With the re-election of Barack Obama and the Supreme Court decision that the individual mandate can stand as a tax, Obamacare is the law of the land, like it or not. It will be fully implemented in 2014. With all the uncertainty surrounding the law, one thing is certain; labor costs are going to go up. How will that effect the labor market? For clues, look at the housing market.
After the credit market debacle of 2008, new requirements were put in place for loans, making qualifying for a home mortgage much more difficult. Demand for housing is still there, but fewer people can qualify to buy a house. Hence the housing market, four years later, is still lackluster at best.
The same principals will apply to the labor market. In fact, anticipated cost increases have already had a major impact. The official unemployment rate for November actually dropped to 7.7% as the economy reportedly created 120,000 new jobs. However, the drop in the rate came from the fact that 350,000 people quit looking for work and are therefore no longer counted in the employment numbers. The percentage of working age adults participating in the workforce is now at a 50+ year low.
There are job openings out there, but the bar has been raised and is going to be raised further. Consider a company that operates on a 30% margin. That means that for every $1 they generate in revenue, they net a profit of 30 cents after expenses. If their current cost per employes is $20,000 per year, they have to take in an additional $66,000 in revenue per new employee to maintain that margin. Now increase the cost per employee by $5,000 per year to cover an insurance requirement. The company now has to generate over $83,000 per employee to justify a new hire. If you can't deliver that kind of productivity, they don't need you.
This may actually benefit companies at the top of their field as companies operating on tighter margins drop out. It could also benefit temporary employment services. More companies may opt for "just in time" labor, using them only when they really need them, rather than taking them on as employees. Again, look at the housing market. In our area, it now costs almost twice as much to rent a house as to it does to pay a monthly mortgage, but if you can't get the mortgage, you're going to have to rent. Your hourly cost to rent an employee may be substantially higher than taking one on permanently, but you can let them go or stop using them any time without consequence.
It may also cause an increase in independent contractors as individuals find it easier to get a little work from a lot of companies than to get a full time position with one company.
Obamacare will cause changes in more than just the labor market, but the labor market may be where most people experience change first. I'm not going to say the world will come to an end or that we're going to suddenly experience some kind of train wreck. After all, Greece, Portugal and Spain still exist, despite their economic woes. Life will go on, but it will likely be quite different. You can't regulate, mandate, tax and spend your way to a vibrant economy, but that's not what America voted for.
Bob Costas, the Second Amendment and the First Amendment
During an NFL broadcast Sunday, sportcaster Bob Costas opined about the tragic murder/suicide perpetrated by a member of the Kansas City Chiefs.
While he didn't call for any specific legislation, the suggestion was that the American "gun culture" was responsible for the tragedy. Since the perpetrator had no history of violence or criminal activity, the implication is that law abiding citizens should not have guns.
This upset second amendment proponents, some of whom called for Costas to be fired. While I personally believe that the unilateral disarmament of law abiding citizens is not a good solution for combating gun violence, I also believe that a sportcaster, working for a private company, can say whatever he or she wants to say and that his or her continued employment is entirely between them and their employer. Viewers are free to turn the sound off, switch the channel, send an angry letter to the network, even boycott advertisers.
The First Amendment is at least as important as the Second Amendment. I strongly disagree with the sentiments expressed by Costas, but the fact that he said it doesn't keep me up at night. If you want to advocate for a different point of view, do so. If you do it well enough, a few sentences from a sportscaster during a football game wont sway a majority of the country to change the Constituion. Combat bad ideas with good ideas, not with outrage or censorship.
As Congress and the White House put up a front of frantically trying to put together a deal to avoid the so called "fiscal cliff" the punch line is, we went over that cliff years ago, and the fleecing of the younger generations is already well underway.
I'd say the actual edge of the cliff occurred in late 2008 with the passage of TARP. We were in a situation where large banks, financial institutions and car companies were on the verge of failure. Had they been allowed to fail, perhaps we'd have been plunged into a depression; a depression we'd be out of by now. Yes, financial institutions and car companies would have gone under, and they'd have been replaced by new financial institutions and car companies. Instead, John McCain famously suspended his campaign to run to Washington D.C. and put a stop to the madness, then promptly embraced the madness.
Republicans and Democrats alike decided that preserving the comfort level of the older generation was paramount, even if that meant throwing younger generations under the bus, and under the bus is where the younger generation is now. By the way, the average age of members of Congress is 60.
Consider what has already been decided by both parties. Entitlement changes for anyone 55 or older, the generations that are actually responsible for our out of control debt, are out of the question. For future generations, raising the eligibility ages and reducing benefits are a foregone conclusion. They just need to work out the details.
Even with cuts to entitlements and tax hikes, there is no plan for actually achieving a balanced budget, never mind paying down the debt. The plan only calls for reducing the rate of growth of the debt a bit from what it's projected to be now. That means that in a few more years, we'll be looking at another fiscal crisis, but by that time, the folks working on today's deal will be comfortably retired.
A strong leader with a real plan has not emerged on the national stage because the environment isn't there for one at the moment. Why would someone put themselves into the political meat grinder knowing they'll be despised for pointing out the obvious and end up losing anyway?
The American public is not convinced that major short term pain is the right medicine. So, for the time being we will continue the descent over the cliff. Remember, it's not the fall the kills you. It's the sudden stop.
On this day when optimism abounds, with Egypt hinting at a cease fire deal between Hamas and Israel, 150 rockets were fired by Hamas into Israel, including their closest shot yet to Tel Aviv.
Hamas continues its assault knowing two things: Israel must respond. Hamas can't win.
So what's the point? First you have to realize that Hamas is not really a governing body. They rule in the Gaza strip, but their actions display a total disregard for the welfare of the people who live there. They fire their rockets from civilian areas, even from within homes, schools and hospitals. They intentionally provoke return fire, knowing that civilian structures will be destroyed and civilians will be caught in the crossfire. They then display the carnage to a very receptive global media audience as evidence of the brutal cruelty of the Israeli's.
Hamas is a mercenary group working for Iran, not for the people of Gaza. Their aim, it seems clear to me, is to provoke Israel into a violent enough response to enrage potential allies against Israel, while causing potential allies for Israel to want to distance themselves. They are trying to clear the field for an all out regional war against Israel.
So far, they've met with limited success. They are, however, learning more about the capabilities and weaknesses of Israel's defenses and they've successfully taken Iran's nuclear program off the front pages.
There is only one real way to peace in the region. The people have to demand it. They have to insist on leaders that are more interested in improving the quality of life of their citizens than in wiping Israel off the map. Unfortunately, it doesn't look like things are trending that way at the moment.
Trickle-Down Economics vs. Trickle-Down Government
LIBERAL DEMOCRAT JARGON GOES TOE-TO-TOE AGAINST RADICAL RIGHT SLANG. WHO WILL WIN THIS SLUGFEST?
By the time you read this article we, as a nation, have already decided our next president. But the political debates are fresh in our minds. These televised arguments remind me of a boxing match. Everything about these two candidates was conflicting. Foreign policy. Social issues. Education. Taxes. Economics. Everything.
But what seems to be on every citizen’s mind is the economy. Is it possible one of these parties is 100 percent correct on their economic policy? Is one side completely wrong? What do they both stand for?
AND IN THIS CORNER…
You’ve probably heard the two major philosophies. Trickle-down economics is closely associated with Republicans. Trickle-up economics, or “trickle-down government”, is associated with Democrats.
“An economic theory which states that investing money in companies and giving them tax breaks is
the best way to stimulate
Trickle-up is credited with helping the common person. This is done by tax credits, tax breaks and cash stimulus among other ways. It is criticized for “spreading the wealth.”
Trickle-down is thought to generate growth by giving tax breaks and incentives to businesses and the affluent. This is may result in innovation and growth for the entire population. Trickle-down is lambasted for making the rich even richer.
Is there anything good to the idea of enriching the already-wealthy? Here are a few pros and cons of the trickle-down theory:
• It does seem to loosen up business investment. This can lead to increased growth and employment.
• It can be fair. Think of across-the-board tax cuts for all brackets. Everyone gets something.
• In a weak economy, the trickle tends to evaporate. Corporations have trillions in cash now and still small, or no, new-hiring.
Trickle-Up Economics (aka Trickle-Down Government):
“…an economic theory used to describe the flow of wealth from the poor to the affluent; it is opposite to the trickle-down effect.”
Is there anything good to the idea of spreading the wealth? Here are some pros and cons for the trickle-up theory:
• In good or bad times, re-distribution creates guaranteed spending and money flow.
• While re-distributing is not fair to the wealthy, the affluent usually have systems in place (businesses, investments, etc.) to quickly recapture these stimulus dollars.
• This wealth distribution takes away incentives to produce from both the wealthy and the recipients.
Who wins this heated match? In my opinion, I think we need a little of both. Wait. I can hear it now, “Phillips can’t even pick a side.” Not really. I simply pick the American system. In the U.S., there really never is a “ruling party.”
We have checks and balances in our government. The key word here is balance. Our elected officials need to wisely balance the use of these two theories. Hopefully that will benefit all of U.S. for the long-term.
* * *
“Great discoveries and improvements invariably involve
the cooperation of many minds.”
Alexander Graham Bell
Ron Phillips is an Independent Financial Advisor and a Pueblo, Colorado native. He and his wife are currently raising their two sons in Pueblo. Order a free copy of his easy-to-read investor report Creating Your Own Pension That You Can’t Outlive by visiting www.RetireIQ.info or leaving a message on his prerecorded voicemail at (719) 924-5070. Simply mention Promo Code #2001 when ordering.
How to Cope with the New (Old) Business Reality of Post-Election 2012
If you’re a small business owner you may well be asking yourself, “So now what?”
How do you face the fact that running your business will become even more challenging, given the over-regulated, hostile environment held by this administration towards free enterprise?
According to the National Federation of Independent Business Optimism Index, (http://www.nfib.com/research-foundation/surveys/small-business-economic-trends) “optimism among owners is wallowing at recession levels due to fears of bolder government and the continuing fog of economic uncertainty billowing out of Washington D.C.”
The best thing you can do is stay informed and take care of your own. By “your own” I mean your customers and employees. Both embody the spirit and soul of your business and each deserve your time and attention now more than ever before. Here are a few ways to build better understanding and cooperation during these difficult days:
Share the facts with your employees so they don’t fall prey to MSU Syndrome (Make Stuff Up). Most people are woefully uninformed about today’s business climate, the government’s regulatory burden and the impact it’s having on free enterprise. Make sure they get the data and reports that you get. Encourage them to look for articles you can discuss at your team start-up meetings. (You do have team meetings, right?)
Give employees the opportunity to vent, but emphasize the importance of working together to build optimism and constructive outcomes within the company. Convey a “we’re all in this together” perspective so they know they have support. Stress that it’s possible to choose one’s attitude. If they doubt it, buy them a copy of Viktor Frankl’s book, Man’s Search for Meaning.
If you had to do a layoff, don’t try to sugarcoat it. Allow them time to calm down and adjust to the loss. Most likely they will miss their co-worker(s) and be frustrated with the added work they now must shoulder. They’ll wonder if “that was it” or whether there’s more to come. Be truthful and reinforce that your door is open if they’d like to talk.
Join a professional association for your industry to keep on top of legislative issues and share information with colleagues. Not only will you become more informed, but you also deserve to know you’re not alone during these times. Isolation is the worst state for you, your employees or your customers.
Laura Benjamin is a business coach and facilitator based in Colorado Springs. She speaks and writes about business and workplace issues. Subscribe to her monthly newsletter at Laura-Benjamin.com, follow her on Twitter@Laura_Benjamin and find her on Facebook.com/ColoradoSpringsCoach.
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