By Mark St. Cyr
Here in the U.S. election season is in full swing, and it’s near impossible to find relief from the minute by minute relentless political ads, along with the ever-present media commentary. However, I never contemplated when I previously prayed, then begged for relief from the incessant pharmaceutical ads that bombarded me daily that my calls would be answered in the form of replacing them with ads of the political sort. Now I find myself again pleading or begging to return those intestinal discomfort or dysfunction et al ads. It truly gives credence to that old saying: “Be careful what you wish for!” Which is fitting to the topic of not only today’s politics, but business in general.
One of the newest (although it’s as old as time itself) idea dynamics to openly enter the U.S. political/business debate in my lifetime has undoubtedly been: Socialism.
What has baffled me is not only the rapid acceptance of the idea, rather, the call for it to be implemented here in the U.S. on a grand scale. We currently not only have politicians publicly advocating it, we also have many “business leaders” demanding varying forms of its implementation throughout sectors of the economy.
Whether or not one agrees with what is being called for, as well as, what has already been implemented, is up to you. Understanding the how, why, and where it leads based on prudent contemplation and where you’ll fit in as an entrepreneur, business leader, or solo-practitioner is quite another. For no matter what the political theme-of-the-day is currently being touted (i.e., Get the 1%! et al.) The people directly in those cross-hairs of “other people’s money” are going to be aimed squarely on the business communities balance sheets, as well as profits. Regardless if they have any. Remember that.
One of my personal favorite economic writers Thomas Sowell recently wrote an articlewhere he describes, as well as, makes a poignant observation.
“Moreover, under any economic system, those costs are either going to be paid or there are not going to be any colleges. Money is just an artificial device for getting real things done.
Those young people who understand this, whether clearly or vaguely, are not likely to be deterred from wanting socialism. Because what they really want is for somebody else to pay for their decision to go to college.”
I would like to add my own two-cents to this observation that not only seems lost on just “”young people” but also, far too many people in general.
I am of the opinion there is currently no other more vivid, tangible, real life, in real-time example on the difference between a socialist view and outcome, as opposed to, a capitalism viewpoint and outcome, than the very place everyone is decrying “has to be fixed!” College tuition.
Under a socialist model your tuition will be both free – as well as worthless. Why? Because everyone will have a Ph.D. Just like you. So it had better be free because, they’ll be no employers willing to pay more for a candidate with one. It’s a race to the bottom. Think I’m wrong? Fair enough, ponder this…
Today there are easily more waiters and waitresses with higher degree levels than ever before. All these “higher degree” holders have pushed out the many lesser or non-degree’d holders that filled these jobs previously. Yet, it’s not that the wage scale of waiters and waitresses has gone up accordingly to attract these candidates. Quite the contrary – it’s that the job opportunities for these “higher degree” holders have dwindled. Welcome to a more “socialized” economy. “Would you like fries with that?”
Under the capitalistic model your tuition is supposed to cost, and if you want an education that prospective employers will pay extra for – you’re going to pay extra. Sometimes much more. The difference that once held here under this model was this: there would be a multitude of employers willing and able to warrant paying you enough salary not only to pay off that education, but also, to make a good living with the prospects of turning it into a great one. And that’s a race to the top.
The problem is we’ve gotten away from the “capitalist model” and have been going further, and further down the “socialist” model with ever greater speed over the past decade or more. Where today college students think the solution is to go even further, and ever faster in pursuit of the bottom. Why? Easy – this is what not only “young” people are being taught, but also, older people who should know better are reinforcing. And there was no greater example of this than what I heard on a recent “business/financial” show.
On Friday of this past week I was tuned into Bloomberg’s Surveillance™ radio program (a program for full disclosure I like) where, like many others, awaited the latest monthly “jobs” report. However, as mystifying as the latest report was (i.e., how these numbers are compiled) what left me stupefied was some of the banter back and forth by not only the hosts, but also, by one of the guests. In particular. e.g., Alan Krueger
Mr. Krueger, once part of the current administration for economic policy is now back at Princeton University. When the “jobs” number was announced his verbal dissertation into why this report validated the idea that “we are on the right path” was laughable to anyone with a modicum of business acumen. Let me give you an example.
An argument goes something like this: “We created 3 times as many jobs as were lost.” Fair enough, but here’s the dirty little secret. Every one of those jobs lost was a job that paid more than the 3 “new jobs” combined salaries. e.g., One $50K job in manufacturing was replaced with three $12-$15K menial jobs. Result?
You not only lost $5K or more in real taxable income. Without that $50K salaried person spending, I portend, there will soon be a need for one less of those the menial paying jobs as the impending economic backlash of loosing that $50K job catches up. And when it catches up fully and in earnest? You’ll be lucky if there’s any need for the other two.
So, does that seem like “on the right track” to you? It’s no wonder why “young people” aren’t realizing these inherent dangers when in actuality they are being taught or instructed by the Ivy League itself “this is a good!”
If one thinks about why this phenom is so, I’ll contend the reason is self evident: It’s not only in their best interest to do so. It’s also far easier to keep a “professor” employed than it is to be employed in a business. Let me illustrate…
Today, it is easier for an 18-year-old who has never held a job to acquire a loan they will never be able to discharge for not only tens of thousands rather, some for as much as hundreds of thousands of $Dollars. Again, all in the form of student loans for degrees which may not even be applicable to any future earning potential. Let alone the potential equivalent of simultaneously living above the poverty level as they might try. But it sure goes a long way in keeping the “Ive League” employed, doesn’t it?
All this is made possible by just filling out the requisite forms, and applying. i.e., Government guaranteed student loans.
Now, compare this to trying to get a business loan via the bank.
Let’s say you’re middle-aged with a great business track record. You’re prudent when it comes to spending. You pay your bills on time. And, you have worked with little to no breaks in your business career since high school. You can demonstrate in detail relevant examples, as well as, supply detailed plans on the how, and why, you can repay a loan. Whether it be for a new enterprise or, the expansion of one.
You know what you’re shown next? It’s called the door. And if you even suggest an SBA government backed loan? The paperwork and resources needed and spent just to apply only to once again be told “no” is even more ridiculous. And that’s if you’re only asking for let’s say $25K. But the 18-year-old who still needs “to find their calling” is almost guaranteed financing even if it’s into six figure territory. Whether repayment is truly ever possible to begin with.
As ludicrous as this sounds, just wait…it gets worse.
One would think business minded people would see the dangers inherent in this form of thinking from the get-go. However, it was during this same program I heard just how far not only the idea has creeped into the business discussion. Rather, just how much it is now being embraced and argued for in all areas of it.
As I iterated earlier it’s the political season. So with that said, I was floored when I heard one of the hosts retort a response to an assertion made by one of the candidates against the Affordable Care Act. (ACA) The response was (I’m paraphrasing) “He’s arguing as to abolish the ACA. Doesn’t he have any idea how many people are benefiting from it? My own kid just got a 2 year free ride!”
Yes, a “free ride” was the term used. I was mortified when I heard this retort for it showed in all too stunning detail just how far down this central bank quarried rabbit hole we’ve descended. After all – who’s going to pay for all this “free ride?” If you own a business or run one you know exactly “who” is. And the prices to be extracted and paid have yet to even kick-in fully. That begins in earnest next year. And what won’t be heard from the business community when it all comes into fruition is one word “affordable.” Trust me.
I am, like I said earlier, “mortified” as to just how far away we’ve moved from understanding what capitalism and entrepreneurship truly is. None of this would be taking place in its current amplitude and voracity if not for the largess made possible via the Fed’s funded placebo effects that are wearing off with greater speed as more and more notice it’s been no more than a “sugar high” to begin with.
Years ago I wrote a short explanation of how I viewed the socialist model. Although it’s an oversimplification I thought It fit the current discussion. For the more I hear people who I once held in much higher esteem, I think it’s time a few others take a breath and remember where all that “free ride” comes from. To wit:
One day a person decided to call their government because, if others were getting a handout, bailout, free stuff, _________(fill in the blank) why shouldn’t they ask and get something too! For as the thinking goes: If everyone else is getting something – why not them? After all it’s free, so why not.
They then called where the phone was answered by a very monotone voice who asked what was needed.
Once they made their request the voice then stated: “We need to check for funding please hold.”
As they waited on-hold they suddenly heard a vehicle screech to a halt in front of their neighbor’s home.
They stood shocked as they watched a number of government officials forcing their way into their neighbor’s home, then leaving with what appeared to be money.
The monotone voice then came back on the line and stated: “Funding for the request had been appropriated.”
The caller now stunned asked if what they just witnessed happen at their neighbor’s home had anything to do with their request. The voice replied: “Of course. The government doesn’t have money of its own. It all comes from other tax payers such as your neighbors. And by the way, you’re not the first to ask. We get this question a lot nowadays. Just relax for your request has been approved and appropriated.”
Feeling uncomfortable with what just happened they asked if their neighbor would know it was them. The voice replied: “That’s very unlikely. However, if you’re uncomfortable with us appropriating your funding with someone so close, we could get any additional funding you may need elsewhere, say from someone in another region of the country if that makes you feel more comfortable.”
Still nervous yet, feeling better as they wouldn’t know the person directly the caller said: “Oh yes please. That would be better!” The voice stated “We’ll make a note of that to your file.” and hung up the phone.
Some time had passed and the incident near forgotten when suddenly they heard a screech of tires outside their own garage. It appeared the very same people they seen go into their neighbor’s home were now forcing their way into this former caller’s garage.
When they demanded to be told what they were doing. They were informed they had come for one of their cars. All while stating this should be of little consequence for them since they had two. Someone, somewhere needed one so one of their two was chosen to fit that need.
This former caller yelled: “You can’t do this, I just bought that one!”
Undeterred the government officials confiscated the car and informed them they should be thankful they were able to help someone out other than themselves. For the car was going to a good cause where they supply free vehicles to the needy. All while being reminded they have two, while the other has none.
As this former caller stood slack-jawed the official handed them a notice of another program that was being offered in conjunction so that they may prepare and not be caught off guard if they returned. It read…
“Since so many people are requesting and in need of these items; there must truly be a need. So please make arrangements and be prepared to cover all the repairs, gas, or other expenses of this vehicle when needed. Please refrain from stating this will be a burden for it’s shown prima facie one would not have bought a second car to begin with if they couldn’t afford all the added expenses to begin with. On that basis one should consider themselves ‘a winner of life’s lottery’ with a willingness to share in those proceeds to those less fortunate. For only people who are in need would request something for free from the government. Take solace in the thought you could afford two – let alone one. While others have none. And as always remember – we’re here to help you.”
The former caller just hung their head only to now realize one of life’s great truths.
Nothing can cost so dearly as free stuff.