A Message of Cope and Estrange.

August 1, 2012

Everyone will, on occasion, firmly plant a foot within one's mouth. I've done it so often that I cannot brush the bunion from my breath. But, until I am the leader of the free world, my foot eating will be irrelevant when compared to those of Lecturer and Chief, Barack Obama.
At a recent Virginia campaign stop, the president apparently said the following, "If you've got a business - you didn't build that. Somebody else made that happen."
Forget the idea that this nation was founded on the backs of capable men and women willing to take a risk in the attempt to create better lives for themselves, their families and their employees. Forget the fact that the largest employers in this greatest nation on earth are not government agencies, or even Fortune 500 companies, but those small and medium sized businesses that are the economy's lifeblood.
Yes, I realize that, in a certain context, his statement could translate, well, differently. But, I do not believe that the president meant anything but that which his words conveyed.
"You may have created and grown this business. But without our help, you could never have come so far."
Keep in mind that the president presided over nothing notable prior to the entire nation (click here for resume).
As a senator (U.S. and state), his staff was managed by a chief of staff as he went about the tasks of legislation and running for office.
As a practicing attorney he was an associate for three years, office counsel for eight.
As a law school professor, he wrote a book and taught.
As a community organizer, he helped to arrange job training and college preparatory programs, as well as a tenants' rights organization.
He was also a consultant for a community organizing institute.
Perhaps his biggest executive accomplishment, prior to inhabiting the oval office, was his six month directorship over Illinois's Project Vote, a voter registration campaign with ten staffers and seven hundred volunteer registrars.
Each of these jobs and projects is commendable. In aggregate, very impressive for someone seeking to eventually become a judge, director of a think tank, or a university president.
But, when this career path is viewed chronologically, and in entirety, two things stand out. 1) This individual no business experience, let alone entrepreneurial background, and 2) This individual would require a lot of seasoning before he was ever ready to run any enterprise of merit.
That said, this man went on to become the Commander and Chief of the largest commercial and military enterprise in the history of the civilization. Must give one hell of an interview.
Keep in mind that politics is a game in which the contestants are allowed to promise the world. And, if promised in a way that is articulate and believable, the contestant can defer on all the credentials required to excel in the private sector (experience, success, a track record) and achieve any position that his constituents are willing to concede.
Barack Obama ran on the premise of Hope and Change. By now, most of the nation's entrepreneurs have likely adopted the strategy of Cope and Estrange. Let's cope until we can estrange him.
The entirety of President Obama's experience comes from the public sector. Even as an attorney, his 13-member firm specialized in civil rights and neighborhood development. The president, to my knowledge, never had to do any strategic forecasting, budgeting, capital allocating, payroll processing, human resource organizing, accounting, or statistical modeling of any type. Until he moved into the Oval Office.
Considering those facts, I still think it would be within the realm of possibility that President Obama could have stepped into his role and performed admirably. A president is, after all, only as good as the people around him. Unfortunately, I believe the president surrounded himself not with economics-minded oracles with the ability to consult on solving the nation's financial crisis, but with sharp-elbowed ideologues who set out to achieve an agenda. David Axelrod. Rahm Emanuel.
Andy while many of his counselors were capable and forward looking, they lacked the fiscal latitude to deal with the crisis at hand.
So, when the American Skyscraper was in conflagration, the president should have rushed in, gotten all the inhabitants to safety and then extinguished the fire. Instead, he was advised to restructure the human resources department. Dodd-Frank. Healthcare reform.
So, instead of allocating capital, hiring employees and planning for the future, executives and business owners were forced to retrench even further, as the landscape had gone from foggy to pitch black.
These are not the actions of an executive. Nor are they the actions of anyone who has ever created and run a business. These are the actions of one who believes that big government should become bigger.
Good governance undergirds and protects all that is good within the U.S. economic system. But, not all governance is good. When a nation, founded upon the notion of hard work, of rewarding those willing to engage in intelligent, private risk taking, finds that nearly 50 percent of its GDP comes from the public sector, then the public sector has grown too large.
If I have $100, I keep it in my pocket until I've a compelling need to spend it. If I give my five-year old $100, it would quickly vanish in a blur of snow cones, cotton candy and baseball cards. I earned the money. I realized its value. I would demand that it be spent in ways appropriate to my perceived value. My five-year old, on the other hand, earned nothing. He received a hand out. And whether he received my idea of fair value or not, he was going to spend it.
Such is the relationship between private capital and public officials. Studies repeatedly show that there is no correlation between enhanced tax revenue and sound fiscal decision.
Government provides many benefits. Defense. A legal framework in which to live and conduct business. It can even be effective in caring for those who are truly incapable of caring for themselves. But when government grows to the point that it is responsible for nearly half of the nation's gross domestic product, and when per capita income in Washington, D.C. becomes the highest income rate of any metropolitan statistical area in the nation, then something is wrong. This nation did not ascend to these heights on the shoulders of a government leviathan.
And the relationship between public and private sector enterprises are not mutually exclusive. The public sector grows at the expense of the private sector. As more money is allocated to government programs, less becomes available to private sector opportunities.
A 2008 study conducted for the European Central Bank (Government Size, Composition, Volatility and Economic Growth) examined the effect of government size and fiscal habits on the economic growth of developed countries from 1970 to 2004. It determined that the bigger the government the slower the growth rate. For every percentage point of total revenue allocated to government activity, there was a corresponding decrease in overall economic output by more than one-tenth of a percent.
The report also noted that "Public capital formation may tend to be less productive if devoted to inefficient projects, or it crowds out private investment." Translation? Most government spending is anything but a sound investment, and in fact detracts from the otherwise sound investments to which the private sector may have allocated capital.
There is a reason for the mismatch in capital allocation priorities. Like my five-year old and I, one of us earned it. The other will only spend it. Until you've provided a product or service in exchange for a market-driven price, you cannot understand the value of capital.
The recent emphasis on big government comes at a price.
A recent study by the Kauffman Foundation reports that the rate of business startups since 1980 has reached an all time low. New firms as a percentage of all firms continue to mark a steady downtrend, going from a high of 13 percent (as a percentage of all firms) in the 1980s to eight percent in 2010.
The study further explains that since the 1980s, new startups have created an average of 3 million jobs annually. All other firms are net job destroyers. They actually lose a million jobs per year. Startups are the alpha and the omega when it comes to new jobs. And our nation is seeing fewer of them created than at any time over the last thirty years.
Startup firms have always been a catalyst in helping to recover from previous recessions. Not this time. The severity of the recent recession is no doubt responsible for some of the decline in startup activity. But, I cannot help but attribute some of the lack of entrepreneurial zeal to the administration's attitude towards entrepreneurs.
Much of the administration's efforts have come at the expense of entrepreneurial activity.
For instance, studies reveal that higher tax and regulatory burdens tend to impede entrepreneurial activity. This leads to slower economic growth and less job creation.
You can't squeeze babies too tightly.
Some regulation is good. Provides rules. Keeps the players honest. But, too much is stifling. Creates an environment in which no one can operate.
A 2012 study by the Heritage Foundation noted that the Obama administration had imposed 106 major new regulations during its first three years. These regulations increased regulatory costs by more than $46 billion annually. This was five times greater than the costs imposed by the Bush administration during its first three years.
Need additional proof that regulatory spending is out of control?
A new study by the Weidenbaum Center at Washington University in St. Louis showed that federal regulatory spending has increased from $15 billion in 1980 to $50 billion today (inflation adjusted). So, if the reports that every dollar of federal regulatory spending has a multiplier of 21 in the compliance costs incurred by private business, then that amounts to over $1 trillion per year in regulatory costs to businesses and individuals.
Think these regulations aren't keeping a few potential entrepreneurs from creating a few companies that might create a few new jobs?
Still, not all government spending is bad. Just most.
The government been involved in some historic efforts that have provided jobs and infrastructure. The Hoover Damn. The Golden Gate Bridge. The Blue Ridge Parkway. The Lincoln Tunnel.
But historically, the private sector has a better track record. Tends to be more attentive to the bottom line. Because the private sector spends its own capital. Not tax-payer capital. The private sector, in taking on the risk, has a better appreciation for the task's efficient execution. If the private sector misallocates capital, the private sector suffers. If the public sector does the same, they simply allocate themselves more capital.
The private sector has makes all players accountable for a part of the project. There is less tolerance for apathy and poor craftsmanship. And if one man in the private sector can do the work of three men in the public sector (don't forget about all of those unions and their stringent participation rules), so be it.
In context, I know that the president meant not to detract from the role of the private sector in the nation's development. What he fails to understand is that our nation's historical development is primarily attributable to the efforts of private men, women and institutions. That government has traditionally been a hindrance. And big government, a bigger hindrance.
Perhaps the president will realize, at some point, that our nation's true economic gift is the private sector's ability to efficiently allocate capital to areas where it can be utilized most effectively. And that the government's role is to simply keep the playing field level, clean and safe.
Still, I cannot help but conclude that the president's lack of strategic, fiscal, executive and economic experience will prevent him from achieving many aspirations beyond the presidency.

Securities offered through Dempsey Lord Smith LLC – Dempsey Lord Smith LLC, Rome, GA Member FINRA / SIPC / MSRB.

Advisory Services offered through Dempsey Lord Smith, LLC, an SEC Registered Investment Advisor. Clearing through and accounts held at Charles Schwab & Co., Inc.

Dempsey Lord Smith, LLC nor Hyde Park Wealth Advisors LLC provides tax or legal advice and you should consult your accountant and/or attorney if considering an investment of this type. Hyde Park Wealth Advisors LLC is not controlled by or a subsidiary of Dempsey Lord Smith LLC. Investing in Alternative Investments come with a variety of risks that could result in a complete loss of principal investment.

Alternative Investments offered as private placement securities are offered only to qualified accredited investors via confidential private placement memorandum. Income and returns are not guaranteed and there are no assurances investments will meet their stated objectives.

© 2024 Hyde Park Wealth Advisors. All Rights Reserved