right? 

So,
What’s Wrong?

The
CFTC has a bigger job to do next year and you want and need them to do it well. Have you heard about MF Global (MFG),
John Corzine’s company? No? They just went bankrupt after making huge bets on
European sovereign debt. MFG placed
$6.3 billion in bad bets using derivatives on European sovereign debt, thereby
becoming the first Wall Street firm to fail since the 2010 Dodd-Frank
regulatory overhaul.

Guess who might be
the US regulator responsible for the $600 trillion over-the-counter derivatives
market? Wait for it…the CFTC!

So, great timing
Congress.  It’s not very comforting to hear that the CFTC is already “several
months behind in implementing [OTC derivatives] rules…required under last
year’s Dodd-Frank law.”

The FT reminds us what a shock MFG’s downfall
is:

“It
is a mantra of the futures industry: no customer lost a dime because regulators
failed.”

Well, the CFTC may
be getting set up for failure.

We have
learned that MF
Global’s customers haven’t just lost
dimes,
but $600 million due to MFG’s
failure to observe the
broker’s cardinal rule: keep the house’s money separate from the customers’.
Investors now want assurances about all the other brokers. They want the CFTC
to, among other things, help audit
120 U.S. futures firms
to make sure that they are not acting like MFG. The CFTC is short one man because their
chairman, Gary Gensler, had to recuse himself from the
MFG deliberations due to his close ties to Corzine. Gensler worked at Goldman
Sachs Group Inc. when Corzine was co-chairman, and was a Senate aide when Corzine
served as a U.S. senator from New Jersey.

Meanwhile, consider
this:

• U.S. banks exposure to European
  sovereign debt is very high–the best guess is an absurdly
  wide range of $46.4 billion to $767.5 billion, and

• Chances are that a huge part of
  their exposure is in the form of derivatives

Scared
Yet?

The costs of carrying
out the CFTC’s mission have changed dramatically since the Dodd-Frank legislation
was passed last year and we surely want to avoid more MF Global-style failures. 

Politico quoted Dennis Kelleher, CEO of Better
Markets: “Not funding the CFTC is like taking the police off the streets
in a high-crime area, which is what Wall Street is.” “The only way to
prevent…[the Wall Street houses] from…[losing huge amounts of $$] again is to
make sure that the CFTC has the funds to do its job.”

And
a little history: Way
back in 2010, during the debate on finance reform, Republicans successfully defeated
a measure that would have caused the banks to contribute to a fund that would
cover the cost of additional oversight (like that required in the derivatives
market) by regulators. Now they (and some Democrats) are whining because it
will cost too much to enforce. Gee, why can’t we have it both ways?

I
don’t know if an additional $35 million above last year’s CFTC budget is
sufficient to keep these Wall Street firms playing by the rules. They seem to
always walk the fine edge of the letter of the law in a world where they can
only win and where we can win or lose. Given that, I don’t see what is wrong
with fully funding the regulators for the next few years. We have seen what
happens when we do not.

Once
again, the legislative process lurches forward, fueled by a toxic brew of
ideology and financial influence peddling by the very entities that obviously need
to be on a short regulatory leash.

And once
again, it is terribly WRONG.

What’s Wrong Today

We know that President
Obama is going to pull our troops out of Afghanistan not later than 2014, he
said so. What? we are not leaving in 2014?

This may not be a big
surprise to you, but I had thought that President Obama meant what he said. After
all, we ARE getting out of Iraq, right?

What is
really going on in Afghanistan: intense negotiations to keep US forces there
for another 10 years after the 2014 deadline. Just as in Iraq, there is a big
debate in-country about whether they should allow us to stay and there is no
debate at all here at home.

So,
What’s Wrong?

How is
it possible that a third rate country that can’t decide if it is going to be a
democracy or a feudal Islamic society or some amalgam of the two is talking and
voting on extending our stay in their country, and we in the most advanced
democracy on the planet are not?

Hamid
Karzai is convening a loya jirga, a traditional Afghan meeting of elders, beginning
tomorrow to debate the value of the Afghanistan’s future relationship with
the United States.
This gathering has drawn criticism from his political opposition as well as by some
in our government. Karzai’s opponents see the three-day jirga as a way for his
administration to acquire a veneer of popular support for its agenda with
Washington. Others believe that the reliance on the Jirga undermines the newly
empowered parliament, although the Parliament will consider the extension of
our stay at some point.

Here are comments this week by
our current General, John Allen, the commander of the NATO-led International
Security Assistance Force (ISAF) in an interview with the Afghan-based Tolo
News Service:

“The
post-2014 US presence in Afghanistan would be limited to intelligence
gathering, special operations capabilities and training of the Afghan forces”… “the
US footprint in Afghanistan beyond 2014 still needs to be determined”…”probably
what you would see in 2015 is advisors, trainers, some people to enable Afghan
operations, some intelligence building capabilities and some special
operators…”

“A
strategic partnership with Afghanistan is a “big deal” for the United States,
said Gen. Allen, adding the partnership would be “the logical extension of
that feeling that we have for Afghanistan”. “There will be a
government-to-government relationship. I think it will create the opportunity
for excellent economic relationships as well. There will probably be a security
relationship that will emerge from the strategic partnership.”

The two
countries have yet to agree on key issues about the proposed arrangement.
Afghan officials have sought concrete commitments on how much the United States
will continue funding Afghan soldiers and police — who are now almost
completely reliant on American funding-as well as timelines on when the Afghans
will become in charge of detentions and night raids. For our part, American officials want to have
access to long-term bases for their troops to pursue counter  terrorism
operations or address other regional issues that may arise.

Officially,
the reasoning is that the US wants to prevent the Taliban and al Qaeda
regaining their influence in Afghanistan. But permanent bases provide much more
important regional strategic value:

–Iran
would be wary of the US maintaining a long-term presence in Afghanistan. We
would have a base to move against them should that become necessary. This is
particularly interesting if we do leave Iraq.

-We
would continue to have a launching pad for drone attacks on Pakistan or
for other military intervention in Pakistan, should their nuclear weapons
stockpile be threatened by internal disruptions.

–Russia
and China would be reluctant to see US bases near their borders, as this
would clash with their plans to gain unhindered access to natural resources in Central
Asia and Afghanistan.

Staying
looks like a neocon’s wet dream and like it or not, a client state Afghanistan has
strategic value.

Kabul does
not have anywhere near as much choice over whether we stay or go as Iraq had:
If we say we require military bases in Afghanistan and will pay a lot for them,
then it will likely become only a matter of price.

How
much?
We have yet to see any estimates of what it will cost, but supporters of the
idea in Washington will certainly argue that it will be substantially cheaper
than maintaining 100,000 troops like we do today.

Maybe. But,
can we afford to continue to bleed this kind of money when our domestic economy is so
weak and lowering our deficit is so important to the right wing? Can we afford
to be on the wrong side of history again by propping up another unpopular
and corrupt leader? Most important, how can we slide into this commitment
without a debate on its merits?

So, another
administration wants to continue nation-building in the Middle East under the
guise of fighting terror. Once again, without discussion. This is simply WRONG.

What’s Wrong Today

In his book, George W. Bush recalls asking his Chinese counterpart, Hu Jintao what kept him awake at night and Hu quickly replied that his biggest concern was “creating 25 million jobs a year”.

So What’s Wrong?

We lost 8.75 million payroll jobs during the so-called Great Recession. Since hitting bottom, we have regained 1.9 million non-government jobs. Even adjusting our job growth for the relative populations of the US and China, every day we fall behind China. And our elected whores representatives are spending more time playing political intramurals than staying awake at night worrying about it.

For sustained job growth, Businesses, People & Governments have to buy more stuff. This demand needs to be for goods and services produced in America. Of course, we can export goods and services, that also creates jobs. It must be stated that courier jobs have been booming across the developed world in recent times. This is especially true for the transit of goods and people, if you count the rise of Uber. Spending and investment by individuals, businesses and governments equals Gross Domestic Product (GDP). If there is no growth in GDP, there is no growth in jobs. It is a chicken/egg thing: demand creates jobs, jobs create demand.

Some say government doesn’t create jobs, they are wrong. Government has lots of employees working on completing its daily mission. Taken together, governments at all levels are responsible for about 13.6% of GDP, while their share of employment is 18.2%. Some government jobs may be temporary such working for the Census. Others are more permanent jobs: the military, post office, cops, teachers, John Boehner and Charlie Rangel come to mind.

Our current lack of GDP growth is based in large part on our shortage of jobs for those Americans who want/need them:

• There are slightly more than 300 million Americans. About 120 million are employed, 14 million are unemployed, and another 5-15 million are significantly underemployed.

That’s about 30 million Americans who are fighting for a job, and know they are in a tough struggle to find one.

I recently read “The Coming Jobs War” by Jim Clifton, Chairman of Gallup, your friendly polling firm. His thesis is that there is a massive global shortage of jobs today that will be the primary economic battleground between nations for the balance of our lifetimes and probably, for those of our children and grandchildren. Clifton makes a distinction between formal jobs – those with a paycheck, steady work that averages 30+ hours per week, and informal jobs, those without a paycheck or steady work. Here are his findings:

• Of the 7 Billion people on earth, 5 Billion are aged 15 and older
• Of that 5 billion, 3 billion have told Gallup they work or want to work
• Today, there are only 1.2 billion full-time, formal jobs in the world
• This is an 1.8 billion job shortfall compared with the 1.2 billion who are working

Of the 3 billion who work or want to work, 50% are currently seeking a formal job, while another 10% are looking for part-time work. With this being said, there are many open positions available. It is up to the individual to take their time to find them. If someone aims to land their dream job or at least a part time job, they will be looking for vacancies daily.
So, the United States is 10% of total global employment and 1.6% of the unemployed/underemployed problem.

Here at home, the war has already started, since our companies continue to move jobs offshore. From 2000-2009, US Multinationals cut 2.9 million jobs here while creating 2.4 million offshore.

Since we are in an environment where the global demand for labor is significantly lower than the global supply of labor, that imbalance will create a huge challenge just keeping wages at current levels in the developed countries. Even as labor costs are rising in the Third World, albeit from a very low base.

Another good way to look at how we are doing in the jobs war is the ratio of US private sector employment to population. Jobs/employment has fallen off a cliff since 2008:

(Left axis is percent of US population that is employed; Blue line is ratio of employment/population; Shaded areas are periods of recession)

How do we win the War for Jobs?

Let’s start with a national conversation that resolves the issue: “We need to create 30 million additional jobs in the next 5 years.” Sounds impossible? Remember, China is trying to do about 80% of that number every year. And their GDP is about $5.75 Trillion/year. Ours is about $14.6 Trillion/year. That’s 2.5 times the size of China’s GDP. Enough said.

We need to agree that sustained growth in GDP is necessary to have the society we want. After all, we are used to a historical annual GDP growth rate of about 4%. That growth has fueled our prosperity, our social safety net and our global pre-eminence. Note, we are currently growing at an annual rate of about 1.3%.

Second, we need to agree that sustained growth in GDP is our top priority. Not the accumulated deficit, not inflation, not healthcare costs, not terrorism, not climate change. It’s GDP. Without sustained growth in GDP, there will be no sustained job growth, no new tax revenues and most American cities over time, will begin to look like Detroit.

We can address these other priorities along the way, but first things first.

If we can’t agree that GDP growth is our top priority for the next 5 years, then what else should be our top priority? You don’t get to say “I have these 3 or 4”. Do you believe any politician can solve simultaneous equations?

No one has proven that we can have both GDP growth and fiscal austerity simultaneously. We cannot save our way to prosperity, and we can’t wait for the trickle-downers to try their econo-political experiment again.

Think about it this way: If you showed up at the emergency room with chest pains, you would be pretty irritated AND LIKELY TO DIE if the doctor started lecturing you about diet and exercise. “Yoga’s real good for stress relief,” you hear while you pass out. You need CPR, defibrillation, maybe a stent or bypass. Later, when there’s enough blood flow to keep your heart muscle and brain tissue alive, you can work toward a healthier life by improving your diet and exercise.

In an emergency like our economy faces now, this prescription would be WRONG!

What’s Wrong Today

Do Small Businesses Create Jobs? We hear: “Most jobs are created by small businesses.” “Small and medium-sized businesses are responsible for most of the jobs in America. ” “Our tax base depends primarily on companies with fewer than 500 employees, and even more so on firms with 100 or fewer employees.”

We hear these factoids all the time, but are they true, or are they just another set of perceptions/partial truths that we call facts?

There are about 6 million businesses in the US with employees. That seems like a big number, but may surprise you to know that there are ANOTHER 21.7 Million firms that have no payrolls. BTW, they average $45.7million in annual revenues-don’t you wonder what can bring in all that dough without any workers?

Looking at the data for the 6 million firms with workers, by # of workers they employ, shows some surprisingly skewed data that may not be what we or our political class, are thinking.

Here are some facts:

• Businesses with less than 500 employees represent 99.7% of firms in the US
• Only 981 companies have more than 10,000 employees each

The distribution of jobs is widely misunderstood. Although most businesses are small, most employees work in large firms.

• Companies with more than 500 employees are just 3TENTHS of 1% of the total, but they account for 50.6% of employment and nearly 57% of payroll
• About 50% of businesses employ four or fewer workers
• 98% of businesses employ fewer than 100 workers
• Firms with less than 100 workers account for less than 30% of payrolls

Source: Census, Table 2a, all data is for 2008

So, What’s Wrong?

Small businesses are the engine of job growth, right? Let’s start by defining “small”. Firms with more than 100 employees are only 2% of total businesses in the US, while those with less than 100 employees are 98% of total companies. As of 2008, there were 4.1 million firms with 9 employees or less, they employed 13 million people and had sales receipts in excess of $2.6 billion:

Firm Size	# of Firms	# Employees	Total Sales
1-4 Employees	3,070M	6,000M	$1,435B
5-9 Employees	1,060M	7,000M	$1,145B

So, how small is a small business in the US? The average firm with less than 100 employees grosses $7.1million in sales annually. So, when some politico describes a “little 250 employee firm”, these are among the largest employers in the US.

So let’s call a less-than-100 employee firm small. Are they America’s job creators? Sadly, no. These businesses do create jobs, but most jobs are created by larger firms with second place taken by start-up firms that survive

If politicians are speaking about high rates of growth off of a small base of employees, small businesses will always outperform the average sized or larger employer due to starting from a lower base. If we are speaking about growth in employment levels, they will be created by the 2% of firms with more than 100 employees. Growth in employment levels is what matters.

Start-ups are small by definition, but they are a tiny subset of the 6 million businesses. A recent study by NEBR finds that start-ups that survive are particularly important in terms of generating new jobs, while “once we control for firm age there is no systematic relationship between firm size and [job] growth.”

So, summing up, the facts are that small businesses, say those with less than 100 workers, account for a minority of both workers and payrolls, and are not the primary engine of job growth. Running a small business is not without its challenges though, especially where managing an efficient payroll is concerned. Some turn to outsourced app solutions for payroll and workforce management; Deputy is an Australia based workforce mangement platform that is a prominent example of this. Above all, it cannot be denied that software is totally changing the way that companies do business. Thanks to accounting software like FreshBooks for example, balancing the books has never been easier. That being said, there are so many different types of accounting software out there nowadays that it can be difficult to determine which one is best. Comparing freshbooks vs quickbooks can shed some light on the situation though. However, even with these developments in place to streamline processes, challenges still remain. A friend of mine owns a small business and told me just the other day “We might be small, but we do make a difference to our local economy. When it comes to paying our staff, everything needs to be perfect, so we use Cloudpay for our payroll. I hope more people are inspired to start their own businesses over the next few years as there are a lot of opportunities out there.”

Why then why the favoritism in political and policy circles for the little firm?

In part, it’s because they are always a good story. We love to hear about the little guy who makes a bundle through hard work and a good business plan. It is also good politics. It conforms to the agenda that says that if the government would just get out of the way, hundreds of Steve Jobs equivalents would emerge from small companies. None of this is substantiated by data.

The misrepresentations about small business as the agents of growth are a problem in our politics. We all want the small firm to succeed, but clarity needs to be paramount if we are to implement policies that help return us to sustained GDP growth.

Should small be beautiful? Discuss…..

Let’s take a break from What’s Wrong to reflect:

Our focus today is on the World Trade Center in New York, what we now call “Ground Zero”.

I had a personal connection to the WTC, having lived 2 blocks from it in the early ‘80s.  We were urban pioneers then, living and working in the Wall Street area, a part of town that did not have supermarkets; movies or many stores open after 5pm. Occasionally, we would have dinner at Windows on the World, the restaurant at the top of the Towers. In fact, one kid had her sweet sixteen dinner there, with all of New York at her feet. At that point in my career, I visited the Towers often because I had friends and colleagues working there.  By 2001, it was my children that lived in the New York area and it is they who worked nearby and lost friends in the attack on the Towers.

On the weekend before Thanksgiving in 2001, my wife, two of our daughters and their husbands and I visited Ground Zero on a Sunday.  At that point, much of the twisted pile of steel and concrete that stood more than 10 stories high after the collapse of the buildings had been trucked away, but some of the superstructure remained standing like a skeleton, a grim reminder of what was. 

During our time at Ground Zero, we saw many firefighters in their dress blues visiting the site, usually with their families, looking on in silence.  They came from all over America, and I guess that we saw more than a hundred uniformed men and women that day.  I talked briefly with a group from a small town in California, who said they came simply to pay their respects to those who died.  They were not asking for insider tours, or visits with the mayor or other VIPs, they were just tourists looking on in disbelief, like thousands of the rest of us.

So, 10 years on, what does Ground Zero have to say to us?

9/11 did not change everything, but we acted as if it did. We learned to be afraid. We learned that we were vulnerable, that the most powerful nation can, under the wrong circumstances, be powerless to prevent tragedy and pain. We learned, for the first time for most of us, something about national shock, helplessness and above all, that there are limits to our ability to cope with disaster and to return to a normal existence.

We allowed ourselves to be swept up in the moment by that fear. Many, many people said that they didn’t care WHAT our government did, or how our civil rights were weakened, as long as we were kept safe from the terrorists. Well intentioned or not, the Bush administration exploited our fear and the outcome 10 years later, is two simultaneous wars in Muslim countries, a debilitation of our influence, our moral authority and most importantly, our belief in ourselves.

Could we have stood up to our fears? Sure. Our nation had the stuff to rally from the Civil War, the great fire in Chicago, the earthquake in San Francisco, Pearl Harbor, WWII, Vietnam. We might be a better nation today if in the past 10 years, we were willing to be uncomfortable, anxious, but tough-minded enough to say no to at least one tax cut and/or one war in the Middle East. Possibly, we would be a more secure nation today, not just physically but maybe, psychically. We might not see bogeymen under every turban. A proposed mosque near Ground Zero might not lead the national news for weeks.
 
And the domino theory of fear continues to divide us: Since 9/11, one tile of fear has fallen against the next and so on, while our politicians jockey for positions about the latest, greatest wedge issue: We are afraid of China; We fear that our budget deficits will spiral out of control, bankrupting the most powerful and largest economy on the planet; We fear for our kids safety if they walk to school; We fear the mob at the gates, driven by the likes of Glenn Beck, now Father Coughlin 2.0, railing constantly about them.

You could say that the dead guy won, but I don’t believe that. We have all the resources we need to remain the exceptional country we believe we are, except the will to work hard even when afraid about the outcome. We need to rebuild a shared vision of the future. We need to re-learn how to be uncomfortable and anxious in an ambiguous world without shutting down or being ineffectual. Lately when things get tough, we start to strut, have short attention spans , prefer form over substance and pray to god that it all works out… (OMG, have we all become George Bush?).  

Remember 9/11. Let us never forget the heroes and the victims. But let us never again sacrifice our freedoms or our common sense, to fear.

What’s Wrong Today:

There has been a concerted effort to raise the bar on who is eligible to vote over the past 20 years and it is proving to be a big success. Depending on your ideology, this is “eliminating massive voter fraud” or “voter suppression”.

While recent efforts to tighten the rules about who can vote have been ongoing since the 1990’s, the GOP really began to influence perceptions in 2008 by claiming that various registration organizations including ACORN were actively recruiting armies of fake voters to misrepresent themselves at the polls and cast illegal ballots for Democrats . Republicans used this contention (and others), to mobilize an effort to change the voting process in states where they controlled the legislatures. However in reality, neither ACORN nor anyone else registers voters. They conduct registration drives in which people fill out registration forms, but the actual validation of the information is by law, the purview of state and local election boards. In fact, groups conducting registration drives are prohibited from making inquiries about citizenship status, place of residence, or anything else. Top of Form

Bottom of Form

Since 2009, a dozen states have approved new obstacles to voting. See Source Here. Kansas and Alabama now require would-be voters to provide proof of citizenship before registering. Florida and Texas made it harder for groups like the League of Women Voters to register new voters. Maine repealed Election Day voter registration, which had been on the books since 1973. Five states – Florida, Georgia, Ohio, Tennessee and West Virginia – cut short their early voting periods. Florida and Iowa barred all ex-felons from the polls. And six states– Alabama, Kansas, South Carolina, Tennessee, Texas and Wisconsin – will require voters to produce a government-issued ID before casting ballots.  More than 10 percent of U.S. citizens lack such identification, and the numbers are even higher among constituencies that traditionally lean Democratic – including 18 percent of young voters and 25 percent of African-Americans.

A little background:

Who has the right to vote? Is the right to vote really a right? How has the right to vote been modified or changed over time?  In colonial times, it was common practice that the only individuals with the right to vote were white men who owned property. A man was a male over the age of 21. But, there are documented cases in colonial America where women had the right to vote. See Source Here. Usually, they were widows of landowners. There were religious tests of varying kinds in most colonies, both before and after the adoption of the Constitution and a race test existed everywhere.  Even today America does not have universal suffrage and never has had it.

The United States Constitution leaves the determination of voter qualifications to the individual states. However, various congresses, presidents and the American public gradually extended the federal government’s role in the question of who has the right to vote over the years. See the Six Amendments that amended voting rights here . These Amendments changed who had the right to vote as they became law.

So, is the right to vote really a right? The “right to vote” is implicitly understood in the U.S. Constitution and in the Amendments, but only by prohibiting certain forms of voter discrimination in establishing qualifications for suffrage. However, an individual’s “right to vote” can be denied in any state for many reasons. For example, states require eligible citizens to register to vote a set number of days prior to the election in order to qualify to vote. More controversial restrictions include those laws that prohibit  felons from voting or, as seen in Bush v. Gore among others, disputes as to what rules should apply in counting or recounting ballots.

So What’s Wrong?

 

The problem is that the statistics do not support the perception that voter fraud is a huge problem. Statistically, Americans are more likely to be killed by a bolt of lightning than to be convicted of voter fraud.

 

According to Salon, from 2002 to 2005 only one person was found guilty of registration fraud. Twenty people were found guilty of voting while ineligible and five people were found guilty of voting more than once. That’s 26 criminal voters — voters who vote twice, impersonate other people, vote without being a resident – these are the voters that Republicans are warning us about. Meanwhile thousands of people are getting turned away at the polls. See Source Here.

 

According to The Brennan Center for Justice,  nationwide since October 2002, only 86 individuals in total have been convicted of federal crimes relating to election fraud (including several offenses not remedied by ID requirements), while 196,139,871 ballots have been cast in federal general elections.

 

In fact just f
ifty-two people were convicted of federal election fraud for voting in multiple locations between 2002-2006. 

 

(NOTE: these numbers are different due to different periods analyzed, but the total of all convictions is still less than 00.00005% of those who unlawfully voted above)

 

The New York Times reported this in 2007:

 

The perception is that voter fraud is a rampant problem: A Rassmussen Reports survey in October 2004 found that:  14% of those surveyed said there is “a lot” of fraud in American elections, while by 2008, the Congressional Cooperative Election Study showed that 62% thought that vote fraud was very common or somewhat common, up 48% in 4 years.  (Again, the data are not completely consistent). Interestingly, both surveys showed that 28% thought there was hardly any fraud.

Clearly, the perception machine has driven the average American’s belief that we must act or we will lose our democracy. This is a systematic effort to make people think that “the mob is at the gates”, to make people believe that there is rampant voter fraud when there is absolutely no evidence to substantiate the belief.

Gone Baby, Gone

We like to say that we are part of the “Reality –based Community”, and that reality and fact will win out. That thinking is only true in the rear view mirror. There is a substantial and powerful group of politicians and fellow travelers that have moved the country far beyond facts to a perception-controlled reality for a very large portion of our citizens. As Ron Susskind reported in an October 17, 2004, The New York Times Magazine article, quoting an unnamed aide to George W. Bush (later attributed to Karl Rove):

“The aide said that guys like me (Susskind) were ‘in what we call the reality-based community,’ which he defined as people who ‘believe that solutions emerge from your judicious study of discernible reality.’… ‘That’s not the way the world really works anymore,’ he continued. ‘We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality—judiciously, as you will—we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors…and you, all of you, will be left to just study what we do.’

Come Election Day 2012, this flood of new laws will be in place, implemented primarily by Republicans who are driving the perception machine. Instead of a single fiasco in Florida, there could be chaos in a dozen states as would-be voters find themselves barred from the polls.   

 

And it would be So Wrong.

 

 

 

 

What’s Wrong Today

We could talk about a host of things that are wrong, starting with Senators McCain & Graham Thanking America Last with their continuing wrongheadedness about Libya, (how is it possible for two Senators to be on every side of this issue, and always be wrong? 

But for today, let’s talk about something that is right: The New York Times reported today on the opening of the Martin Luther King Memorial on the Mall in DC. The Memorial opened on Monday after 20+ years of planning, but still about $5 million short of the funds required for its construction. It will be formally dedicated on Sunday, the 48^th anniversary of MLK’s 1963 “I Have a Dream” speech.

President Obama will lead the dedication ceremony, providing neat symbolism for a nation that often can’t get its symbolism right.

(Phillip Scott Andrews/The New York Times)

The Sculpture draws its inspiration from a line in the Dream Speech:  “With this faith we will be able to hew out of the mountain of despair a stone of hope”

Ask a person under 25 about MLK and they will say things like: “He made the ‘I have a dream’ speech? I heard it in school’; or, “He made things better in the US”; or, “He fought for black rights”.

Well, he did all of those things kids, and so much more. I lived through the 1950’s and 1960’s and MLK transformed America. In the ‘50’s the US was a place where no one questioned why we did things the way we did, we just followed whatever our parents did. By the end of the ‘60’s we had questioned everything, changed a few things and many of us were living under a very different set of social mores than those of our parents.

For me, the end of the 1950’s came with the civil rights movement. MLK, others in our churches and some courageous few politicians created a real “moral majority” (not the phony idea espoused by Jerry Falwell 25 years later), of people of all races, educational and economic strata who came together to support the Big Idea that Separate was not Equal. MLK went big, giving a voice to the Big Idea. His presence, power and persuasiveness drove our political process to a place and to an outcome in the Civil Rights Act of 1964 that was completely unthinkable in 1954 when Brown vs. Board of Education was decided by the Supreme Court. LBJ helped, too.

I participated in the Civil Rights movement from 1958 to 1962. My participation changed me, shaping my viewpoint on race, religion and politics. I left active participation in the movement believing good ideas and a morally sound position would, if properly promulgated, create change through our political process.

I was an officer in the US Army running a nuclear missile unit in Germany when MLK was killed in 1968. We had several tense days, despite the fact that the Army was ahead of the country at that point, integrated and in some ways, a meritocracy blind to race.

MLK remains the hero of a generation of Americans for whom activism was a building block of their personal journey to adulthood. In most ways, our nation has not recovered that sense of can-do, or that all things are possible for your Big Idea, because sadly, today we have no one who can rally us to drive Big Ideas to reality.

Still, 48 years later, we have not yet completely erased our race-related issues, except on TV, where every day,  commercials show people of all races having fun together while shopping for their next fast food meal.

Let’s hope that it becomes a reality outside of TV before too many more MLK days come and go by.