This is a tale of two trains heading full steam down different tracks.
The first train was called U.S.A. It had pulled out of the station in the city of Entrepreneurship and had been streaming down the tracks toward the little town called Socialism for some time. All of the politicians had given up on the power of the free market. When the Republicans were the engineer of train U.S.A., having control of both the White House and the Congress, there was an unprecedented expansion of government and deficit spending -- expanding entitlements more than any of his recent Democratic predecessors, expanding government regulation with the entrepreneurship stifling Sarbanes-Oxley Act, and beginning the binge of corporate bailouts that continues today. Who can forget President Bush's now infamous quote, "I have abandoned free market principles to save the free market system".
The Democrats soon took over control of the train and stoked the engine with coal to push it to speeds that nobody had imagined possible as it chugged along toward Socialism. In fact, that train gained so much speed that many suspected that it may pass right through that little town of Socialism and right on down to the next stop -- the village of Communism. The Democrats (and in fact most Republicans) believed that it was government that was the economic answer to all problems. For example, one of the stewards on the train, Speaker of the House Nancy Pelosi, said that unemployment benefits are a great driver of economic growth. She said that that unemployment benefits "creates jobs faster than almost any other initiative you can name." I guess the U.S.A. doesn't need small business to pull it out of the recession after all!
The other train was called Iceland, which had begun its journey somewhere between the town of Socialism and the village of Communism. For years, the train called Iceland was considered a socialist utopia -- a gleaming example of what socialism can accomplish when left unfettered by the trappings of free markets. It did not move very far down the tracks from Socialism. They did have big businesses, but these companies were firmly in bed with a very expansive socialistic government.
But over time, the people of Iceland began to question if the town of Socialism was such a great place to live in. It seems that socialism was not helping them deal with a series of economic crises that had rocked their little country. So they turned their train around and started it heading down the opposite track toward the city of Entrepreneurship. The President of Iceland, Ólafur Ragnar Grímsson, has made public his commitment to conquering their economic crisis through with innovation and entrepreneurship.
Then one day, not so long ago, these two trains, U.S.A. and Iceland, passed each other heading in their opposite directions. While the people on the Iceland train seemed bewildered as to why U.S.A. was heading full speed to where they had just come from, those on train U.S.A. hardly even noticed that Iceland was heading the other way.
The end of this tale has yet to be determined.
But let me offer a little glimpse as to what will likely happen with a quote about Iceland from Jonathan Ortmans, president of the Public Forum Institute, at Kauffman's entrepreneurship.org policy website:
The stream of positive signs I noticed began in March this year when Iceland replaced the United States as the INSEAD world champion in innovation. Then in Dubai that same month, Iceland won the Global Entrepreneurship Congress award for best entrepreneurship movement during the 2009 Global Entrepreneurship Week. And more recently, entrepreneurship was incorporated into public discourse as a main driver of economic regeneration when Iceland's President led a summit in his country on innovation, entrepreneurship, and green energy. With Iceland getting so much attention for being on the brink of bankruptcy, I thought such good news about signs of an entrepreneur-led economic resurgence deserves note.Choo-choo. The train is leaving the station. Get on board!
Iceland's problem was greed on the part of the banks and not the result of having a social democrat government and there have been no major changes in the government programs in Iceland.There has been no Icelandic Reagan to take apart the safety net. Their become more innovative so quickly has something to do with the people of Iceland having their feet held to the fire(the fire being fed by the crash of Iceland's capitalist banks) but also has a lot to do with it being easier to make a U turn when you have 300 thousand people instead of 300 million.And what has the Obama White House really done and how much is what they inherited? Lets remember that the bank bailout was supported by Senator Obama(and McCain) and signed into law by President Bush. The Obama $750 million stimulus included $250 million in tax cuts which apparently the GOP finds objectionable when not their idea. The medical reform bill is projected to cost $900 million over ten years but will be offset in part by new taxes. Medicare Part D (drug benefit) pushed through by Bush will cost $1 trillion over ten years with no way to pay for it.
Let me get you a kleenex before you cry a river of despair. Speaking as someone who has tried to work for a living instead of sitting in teh safety of academia all I can say is come down to any street and I will show you foreclosures, divorces, and a host of evil that has been deposited upon us by private business, bankers, and the GOP. I know it is hard to see with your tenure, private consulting contracts, and protected environment of the ivory walls.
From my perspective for once there is a safety net that will provide health care, that will reign in libertarian bankers and financiers playing with hard earned people's money,and just maybe tackle immigration and climate change.
For the 8 years in office the GOP systematically turned the federal funds spigot on so that the rich became super rich, so private companies and industries were protected by tax laws and beneficial contracts. Now that the little people are getting a break all the private sector gurus cry foul and that we are heading in the wrong direction.
I sit in a small town of 700 outside a major metro area. Entrepreneurship is alive but the overall demand for goods and services is not there and no tax cuts or stimulus checks will pick up the slack. The basic problem is we have wrongly fueled the consumer economy as our economic engine of choice through low interest rates. We have also allow wages to stagnate thus in order to stay even families had to borrow. Many of the small and medium size businesses that prospered during this time prospered because of consumer spending directly or indirectly.
That party is over. We are going through a correction that will take years to resolve. Maybe the President in 2020 will get a break with a better economy. Until that time we will have to support basic services like health care, education, and other basic social social services with debt. Growth will have to come from overseas. We will need to open markets and perhaps even support some of our private markets so they can sell abroad.
In terms of socialism that train left the station with the creation of social security and farm subsidies. We have been on the train since that time with everyone from veterans to children climbing on board. We should not be shocked by the recent additions to the train.
If we really want to unleash productivity and money let's do to things...pass universal health care so that the Fortune 500 can save some money. 10 years ago I was at a conference of Fortune 100 companies and almost to universally they agreed that national health care supported publically would help them cut costs.
Then let's cut the corporate income tax by 10 percent which should bring our effective rate down below most European countries. Then most US companies will move income from Europe to the US and our tax receipts will actually rise.
Finally let engage in a real debate instead of polemics. Your shouting socialism and my shouting safety net does not create compromise or solve the issue, witness the Greeks. We did not get in this overnight and it will take years to get out. Some years we will look more socialist and some years we will look more entrepreneurial. Real people have been hurt. Real people have seen their futures vanish. Real people are looking for real leadership and compromise. From my experience in the private sector compromise is always part of the solution.
YIKES! Clearly there are two people who have just left comments at this post who have not been loyal readers -- not even sure they really read this particular post very carefully. I guess they did not take the time to understand my body of writing and the history that I bring to my blogging. I wonder who you two are and why your sudden interest in my blog. Perhaps I struck a nerve.....
Jeff, why are you surprised at "new" readers? This entry was posted on the Christian Science Monitor, which assumes a national readership. I never heard of you before this article popped up in my RSS reader. Instead of responding with some admonishment to thoroughly read your blog, perhaps your time would be better served responding to at least some of the above responses -- which appear to have valid points.
It's rather pretentious to assume that a CSM reader, or any lay person who is bombarded with so much information on a regular basis, will take extra time to try to understand your POV.
If your work gets published on a national scale, don't expect to be surprised when "new" people "suddenly" read your work seemingly out of the blue. Do you want to truly reach a broader audience, or come off as an academic
who appears out of touch with society?
Carol,
The Entrepreneurial Mind has been published on a national and international scale for years. But since the readership continues to expand, I am more than happy to respond to my newest readers coming from CSM (interesting that you seem to know that is how Joe and Frank found me....there are lots of other new outlets out there).
Joe and Frank seem to be rather selective on who is allowed to engage in rent seeking with the state. The problem is not just a few greedy bankers in Iceland and the US. It is systems that have corrupted liberty and free markets. The latest is one fancied by the left -- green industry. I admonish enriching any industry through the transfer of payments through the government, be it the auto industry, bankers, or wind farmers. Encouraging rent seeking by any industry is anti-entrepreneurial and anti-free market.
Joe, yes Obama inherited the current mess. He is only making it worse. We have had a steady erosion of liberty for decades. As I wrote in my post, he is only "putting the pedal to the metal."
Both Joe and Frank seem to love the idea of new taxes. Just who is going to pay for those taxes? If we stifle entrepreneurship, we will greatly depress income tax receipts. Higher rates will be applied to a much smaller pot. For every 1% increase in margin personal income tax rates, we see a 1.4-2.0% decrease in entrepreneurial activity. Increasing personal income tax rates also decreases the expected life span of a small business by 30-44%. Cutting corporate rates does nothing to spur entrepreneurship. Entrepreneurs do not pay corporate taxes as almost all have pass through entities like LLC's and partnerships. That is why we need to cut personal tax rates -- to encourage entrepreneurs. They are the ones who have led us out of every past recession -- not big business and certainly not government spending.
Frank,
Yes, we need a correction. The current administration is not correcting anything. It is only a continuation and acceleration of past public policy in the U.S. And just how does universal healthcare spur productivity, anyway??? I would love to hear your logic on that one.
And by the way, Frank, a few notes on me personally, since you seem to want to use personal attacks as part of your critique of my post.
I actually have worked outside of academics for a significant part of my life -- you can see this on my bio if you care to look at that link on my blog. I have been an entrepreneur for much of my career. I am not sure what private consulting contracts you are referring to. The only consulting I do anymore is with my current and former students -- all of which is forever and ever a free service. I "retired" from consulting years ago. Not sure why in the world you consider me a GOP -- they are as guilty of destroying our liberties as the Democrats.
And for your suggestion of compromise? The age of co-optation is over. Principles do not lend themselves very well to compromise, and that is what we are dealing with here.
OK, hope that helped the three of you understand my position a bit more. Time to get my second cup of coffee and enjoy the hot summer morning on my back porch.
I would like to bring light to Frank's trust in our government's recent compromises. Compromise is the most unnerving thing about where the U.S. is moving toward. The compromises today are the root of what will be most unfortunate when I and Generation Y age tomorrow if the U.S. continues on this path. Compromise is the wool over our generation's eyes... it is compromise that doesn't ignite a free market, small business environment -- an opportunity that our generation demands.
If the U.S. continues to make ANY movement toward socialism, as they have done, it will continue to be compromise today that causes a most shocking, deteriorating impact to how we scale our businesses AND the extent of which we pass down values (economic, work ethic, knowledge seeking) to our sons and daughters when that time arrives.
There is a much bigger world out there, and that is our future. We SHOULD be shocked by the recent additions to the socialism train and we must fight it.
First, let me apologize for the tenor and content of my post concerning your background. Yes you did hit a nerve and unfortunately I fell to the nerve being rattled and spit out my response.
Re: Health Care more expensive overall on a private basis verses single payer program. A single payer system would mostly likely result in a reduction of the average health care bill large and small businesses currently pay. Cost averaging over a larger population should decrease the expenses. Case in point. The company my wife works for employees 400 people. Her health care rates are $4500 less per year for better coverage than the insurance I have available to me even though I have 5000 people in my group. Why? Her company has a younger population than mine. We are both in our mid-fifties. That $4500 is out of pocket to us. The actual subsidy by each organization is significant. If they could pay the same rate because of a single payer system surely there would be an overall decrease in medical expenses.
Now all businesses will have a choice as to what to do with the extra money. For small business it can go into the owner’s pocket, used for marketing, spent on capital improvements, or a host of other options. For large businesses the only difference is that dividends could go up which in turn would add more income back into the economy.
It sounds like you are advocating supply side stimulus in form of lower individual tax rates to get the economy going again much like the reduction that occurred in the Reagan years.
Decreasing personal income taxes seems to be the wrong approach. Back in the 80s when taxes were insanely high Reagan make the right choice and Clinton received the benefit. Today our tax rate and related loopholes are manageable. We have been at 10% on the low end to 35% on the high according to the National Tax Payer Union. Most people and entrepreneurs pay significantly less due to the various deductions that can be taken. Small business people routinely blur the line between personal and business expenses that the average employed American cannot do. Overall tax receipts as a percentage of the economy are 14.8% and at the lowest level since 1950. I am sorry taxes are not a reason for not investing or growing your business. That dog just won’t hunt anymore.
A family of four in the exact middle of the income spectrum will pay only 4.6 percent of its income in federal income taxes this year, according to a new analysis by the Urban Institute-Brookings Institution Tax Policy Center. This is the second-lowest percentage in the past 50 years. Many of the entrepreneurs fall into this category so I don’t know how cutting their individual tax rates will benefit the economy since they are paying nearly nothing already.
Even on a larger scale the U.S. corporate tax burden is smaller than average for developed countries. Corporations in 19 of the member states of the Organization for Economic Co-operation and Development paid 16.1 percent of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4 percent.
Supply side economics worked when taxes were oppressive; today the tax burden is manageable. There is plenty of supply out there right now. Most small business people I know are cutting prices to get ANY business. Any individual tax cut will most likely stay, not only in the business person’s wallet, but the consumer as well.
For a minute let’s assume a tax cut could stimulate the economy. How much of a tax cut will it take to really benefit the small business sector and jump start the economy? The Reagan tax cuts but those tax cuts moved the rate from 50% to 35% which eventually unleashed huge amounts of investment into the economy. What is that number today to be effective? I question whether any number can be effective given the weak demand and skittish consumer.
The challenge of this great recession is that the demand by consumers is weak to non-existent. A new USA Today poll stated that 60% of Americans are committed to using fewer credit cards. Many folks in my area have delayed everything from upgrading appliances to home improvement projects. Our church is purchasing a new sign. We changed the mounting design which increased the amount of labor and raw material needed. The small business owner did not raise the price because we are one of the few signs he has on the drawing board. Demand is so weak that people are not reading the sales ads in our Sunday Chicago Tribune. The only way this consumer based economy comes back is through confidence in the economy and not lower prices.
It does seem that innovation does command dollars. While I am not a fan of Apple I admire their R & D and ability to build products people will purchase even in a recession. Their success with the i-Pad is unbelievable. They did it without a tax cut or special stimulus package. Last I looked companies like Apple and Google are employing thousands of people both directly and indirectly. Verizon wireless is selling out of everything android despite the economy. True innovation seems to be the key and not lower prices.
Here is where the safety net makes sense. I think it is going to take a generation before we see a normal economic environment. The retail marketplace is reshaping as we speaking. Bricks and mortar are going away for many items and the jobs that go with it. You need fewer face to face retailers when space is web based for many products. In my area all the small business handy men, landscapers, and realtors are closing shop and trying to find salaried work. Why? Consumers have their hands in their pocket no matter the price or discount. We are in the midst of a fundamental shift in the economy where there will be less disposable income due to downward pressure on overall household income. The era of cheap money which led to an explosion of small business growth is over.
Finally I do want to ask why you think cooperation is not longer valid? It seems to me most folks are selectively ideal driven. Some want taxes lowered but not the tax breaks for their industry. Consumers want better roads, police, and public schools but don’t want to pay taxes. If the day for compromise and discussion are over and we must pursue the future on a purely ideological trajectory no matter what that ideology, surely failure is at hand. We are 309 million people and if the polls are right we are split nearly 50/50 in our ideology. Compromise is the only way out.
Enjoy your coffee! Its looks like rain here so I will do my second cup inside.
Frank,
I accept your apology and look forward to future conversations.
I couple of points to your recent comment.
You and I agree that the current healthcare system is broken. I am not one to defend the status quo. I am not even one who thinks all it needs is a little fine tuning. However, the problems with healthcare do not come from free market forces. We have not had a free market in healthcare in decades. The system we have is a broken, but it is the outcome of years of rent seeking by insurance companies, healthcare companies, physicians, etc. Adding more government control and direction will only make it less responsive to the patient (ask anyone on Medicaid or Medicare how user friendly those systems are). It will eventually lead to inefficiency that will force us to cut what care we can give.
You are correct that demand is weak in our economy. That is why small businesses want things that will lead to more sales rather than the expanded SBA loan program now being pushed by the administration in Washington. I am not sure why you conclude that people and small business owners will leave their tax cuts in their wallets. When Kennedy cut taxes, people spent and small businesses grew. When Reagan cut taxes, people spent and small businesses grew. when Clinton cut taxes, people spent and small businesses grew. By the way, speaking of supply side, these are Arthur Laffer's three favorite presidents! But, no, I am not a try supply-sider, as they are most often big government Republicans.
I share your concern about the recent consumption binge. Too much debt has hurt families and small businesses. That is why I write so much about bootstrapping. I am also believe strongly in temperance. Too much greed is a problem in our society. Greedy consumers buying more than they need. Greedy entrepreneurs growing at insane rates with other people's money just for growth's sake. Greedy big businesses seeking profit growth that leads to unethical and immoral outcomes. Greedy politicians filling their need for more power by growing government programs and creating a society that is more and more dependent on government. It is time to slow down and return to healthy, sustainable growth and moderation all the way around.
You and I probably share a strong distrust of big business. Our solutions, however, are in opposite corners. Much of the current power of big business is due to government favor. But that cuts across both parties. Don't listen to their rhetoric -- watch what they do. For example, dig into the finances of BP and you will see all kinds of ties to the Democrats. Bigger government only leads to more mischief making and rent seeking with corporations. That is why the biggest give so much to BOTH parties.
Once you get to know me I think you will find I do not fit the mold you may have first assumed.
Hope you continue to read my blog and join in spirited conversation. Perhaps we can share a virtual cup of coffee together now and then.
Coming from Iceland, this article is a very strange read. I think you may have misunderstood a few things and jumped to a couple of conclusions without reading up much on Iceland or the current political situation.
First of all, we only have a figurehead president that smiles and waves on public occasions - he has no actual power. We have a parliamentary democracy with a Prime Minister. What the President says or does is irrelevant to any economic recovery or stimulus or anything other than hosting tea parties for dignitaries (like the Queen in England).
Before the economic collapse we had 16 years of uninterupted rule by the most right-wing party in Iceland, the Independence party. They are the Icelandic equivalent of the GOP in the USA or the Tories in the UK.
Then it all collapsed and we had an election in 2008 and elected a social democratic and socialist alliance into power. So... looking at the facts on the ground, it seems more like we in Iceland are heading very fast in the direction of socialism away from capitalism. Don't you think?
And no, things are not getting better here. Not at all.
I have lived in Kazakstan, Russia, Mexico and the United States. I want to comment that I am proud to be on a LEGAL path to citizenship in this great country.
I find it sometimes shocking how naive many American born people are when it comes to what it really means to have freedom to do commerce, the concepts of socialism and social programmes.
In reading comments by some recent visitors I had that feeling of the naive again.
I suggest that more Americans take a visit to places where everyday people live around the world - but not to a resort. (Including Europe - scratch the surface and it is not so pretty either - talk to the everyday people about how it is to live and how much discretionary spending they can really do.) Open the eyes - government is not the answer to so much of the discussion I read.
Greedy banks?! Did you expect banks to behave as a mother? I am sure that you people who complained about banks also expect your stock in 401 or investment to improve its return each quarter. It is a cruel hypocracy - many moderate socialists (and leftist) in the United States and certainly in my countries of prior residence.
Personal responsibility in living within the means. Personal responsibility to ensure that your child is not fat and unhealthy(as the government is becoming) is similar to the voter responsibility to vote for people that actually managed a business or actually were an entrepreneur. If people are foolish to take a credit when they cannot pay for it, it is another person's responsibility? I think no. People don't "have to borrow" it is a personal choice to do it.
Entrepreneurers need less tax. Growth does not need to come from overseas! The only necessary is that our small businesses and entrepreneures have the freedom to be competitive but not restricted. I think that a significant factore in why the unemployment does not improve is because small business is not seriously able to take these new rules of health care. I don't see that the cost of health care will be lessened. Another naive idea. It will increase. I read the book about Jack Massey - I wonder what he would think about being ridiculed for adding value(and improving cost) - as we see business suffering and being demonized today.
I hope that government will allow business to compete.
Jeff,
Yes, we are closer than I previously thought. I do feel unless things change all we are doing is rearranging the deck chairs on the Titanic. The interconnectedness of business, government, special interests, and the tax code is such a mess I don’t see any politician doing anything about it until we fall off the cliff.
On a more local basis I have been wondering what will happen now that the cheap money spigots of the past 15 years are turned off. The flow financed lots of non-discretionary spending which in turn fueled economic expansion. The recession has caused a sharp rise in unemployment because the money is gone. My guess is that we will go through a long reset period.
I sense that people will pay for value and originality. One small business area I think that in play is what I call the return of craftsman. Any small business can go to the local big box and install cabinets for a customer. Since there is a low barrier to entry anyone who swings a hammer can get into the business. There are few custom cabinet makers. If people are going to spend money on new cabinets why purchase a quality cabinet versus a mass merchandised cabinet.
Ditto for restaurants that provide a higher quality menu and service can build a clientele with higher profit margin. I know my family has decided against an average restaurant meal every week and gravitated toward restaurants that provide quality even though we now go out on a less frequent basis.
This question is on my mind because I have remade my career 3 different times in very different directions in part because of economic conditions at the time. Banking, IT consulting, and ministry have been my fields of employment. I have been lucky but the folks I see today don’t really have the same options as the spigots have closed. How do we put humpty dumpty back together again? Or should we?
I look forward to our continued conversations.
Frank
According to The World Factbook published by the CIA, the GINI Index measures the degree of inequality of family income in a country. The more nearly equal a country’s income distribution is the lower the index number, which would be Sweden that comes in at an index figure of 23 and is number 134 on the list, which indicates that Sweden has the least amount of income inequality. For reference, Iceland is 123 on the list with an index number of 28.
Those countries having the largest income disparities are Namibia (index number of 70.7) and South Africa (index number of 65.0). So, if we accept the premise that capitalism is better than socialism at allocating resources, then it become interesting where the United States is located on the list. The U.S. is number 42 on the list (index number of 45), but the most interesting part is our neighbors on the list, which are countries like: Uganda, Jamaica, Uruguay, Cameroon, Cote d’Ivoire, Iran, Nigeria, Guyana, Nicaragua, and Cambodia? Seriously, these countries may have World Cup level soccer teams, but never would be known as economic powerhouses. How is it that our great country can have a similar income disparity as Iran? I do not purport to have the answer, but I do think that this disparity is how our current policymakers have gotten elected and it is not a problem that will “go away”. It is obvious that what makes out country great and has fueled the growth of the last millennium is our survival of the fittest mentality and the enterprising people who live here. The problem seems to be that we have too many people that have become either “unfit” or so lackadaisical that they do not contribute to our society, but rather only take from it. The question is what to do with the growing number of people who are neither enterprising nor are skilled workers.