Here’s a very interesting observation put out by the great writer and very observant economic and social commentator Charles Hughes Smith.
Productive and Unproductive Capital
Honestly, it’s much easier to sit at a desk at home and gather long-term capital gains (which may or may not be productively invested) or tax-free earnings than put up with the guff of real business. And if this is the case, then who’s going to risk everything to hire people and "get America working again"?This is why I predict 30 million formal jobs will be lost in this Depression; it’s no longer worth it in terms of risk/return to start businesses when everyone is sucking real businesses dry and leaving rentier capital lightly taxed and lightly regulated.
The above is the summary of an essay which points out that over time we’ve structured our economy and society such that non-productive capital (passive bond and financial investments) are treated with kid gloves by our rules sets and tax codes while using the same capital to run a real business exposes one to all sorts of headaches and additional taxes that do not apply to "rentier capital".
So why bother?
I can tell you from my experience, this rings true. The amount of paperwork and forms and rules and taxes that my state of Massachusetts applies to my simple business are extraordinary compared to squaring up my investment and trading accounts at the end of the year.
Some of the rules are baffling and maddening as if designed to be cruel and arbitrary.
But they merely reflect the fact that over the past few decades we have made the decision to lighten up the rules and taxes on invested capital and piled on new incremental rules and taxes each year to working capital.
And this is why I think the Big Three dropped the ball when they went to DC recently. I know they were in begging mode, but if I were them I would have been sorely tempted, in response to some mean-spirited probing by Barney Frank, to have taken off my shoe and banged on the table while shouting "Stop! Enough!"
Then I would have proceeded to let the rule makers know that it is not my workers that are uncompetitive, it is the nightmarish combination of US rule sets and free trade that have killed the country.
You can have one or the other but not both.
An example would be the Americans with Disabilities Act (ADA). It’s most recent incarnation released earlier this year is over 1,000 pages of tightly packed rules. I am making no claim as to whether this is a good law or a bad law, but pointing out that it represents a thousand pages out of tens of thousands that US corporations have to follow for which many other countries have no equivalent set of regulations.
As a society we’ve decided that such rules are important to us and, again, I am making no statement about whether this is a good thing or bad thing. For now, let’s just agree that they are a fact of life.
But how does one compete with countries that do not have such rules in place?
Imagine that you are a home builder and you have to follow the Massachusetts state code books which run several thousand pages and you have to obey all the labor laws. Now imagine that the builder on the next lot over doesn’t have to follow any of those rules and that the two of you are competing on price. Now imagine that a Massachusetts state representative publicly scolds you for being uncompetitive.
So the opportunity lost by the Big Three was their chance to turn the tables and say, "Mr. Frank, and other distinguished individuals, when you say my workers and my business are uncompetitive what you are really saying is that our regulatory structure is 40% too large. Since you hold this view I demand to know your immediate plans for reducing the size of government to a point where we can again compete on the world stage. My laid off workers will wait in your home district for your answer."
It’s pretty simple, do we want free trade or do we want tens of thousands of pages of applicable business laws? That’s the choice. We can’t have both.
So if you have been wondering why the credit bubble burst and why US wages have been stagnant and why US industry has been declining, look no further than our goofy insistence on playing on a tilted field. The once great and productive middle class has been hollowed out by an ill-considered globalization fad that has made us worse off, not better off.
The solution is simple.
Either apply import duties that square up imported goods against the costs US businesses face for complying with our laws, or begin dismantling laws.
If we do neither, then we’ll merely slide down the same slope we are already on and more and more businesses will come to conclusion that it’s just not worth the effort, the risk, or the time.
by former_user