Wednesday, August 25, 2010

Why aren't businesses hiring? Why don't more people play Blackjack in Oklahoma?

John Stossel has a piece in Real Clear Politics about why businesses aren't hiring.  Here are the high points:

"Corporate profits are soaring. Companies are sitting on billions of dollars of cash. And still, they've yet to amp up hiring or make major investments."

"....The problem today is that the economy is not being left alone. Instead, it is haunted by uncertainty on a hundred fronts. When rules are unintelligible and unpredictable, when new workers are potential threats because of Labor Department regulations, businesses have little confidence to hire. President Obama's vaunted legislative record not only left entrepreneurs with the burden of bigger government, it also makes it impossible for them to accurately estimate the new burden."

"In at least three big areas -- health insurance, financial regulation and taxes -- no one can know what will happen."

New intrusive rules for health insurance are yet to be written, and those rules will affect hiring, since most health insurance is provided by employers.

Thanks to the new 2,300 page Dodd-Frank finance regulatory act, The Wall Street Journal reports, there will be "no fewer than 243 new formal rule-makings by 11 different federal agencies." These as-yet unknown rules will govern lending to business and other key financial activity.
The George W. Bush tax cuts might be allowed to expire. But maybe not. Social Security and Medicare are dangerously shaky. Will Congress raise the payroll tax? A "distinguished" deficit commission is meeting. What will it do? Recommend a value-added tax?
Who knows? But few employers will commit to a big investment with those clouds hanging over our heads."

Let's look at the tax situation using an analogy that I've used before

I love to play Blackjack.   

In Vegas, Shreveport, and on cruise ships, Blackjack odds are roughly 51-52% in favor of the house.  That's good enough for me to put my superstitions to the test.  I'll play under those conditions.  

When I lose a hand at a $5.00 table, I lose 500 cents on every five dollars that I've bet.  
When I win a hand, I win 500 cents on every five dollars that I've bet.  Sometimes more if I can hit 21.  

But if you go to Oklahoma casinos to play, they have a rule where you have to lay out a .50 cent chip as a dealer commission for every five dollar bet.  

When you lose a hand at a $5.00 table in Oklahoma, you lose 550 cents on every five dollars that you've bet. 
When you win a hand in Oklahoma, you win 450 cents on every five dollars that you've bet. 

Notice the generic "you" in those previous sentences.   I've never played in Oklahoma, despite it only being a two hour trip.  The house keeps too much of the money.  I don't like those odds. 

When businesses start a new project, roll out a new product, or even try to stay open for another month, they could lose everything.  The could lose 100 cents on the dollar. 
Under the current regime, which wants to make businesses play doctor, mommy, Labor Union antagonist, and Bureaucrat Pension supporter, business owners could still "win" something.  But no more than, say, 50 cents on the dollar if pending legislation is voted into law. 

Earnings much greater than 65 cents on the dollar, according to our President, would put players in the category of "the most fortunate", and expose the business and its owners to higher and higher levels of confiscation. 

That's bad enough to make Oklahoma casinos to look like a good deal. 
Would you put your money at risk with those odds? 

The picture of Uncertainty came from here.  The picture of the Firelake Indian Casino came from here.  The picture of the taxpayer burdened with bloodsucking leeches came from here

1 comment:

Nick Rowe said...

Profit Maximization = Cost Minimization

Why should businesses hire if they are already producing everything demanded from them with the existing labor force.

As you've stated, regulation and laws impose additional costs to hiring labor which are difficult to shake off your shoe later.

So even if a firm's labor is somewhat insufficient to meet its current demand, there is a tolerable range of inefficiency in which the firm will hire no additional labor.