I’ve been away from the blog for several months.  There are many reasons for this, but I won’t bore you with any of details.  Let’s just say that the economy and demands of business have consumed my time as I’ve been working on a business plan for the next year.

It is a well-used adage of business that you shouldn’t wear your politics on your sleeve.  To do so risks losing customers who don’t share your political views.  I understand this but, in my business, find it terribly difficult to do.  Especially now.

I’d love to hear from anyone with an opinion on posting political opinions on a company blog and their affect on business.

For example, it is irrefutable (just try searching the internet) that when tax rates are reduced, the economy grows and revenues to the government INCREASE.  Look to the Kennedy, Reagan, and W tax rate reductions for proof.  When tax rates are increased, the economy slows and government revenues DECREASE.  How do you explain the Keynsians who refuse to accept the data that disproves their theory of a demand-driven economy?

The economic stimulus package of $786 billion dollars is having little documentable benefit, except perhaps in protecting government jobs.  Had the federal government simply declared a tax holiday, a cessation of all business and personal income taxes, equal to that $786 billion the money would have been pumped directly into the economy through savings, investments, and jobs.  Unfortunately, that option doesn’t give control to the bureaucrats who want to tell us how to live by making spending decisions for us.

This is not a tax issue.  The real issue is personal freedom and liberty.  When the government taxes its citizens for non-essential services, the lefts traditional wealth transfer programs, it is engaging in nothing different than slavery.  US citizens are now obligated to work until mid-April every year turning everything they earn over to the government.  Business owners must step up and get engaged in this debate.  It is high time we let the world know that we will get the economy moving again, if the government would get out of our way and out of wallet.

Yesterday was historic.  The President of the United States fires the CEO of a private corporation, installs his own guy, and demands that the management team put together a business plan that satisfies the Obama vision of the world, including a line-up of vehicles HE believes we should drive.

To make matters worse (as if that was possible), he declared that the United States government is now backing the warranty on a GM vehicle.  Are you kidding me?!?  Did the president just become a used car salesman?  Join me in pledging NEVER to buy a Government Motors vehicle.

We all know the story of the frog in the pot.  Put the frog in a pot of boiling water and the frog will leap out.  But put the frog in cold water slowly turning up the heat and the frog will boil to death.  I’m afraid Americans have become too soft to deal with this nonsense.  This is frightening, folks.  The Venezuelans followed Chavez, Germans followed Hitler.

Americans cannot follow Obama!

Stephen Moore was the keynote speaker at the chamber of commerce annual meeting I attended on Tuesday.  Mr. Moore founded the Club for Growth in 1999 and is currently the lead economic writer for the Wall Street Journal.  He worked with Reagan and Bush Sr and is currently being consulted by the Terminator on fixing the budget problems in California.

Economists don’t often make engaging speakers.  Mr. Moore threw plenty of charts and graphs on the screen for us to peruse but kept the presentation light enough for any non-economist, yet relevant enough that only the ignorant partisan could ignore.

The thrust of his message was simple: if you own a business, are willing to get out there and compete, and believe that the free-market system has created the most prosperous and innovative nation on earth and the greatest level of wealth history has ever seen, then you must work to end the unparalleled level of government interference in that system that we are now seeing.

Mr. Moore showed charts of data going back to the early 1900’s. The correlation of prosperity and low tax rates, inflation and increases in money supply, economic trends and political party control of government was unmistakeable.  One just can’t ignore your head, and favor your heart, when looking at the numbers and laying blame for our current dilemma – and even more so fearing the cure we are being fed as the only way to resolve it.  The ’scariest’ graph was the one showing that the US money supply has grown 40% in the last 6 months!  When the economy turns around, we are facing an inflationary spiral that makes Jimmy Carter’s 21% interest rates and stagflation look like a walk in the park.

Ladies and gentleman, the market system works.  Greed gets squished, needs are met, and constructive destruction -  the process of shedding the old and replacing it with the new and more efficient – keeps the economic system healthy.  Companies that don’t redevelop themselves will be supplanted by those that do.  When paradigms change, everyone goes back to zero and your previous advantages are of no help in maintaining your success.  The process is not without localized pain, but the greater system operates most efficiently for everyone.

We must get angry and loud.  We cannot sit back out of fear and let the politicians continue to solve individual credit problems with a societal credit card that we’ll never be able to repay.  If we let the inefficient fail, labor, suppliers, and especially customers will gravitate to the successful and we will all benefit.  It is nonsensical and immoral for the government to take money (taxes) from successful businesses and homeowners paying their bills and give it to failing businesses and individuals who aren’t meeting their obligations.

The auto industry bail-out is a very complicated issue.  I’m not going to go into the details here.  But I am strongly against any plan that puts Nancy Pelosi, Harry Reid, and Barney Frank in the role of telling experienced auto industry executives how to run a ginormous industrial manufacturer.

We can disagree about whether or how the executives mismanaged their businesses.  But I doubt that any of us would agree that the government is better able to make the kind of decisions, in a timely fashion, that the big three need to make.

The industry isn’t sick, but the old, big three are.  They are paying a huge price for decisions they made when they had an oligopoly.  Now that more sleek competitors are in the market, those past decisions are coming back to haunt Detroit.  When they have their back against the wall, they will be forced to make changes to their business model or they will die.  And let’s not give the UAW a pass.  With labor costs nearly double what the non-union competitors bear, management and labor must make difficult decisions if they are going to survive.

I don’t believe that these difficult decisions can or will be made if politics are added to the mix.  If Washington wants to bail-out the industry, then they should offer the bridge loans with a few responsible loan covenants the way a bank would do it.  If they don’t have faith in the decision-making ability of the company’s management, then make a change one of the covenants.  But an auto czar in Washington?  That’s simply un-American.

Early in what became the Great Depression, John Maynard Keynes was asked if anything similar had ever happened. “Yes,” he replied, “it was called the Dark Ages, and it lasted 400 years.” It did take 25 years, until November 1954, for the Dow to return to the peak it reached in September 1929. So caution is sensible concerning calls for a new New Deal.

The assumption is that the New Deal vanquished the Depression. Intelligent, informed people differ about why the Depression lasted so long. But people whose recipe for recovery today is another New Deal should remember that America’s biggest industrial collapse occurred in 1937, eight years after the 1929 stock market crash and nearly five years into the New Deal. In 1939, after a decade of frantic federal spending — President Herbert Hoover increased it more than 50 percent between 1929 and the inauguration of Franklin Roosevelt — unemployment was 17.2 percent.

“I say after eight years of this administration we have just as much unemployment as when we started,” lamented Henry Morgenthau, FDR’s Treasury secretary. Unemployment declined when America began selling materials to nations engaged in a war America would soon join.

In “The Forgotten Man: A New History of the Great Depression,” Amity Shlaes of the Council on Foreign Relations and Bloomberg News argues that government policies, beyond the Federal Reserve’s tight money, deepened and prolonged the Depression. The policies included encouraging strong unions and higher wages than lagging productivity justified, on the theory that workers’ spending would be stimulative. Instead, corporate profits — prerequisites for job-creating investments — were excessively drained into labor expenses that left many workers priced out of the market.

In a 2004 paper, Harold L. Cole of the University of California at Los Angeles and Lee E. Ohanian of UCLA and the Federal Reserve Bank of Minneapolis argued that the Depression would have ended in 1936, rather than in 1943, were it not for policies that magnified the power of labor and encouraged the cartelization of industries. These policies expressed the New Deal premise that the Depression was caused by excessive competition that first reduced prices and wages and then reduced employment and consumer demand. In a forthcoming paper, Ohanian argues that “much of the depth of the Depression” is explained by Hoover’s policy — a precursor of the New Deal mentality — of pressuring businesses to keep nominal wages fixed.

Furthermore, Hoover’s 1932 increase in the top income tax rate, from 25 percent to 63 percent, was unhelpful. And FDR’s hyperkinetic New Deal created uncertainties that paralyzed private-sector decision making. Which sounds familiar.

Bear Stearns? Broker a merger. Lehman Brothers? Death sentence. The $700 billion is for cleaning up toxic assets? Maybe not. Writes Russell Roberts of George Mason University:

“By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s.”

Barack Obama says that the next stimulus should deliver a “jolt.” His adviser Austan Goolsbee says that it must be big enough to “startle the thing into submission.” Their theory is that the crisis is largely psychological, requiring shock treatment. But shocks from government have been plentiful.

Unfortunately, one thing government can do quickly and efficiently — distribute checks — could fail to stimulate because Americans might do with the money what they have been rightly criticized for not doing nearly enough: Save it. Because individual consumption is 70 percent of economic activity, St. Augustine’s prayer (”Give me chastity and continence, but not yet”) is echoed today: Make Americans thrifty but not now.

Obama’s “rescue plan for the middle class” includes a tax credit for businesses “for each new employee they hire” in America over the next two years. The assumption is that businesses will create jobs that would not have been created without the subsidy. If so, the subsidy will suffuse the economy with inefficiencies — labor costs not justified by value added.

Here we go again? A new New Deal would vindicate pessimists who say that history is not one damn thing after another, it is the same damn thing over and over.

Finally, the all-knowing federal government is going to produce the automobiles we’ve all wanted for so long, but couldn’t buy!

As a condition for receiving another $25 billion of bail-out money, our federal government is going to require that the auto industry provide certain concessions, reportedly including a greater emphasis on “green” vehicles, slashed executive compensation, and additional guarantees for the workers.

I believe it was Russia which figured out how to manufacture state-designed automobiles that citizens didn’t want, fell apart, and required on-going subsidies from the government.  Is that the road we want to travel?

If government loans are coming, they should come with no strings attached.  Government cannot be allowed into the boardroom and R&D department.  If strings must be attached, then the loan shouldn’t be made.

And that global warming thing?  Did you know that the earth has been COOLING since 1998?  Or that the arctic ice pack is 30% larger than it was at this time last year?  Or that NASA has been forced to retract many of the statistics they’ve put out because they were just plain wrong about global warming?  And that significantly more people die every year from the cold than from the heat?

Business owners, we need to put our collective thinking caps back on and conduct a sustained campaign to resist the environmental religion.  We are all stewards of our environment, but environmentalists are killing our economy, for no good reason.

Talk is heating up on both sides over the issue of government bailouts of troubled industries.  Last week, Treasury Secretary Henry Paulson announced that he’s changed the way he uses the $700 billion authorized by Congress to purchase toxic mortgage assets and is, instead, using the money to recapitalize troubled banks.  http://www.time.com/time/business/article/0,8599,1858631,00.html.

The latest debate concerns a troubled GM, and the effect on the economy of allowing GM to declare bankruptcy.  This is a very difficult issue and would be a complicated situation even in good economic times.  It seems to me that the issue boils down to this; GM cannot afford the legacy costs it negotiated into its labor agreements and retool to meet new CAFE standards while remaining competitive in the face of non-union auto assemblers Toyota and Honda.

There is no good answer here.  If GM enters bankruptcy, it is widely believed that retirees of the automaker will pay the ultimate price as GM abrigates its huge legacy costs for pension and health care commitments.  The pensions are guaranteed by the federal government so the taxpayers will pick up some portion of that, but the health care costs remain an issue.  It is likely that the contracts with existing employees will be tossed out and the fall-out of renegotiating in light of the non-union shops in Indiana, Tennessee, and other states will put downward pressure on pay and benefits.  The ripple effect on suppliers and the support businesses in communities through the country is enormous.

On the other side, will consumers buy vehicles from a bankrupt GM?  It’s one thing to buy an airplane ticket from a bankrupt Northwest Airlines – the relationship ends when the plane lands.  But a car is expected to last for ten years or more.  Will the bankruptcy affect the warranty?  What will happen to service and parts?  These may be unknowns too great to tolerate keeping customers away and hindering GM’s ability to come out of chapter 11.

Even with all the unknowns, I remain an unabashed believer in free market capitalism.  The business cycle has been occurring for decades – only the severity changes.  Businesses come and go.  There are short-term disruptions that are not pleasant for anyone.  But the markets are very effective at cleansing out practices that are no longer efficient.  Competitors keep excess profits in check, customers demand innovation, and change is constant and fast.  Bankruptcy is a government bail-out program that gives companies an opportunity for a do-over.  It is an orderly system that enables organizations to make the kind of fundamental changes to their organization that will enable them to continue.  Those changes often happen only when forced upon an organization by the bankruptcy process.

A government bail-out may remove some of the pain for the employees for a period of time, but it risks preventing the kind of fundamental changes that are desperately needed.  Sometimes you just have to take your castor oil.  It’s high time to hold our collective noses and take our medicine.  If we don’t do it now, the medicine will be much harder to swallow later on.

Which would you rather do, cut costs or increase revenues?

For business owners, revenues are offense while cost cutting is defense.  And just like the football team up by 2 points late in the fourth quarter, going to a prevent defense results in more lost games than survival victories.

For all of the hand-wringing going on, we aren’t hearing enough pro-growth options being offered by Washington.  Is this a foreshadowing of what the new administration and congress have to offer us?

Suggestion #1 – a capital gains holiday.  Businesses are started by people willing to take a risk in exchange for a return.  Elimination of the capital gains tax will immediately add up to 15% to the return formula.

Suggestion #2 – cut the business income tax rate.  In the short run, this may not have much effect, because you need the profits to create the tax liability.  But allowing companies to keep that tax money generates internal funds available for re-investment.

Suggestion #3 – eliminate the mark-to-market accounting rule.  This forces organizations to write down the value of assets when a permanent devaluation has occurred.  This has contributed significantly to the problems in the housing industry.  This will immediately improve the balance sheet and create liquidity in the market.

We all know the devil’s in the details and work needs to be done.  But Keynsian economics has not created long-term, sustainable economic growth.  People are hurting and need help, but growth will solve the problems, hand-outs will merely maintain the status quo, or worse…