If libertarian Rep. Ron Paul, R-Texas, did not exist, it would be necessary to invent him.

Paul, as expected, did well in Iowa. His strong third-place finish is substantially better than he did in 2008, and his national poll numbers are twice what they were back then. Paul’s appeal is easy to understand. His antiwar message of limited government, low taxes and federalism have strong appeal, especially to young people who oppose the war on drugs, take a pro-choice position on abortion and support gay marriage.

Paul scares people who purport to embrace freedom but fear the responsibility that goes with it. Privatize Social Security? Serious change in Medicare? Call off the war on drugs? End government welfare? He actually believes in the Constitution, an amazing document that many Americans ignore, have not read or are apparently waiting for the movie version.

Paul speaks passionately and persuasively about abolishing the departments of Education, Energy, Commerce, the Interior, and Housing and Urban Development. He wants to take a machete to the size of government when many Republicans insist on using a pocketknife.

When then-Treasury Secretary Hank Paulson spooked Republican colleagues into voting for TARP to “save” our financial system, Paul refused. When President George W. Bush supported bailouts for the domestic auto industry, Paul opposed them. When Bush signed the prescription benefit for seniors, Paul considered it a wrongheaded expansion of an already severely unfunded entitlement program.

Republican opposition to Paul is also easy to understand.

He opposed the Iraq War. He preferred to deal with Osama bin Laden through “letters of marque and reprisal.” This refers to a constitutional provision that allows the government to offer a bounty and target individuals rather than nations — as if the problem were just a handful of bad people.

Paul does not believe that we are at war with Islamofascists. He believes that U.S. actions are responsible for our bad PR in the Middle East. He argues that those who wish to kill us by strapping on bombs and murdering civilians feel this way because “we are over there.” On the other hand, he called Islamic terrorists “irrational.” If they are irrational, how does it matter that “we are over there”? And if we were no longer there, would Ayman al-Zawahiri, now head of al-Qaida, abandon his publicly stated quest for a worldwide “caliphate”?

Jordanian journalist Fouad Hussein interviewed several of bin Laden’s top lieutenants.

Hussein outlined al-Qaida’s strategy of seven phases — the first one beginning as an “awakening” for Muslims worldwide following the Sept. 11 attacks. The plan culminates with the “definitive victory” of “one-and-a-half billion Muslims” and the establishment of a global Islamic caliphate by 2020.

Bin Laden, in his 1998 fatwa against the United States, said: “The killing of Americans and their civilian and military allies is a religious duty for each and every Muslim to be carried out in whichever country they are. … We — with God’s help — call on every Muslim who believes in God and wishes to be rewarded to comply with God’s order to kill Americans.”

Paul expects countries and stateless actors to play nice and fair if the United States plays nice and fair. If every country played nice and fair, we would not need a military. He even said Iran would be justified in blocking the Strait of Hormuz — through which 20 percent of the world’s oil demand travels — in response to Western economic sanctions imposed to deter Iran from getting a nuclear weapon.

Do all libertarians feel as Paul does on foreign policy? Most do, but certainly not all. Is there room for a “9/11 libertarian” — one who thinks we are at war against a ruthless, determined Islamofascist enemy that could not care less about the Geneva Conventions?

Look in the encyclopedia under “libertarian.” If a picture of Republican Nobel economics laureate Milton Friedman is not there, it ought to be. President Ronald Reagan considered him a giant in the conservative movement. Over 50 years ago, Friedman argued the then-radical case for education vouchers. Friedman said the money for education should follow the child, rather than the other way around.

Friedman took no position on the Gulf War, but had no Ron Paul-like ideological objection to it. As for the Iraq War, Friedman opposed it. But there was dissent in the Friedman household. Friedman’s wife, also an economist and co-author of their seminal economics book “Free to Choose,” supported the Iraq War.

What about a Paul third party candidacy, since he is not seeking re-election to the House? He would likely siphon more votes from the GOP than from President Obama — and do greater damage to the GOP nominee than Ralph Nader did to Al Gore in 2000.

It is quite extraordinary what the rumpled, unpretentious 76-year-old OB/GYN has already achieved. Many Republicans now agree: If the GOP listened to Paul on domestic and economic issues, their “brand” would look a lot better.

Larry Elder is a best-selling author and radio talk-show host. To find out more about Larry Elder, or become an “Elderado,” visit www.LarryElder.com. To read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 LAURENCE A. ELDER

DISTRIBUTED BY CREATORS.COM

Article source: Creators.com

 

Washington gridlock may turn out to be the salvation of the Obama administration.

Not only does gridlock allow the president to blame Republicans for not solving the financial crisis that his own runaway spending created, the inability to carry out as much government intervention in the economy as when the Democrats controlled both Houses of Congress means that the market can now recover on its own to some visible extent before the next election.

Such a recovery would of course be credited as a success of the Obama administration’s policies. With this theme being echoed throughout the pro-Obama media, enough voters might be sufficiently impressed to give the president a second term.

The media and the intelligentsia seem obsessed with the idea that government intervention is necessary to get the economy out of the doldrums. This is certainly the prevailing dogma but it is contradicted by history. Yet who reads history any more?

If you look back through history and compare what happens when the federal government intervenes during a downturn in the economy with what happens when the government leaves the market free to work its own way back, doing nothing has by far the better track record.

First of all, this country existed for a century and a half without the federal government intervening to save the economy. No downturn in all that time was as severe or as long-lasting as the downturn that persisted throughout the decade of the 1930s, when both the Hoover administration and the Roosevelt administration intervened on an unprecedented scale.

There was no Federal Reserve System to help — if that is the word — during downturns before 1914. One of the few things on which liberal economists like John Kenneth Galbraith and conservative economists like Milton Friedman agreed was that the Federal Reserve made the Great Depression of the 1930s worse.

Economists writing in a leading scholarly journal in 2004 concluded that government intervention prolonged the Great Depression by several years.

Back in the 1930s, John Maynard Keynes cautioned President Roosevelt about demonizing and threatening business.

Yet FDR, who said in his famous first inaugural address, “We have nothing to fear but fear itself,” spent the rest of the decade spreading fear to businesses and investors — and wondering why there was still mass unemployment, despite his record-breaking spending.

Back in 1920-21, there was a sharp economic downturn, with unemployment spiking to 11.7 percent. President Warren G. Harding did nothing, except for cutting government spending. Yet the economy quickly recovered and annual unemployment rates ranged from a high of 6.7 percent to a low of 1.8 percent in the rest of the decade.

In the mid-1940s, as World War II neared its end, Keynesian economists were frantically trying to come up with postwar plans to prevent massive unemployment when 12 million people were to be discharged from the military and millions of civilians would lose their jobs when plants producing military supplies shut down.

Two things prevented those wonderful Keynesian plans from being put into operation. First, the atomic bomb brought the war to an end much sooner than anyone expected. Secondly, the Republicans got control of Congress, producing the “do-nothing 80th Congress” that President Harry Truman excoriated during his 1948 election campaign.

In short, plans for vastly expanded government intervention were thwarted — and the “problem” that such intervention was supposed to solve did not materialize. There was a G.I. Bill of Rights for returning military veterans but this was a fraction of what liberal Keynesians had been contemplating.

Anticipating postwar employment problems, former Vice President Henry A. Wallace wrote a book titled “60 Million Jobs,” advocating sweeping government interventions to achieve this otherwise unattainable goal. Wallace’s interventions never took place, but the free market created 60 million jobs anyway.

A stock market crash in 1987 broke some records set in 1929. But Ronald Reagan did nothing, despite howls from the media, and the economy recovered — leading to 20 years of prosperity.

Obama may yet be re-elected, as a result of gridlock.

Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His website is www.tsowell.com. To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 CREATORS.COM

Article source: Creators.com

 

The “Occupy Wall Street” protests of recent months has placed a lot of attention on income inequality and the reviled top 1% of earners.  The protestors loudly proclaim themselves to be a part of the 99%, and profess all sorts of beliefs about what should be done to remedy this perceived injustice.  Predictably, the desired remedies take the form of government financed subsidies.  As the protests have persisted, they have become notable for the disgusting state of protest areas, the deplorable behavior of some protestors, and the lack of a coherent message.  This has attracted all of the usual pro-socialist protesters to the movement, and steadily pushed it further away from the mainstream on its way to the fringe.

How About the “United States” 1%?

To the extent that there is a message from “Occupy Wall Street” that message seems to be that the top 1% are too affluent relative to the rest of the population.  The idea of income and wealth disparities have garnered quite a bit of media attention over the past few months, so it is reasonable to make a deeper examination of what the top 1% really means.  Fortunately, one of the economists from the World Bank named Branko Milanovic has done a considerable amount of research on the subject of inequality.

So how much do you have to earn to be in the top 1% of US earners?

Answer: $380,ooo per year

Many people are likely to reply that $380,000 is a lot of money and that a lot of the people earning those high incomes got them because of inside connections with the government to rig the game so that they have an unfair advantage.  However, there is an important distinctions that need to be made.  Not everybody in the top 1% got there through graft and corruption.  Many are owners of productive businesses, innovators, creators, entertainers, and people who generate otherwise valuable products and services.  If graft and corruption are the problem, it would make much more sense to protest against graft and corruption instead of protesting against the fact that some people have succeeded in generating high levels of income.

As far as having an unfair advantage is concerned, there is certainly credit to the argument that certain people have advantages that other people do not enjoy.  In Milanovic’s work, he calculated that 60% of global income disparity is explained by where a person is born.  To many people it is painfully obvious that some folks have more advantages than others, and that this is fundamentally unfair.  Because of this, some believe that the government should take resources away from those that produce the most so that they can be re-distributed to those who have not had as many advantages and produce very little.

How about the “Global” 1%?

This is where the conversation gets really interesting.  With global affluence being even more heavily skewed than the United States, it is reasonable to extend the analysis out to the whole world.  Assuming that one fundamentally believes in equality, then it should stand to reason that the top 1% of the world’s largest economy is too narrow of a sample.  What happens when we look at the whole world as our sample?  How does that change the dynamics of the discussion?

So how much do you have to earn to be in the top 1% of global earners?

Answer: $34,000 per year

Thus, it turns out that most of the people who profess to be in the (United States) bottom 99% are actually in the (Global) top 1%.  Ironically, the very people who are protesting against domestic inequality have themselves benefit greatly from global inequality.  If the philosophy of re-distribution is suitable for inequality within a country, it should stand to reason that it is suitable for a global scale?

Of course, this is where the self-centered hypocrisy of many protestors comes to bear.  The overwhelming majority of people protesting against domestic inequality have absolutely no interest in making intense personal sacrifices to remedy global inequality.  By expanding the scope of the debate, it becomes much more clear what is truly motivating the discussion.  The protestors have no interest in equality … otherwise they would be advocating for ‘global’ equality, which would require that they make sacrifices.  They are using equality as a shill to advocate for extracting resources from high producers.

The Fixed Pie Fallacy

The principal issue underlying the context of these conversations is a fundamental fallacy that believes the world’s resources are a fixed pie, and that this pie is divided up into “haves” and “have not’s” by some autocratic power structure.  When viewed through this fallacious lens, the answer seems to be one of simply re-distributing the pie.  However, all of the things that are consumed must first be produced.  Typically, the people who enjoy the most wealth and income are the ones who produce the most.  So it stands to reason that when the rewards of being productive are reduced or eliminated, there will be less production.

Unfortunately, government policies and financial markets have created a situation where many of the most highly compensated people engage in activities that produce very little in terms of real output.  Exploiting subsidies, regulatory protection, and market arbitrage can produce high incomes, but does relatively little to increase overall output.  It makes complete sense that these avenues of resource extraction without commensurate real production should be sought out and eliminated.  The free market is about rewarding real production and innovation.  The phrase “crony capitalism” is an oxymoron … capitalism is about competition.  the only way cronies can be rewarded is when a political authority is impeding the competitive market.

This is where the ‘real’ solution to the global inequality can be found.  Namely that emphasis should not be placed on how to extract more resources from those who are productive, but that emphasis should shift toward finding ways to help those at the bottom become more productive themselves.  Put another way, it is much better to focus on growing the whole pie instead of focusing on who has the biggest piece of the existing pie.

Envy Economics

Unfortunately, encouraging real productivity isn’t high on the priority list for most politicians.  The reason is because promoting free markets doesn’t deliver many votes.  There’s much more political mileage to be gained from higher taxes, more government subsidies, and higher regulations than the opposite.  The economic pie grows the most when tax rates are low, exemptions are low, regulations are light, and government intervention is modest.  However, high tax rates mean that you can lobby for campaign contributions from businesses and individuals who want deductions and exemptions.

Empirical studies have shown that the net tax rate paid barely changes over time, regardless of what marginal rate is published.  When rates are high, politicians can sell exemptions for campaign contributions.  This results in very little net tax revenue but a vast increase in net political contributions.  Light regulation promotes growth, but lobbying groups always prefer more regulation that benefits their contributors.  Most workers would be better off with a robust job market than government subsidies, but it’s much easier to take credit for subsidies than for a job market.

In the end, economic well-being on both the national and global scale must come from productivity.  The only sustainable way to increase the affluence of the people at the bottom is to help them become more productive.  Put another way, it is much more beneficial to help the people at the bottom climb up than it is to target the people at the top and bring them down.

 

There ain’t no such thing as a free lunch. Everything demanded by the Occupy Wall Streeters — whether “free” health care, a “world-class education” or a “guaranteed living-wage income regardless of employment” status — costs money.

When a CEO makes a lot of money in the private sector, it is because his company — rightly or wrongly — values that CEO’s services at that price. To say it is “not right” that a CEO makes (fill in the blank) times more than the janitor is to say it is not right for the marketplace to set wages. If the marketplace ought not set wages, then who or what should?

Most people work for the private sector, which cannot exist without profit.

Is the OWS objection to bank bailouts on the grounds that government should not protect businesses from the consequences of their actions? Or is the objection that bailouts should be for everybody?

We already have a huge welfare state, with entitlements — Social Security, Medicare and Medicaid — the biggest expenditure of the federal budget. Europe’s welfare state is larger, with a slightly smaller “gap” between the rich and the poor. Yet its citizens also take to the street to denounce inequality. Puzzling, isn’t it?

No one can legally ask about the immigration status of a public school student, so Americans and non-Americans, including illegal aliens, receive a K-12 public education at taxpayers’ expense.

Per-pupil spending for public education increased 49 percent from 1985 to 2005. Community colleges are cheap, and many states guarantee a junior college graduate admission to a public four-year college.

The physical advantage that men possess over women is an increasingly small advantage — given the decline of labor-intensive jobs and the technology that makes it easier for machines to do hard, dangerous, repetitive work.

There are more tenants than landlords, which thus exemplifies the stupidity of “rent-control” laws. Rent-control laws disproportionately benefit the non-poor because the elite pull strings, work the system and are better connected than the poor. All of this matters when items of scarcity (in this case, apartments) are dispensed by government dictates rather than through prices.

Government possesses no money of its own. It raises money by taxing, by borrowing or by printing.

The bigger the government, the smaller the private sector.

Individuals can spend their money more wisely, efficiently and more humanely than can government.

People value and spend their money more wisely when they acquire it by their own efforts — also known as work. There are real-world, direct consequences on you for squandering your own money, as opposed to when government squanders the money of its people.

Government employees enjoy job security unknown in the private sector and are often paid more than their private-sector counterparts. Greed?

People spend their money more humanely because they won’t waste as much of it. Consider that to deal with “the poor,” the federal government has a vast array of agencies, programs and policies. But only about 30 cents of each dollar designated for the poor actually gets in the hands of the recipient. Contrast this with the United Way, Salvation Army and other private charities where 90 cents of each dollar donated gets to a beneficiary.

Americans agree that some people — whether faultless or irresponsible — need assistance, if only occasionally. The only issue is how they will be helped.

Americans are the most generous people of any industrial nation. We give more of our time and money than do the Germans, British and Japanese. Note that those states have a bigger public sector than we do. Maybe they feel they gave at the office.

The U.S. Constitution isn’t just any ordinary document. It is the contract between the government and its people, the ones who empower government and who — once upon a time — expected the Constitution to restrain government, not empower it.

Government’s involvement in housing caused the meltdown — not greedy Wall Street bankers. The same Occupy mindset caused the Community Reinvestment Act of 1977, placed on human growth hormones by President Clinton, who pushed banks into lending to poor credit risks and allowed Wall Street to play with taxpayers’ money.

There is no bad guy. It’s not the Koch brothers, Grover Norquist or the Maltese Falcon. There is no evil entity, snorting steam from his nose, standing in an office full of Nazi memorabilia, staring out the window with the cityscape view, laughing: “Ha! Ha! Ha! Pretty soon, all this will be mine. Mine, I say!”

Life has never been so good, with so many choices, with so many more conveniences, so much less danger of dying from disease, with so many choices for entertainment and affordable travel.

When you rob Peter to pay Paul, you can always count on the support of Paul. But at some point Peter begins to feel taken advantage of.

Larry Elder is a best-selling author and radio talk-show host. To find out more about Larry Elder, or become an “Elderado,” visit www.LarryElder.com. To read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 LAURENCE A. ELDER

DISTRIBUTED BY CREATORS.COM

Article source: Creators.com

 

Harbor at Midnight

During the late 18th century, an economist named Adam Smith wrote an essay challenging the fundamental assumptions of the prevailing economic system.  This system emerged during the middle ages, and has come to be known as Mercantilism.  Many of the key tenants in a Mercantile system bear a striking similarity to prevailing political sentiment that persists to this day.

The primary thought behind a Mercantile system is a focus on domestic industry.  In this system, there is very tight government control of foreign trade.  High tariffs on imports are very typical.  The desired outcome of these actions is to maximize exports, and minimize imports to support domestic industry.  The “protectionist” sentiment is still alive and well in the current era.

Another key aspect of Mercantilism is heavy government involvement in the economy.  During Medieval times, monopoly rights were granted to favored families.  This led to high profits for the favored families, high prices for consumers, and limited availability of products and services.  In the modern era, this takes the form of government subsidies for businesses that engage in politically favored activities such as “green” industries.

In addition to this, many Mercantile economies engaged in colonial expansion.  The colonies of Mercantile countries were typically forced to export raw materials to the “mother country” and purchase finished goods from the state sponsored monopoly companies at the elevated monopoly prices.  One of the typical results of this situation is anger on the part of the colonies over high prices, high taxes, and a lack of political representation.  The most famous case of colonial strife is the American Revolution that started in 1776, which just happens to be the same year Adam Smith published the Wealth of Nations.

Modern Mercantilism

To many people, the principal desire of Mercantilism seems very appealing.  After all, if imports are reduced with taxes and tariffs while exports are subsidized by the government, it seems that the result would be more domestic industry and more jobs.  This sentiment has picked up many followers in recent years as the mix of employment has shifted with many jobs being done overseas that were previously done domestically.  In response to the problem of American jobs going overseas, many people favor a Mercantile system.

Another factor that draws many people toward Mercantile ideas is a fundamental mistrust of market forces.  Many people believe that if the market is left alone, it will result in under-investment in socially valuable projects such as “green” energy, technology, or industrial development.  The belief is that if government subsidizes these industries, it will give the country a head start relative to other players in the global economy and will ultimately benefit the people at large.

One can easily see where these sentiments come from, but it is another matter entirely to determine their level of validity.  The important factor to consider in regard to evaluating an economic system is that the best of intentions frequently produce results that are not necessarily consistent with those intentions.  Thus, it is important to understand the results and how those results can be different from the intentions.

What’s the Problem with Mercantilism?

Analysis of the Mercantile system begins and ends with an examination of what happens when imports are restricted through tariffs, exports are expanded through government rules, and favored businesses are subsidized.  The first level of this analysis is to ask where the resources come from to fund the subsidies?  The second level is to examine who benefits the most from these policies and who is the most disadvantaged.

Consider first that no government can create resources out of thin air.  Everything that any government spends must be extracted from somebody.  In order to subsidize favored businesses, higher taxes must be collected from the rest of the population who is not being subsidized.  These higher taxes result in higher prices for consumers.  In addition to this, the high tariffs on imports result in yet another increase in consumer prices because of decreased competition.  Ultimately, all of the costs are paid by the consumer.

In addition to this, we must consider who really benefits and who really pays.  This analysis starts and ends with the businesses who are favored by the government and receive preferential treatment through tariffs restricting competition or direct subsidies.  In medieval times, the families who ran the government sponsored monopolies were directly responsible for the King maintaining his throne.  In contemporary times, the companies who receive the most government support are the most active in lobbying politicians for favorable legislation.  The key to this whole cycle is that the people in charge must have a large degree of discretion over taxes, spending, and regulation to reward their allies in an amount that is sufficient to garner their continued support.

It is not difficult to see how this cycle will produce many undesirable results.  High amounts of government spending will attract high amounts of lobbying (both ‘above’ and ‘below’ the table).  These subsidies will direct resources away from what produces the highest rates of return.  The high consumer prices will dramatically reduce the real standard of living for the general population. Ultimately, Mercantilism is a systematic impoverishment of the masses for the exclusive benefit of politicians and favored companies.

This is the driving force behind colonial expansion.  An inefficient economy requires that resources be continually extracted from somebody else to subsidize an unsustainable economy.  Much of the strife that occurs throughout the world is driven by the fact that inefficient dictatorial economies can only sustain themselves by extracting resources from somebody else.  This leads to persistent fighting over natural resources by governments who want to extract that wealth for the benefit of the people they favor.

What Capitalism Really Means

Adam Smith wrote about a system that has come to be known as Capitalism.  The central tenant of Capitalism is that when commerce is more free to operate in a market environment, it produces (unintended) beneficial results.  According to Adam Smith, people are more likely to serve others out of self-interest than genuine altruism.  However, through the process of serving others to advance their own self interest, other people are made better off.

Capitalism is most beneficial to new businesses, and is most threatening to established businesses.  The reason is because open competition means that new innovations can very rapidly displace old ways of doing business.  This means that nobody can afford to sit on their past successes.  However, this competitive environment can only exist if the government allows market forces to prevail.  This means that a system of discretion and intervention must give way to a system of stable rules and market based results.

Thus, it becomes very easy to see why ‘true’ Capitalism is so hard to instill, and even harder to maintain.  The lynchpin of the whole system is regulatory rules vs. political discretion.  However, politicians always prefer discretion because it gives them more power and allows them to extract more support from business entities who benefit from the status quo.

In a bitter twist of irony, the infamous “Occupy Wall Street” movement that purports to be protesting against Capitalism is citing the tenants of Mercantilism as their complaints.  To wit, the hackneyed phrase “Crony Capitalism” is an oxymoron … Capitalism by its vary nature lacks the political discretion that is necessary for elected officials to reward their friends and contributors.  In another ironic situation, the purported solution to the perceived evils of Capitalism is dramatic expansion of government power and political discretion. And the inevitable result will be greater concentration of power in government and more favors being steered toward politically connected, powerful businesses while the population at large pays through higher taxes, higher prices, and less innovation.

Thus, the movement against Capitalism is nothing more than Mercantilism redux.

 

A growing number of the businesses that provide professional services to the U.S. government say they struggle to compete against much bigger rivals once they successfully become mid-sized firms.

The businesses are caught in a Catch-22: After winning government contracts designated for small firms, most will expand and many become so big that they no longer qualify for the small-business contracts that enabled them to grow in the first place.

Illustration by Eric Westbrook

Mid-Tier Advocacy, a Washington, D.C.-based lobbying group formed early last year to advocate for businesses that have outgrown the small-business size standards, hopes to make the transition easier. It has more than 1,000 members, many of which have revenues ranging from $25 to $100 million and have won government work for more than 15 years.

“There is no category or recognition of mid-sized firms,” says Tonya M. Speed, the group’s executive director. Many inevitably surpass the size limits, she adds, and consequently, “they are competing with companies that are sometimes more than 30 or 40 times their size.”

Of course, the set-asides were not intended to be a permanent crutch for small companies. But making the competitive jump to medium-sized company from protected, small business has proven hard for many.

For instance, Deepak Hathiramani, founder of Vistronix Inc., a Reston, Va., technology support services company, was so unprepared for the challenges of a mid-tier contractor that his company stumbled after growing to $30 million in annual revenue.

Vistronix had just 15 employees when it landed its first government contract in 1994. For nearly a decade after that, it thrived on winning so-called “set-aside” contracts providing computer-systems integration for civilian agencies. By 2003, it was going head-to-head with much larger corporations for government work.

Unable to make the transition successfully, it lost contract work to much bigger rivals. Its annual revenue plummeted to $13.5 million in 2004 from the $30 million peak two years earlier. Its workforce also declined to fewer than 200 employees, from 400. “It was a tough time,” Mr. Hathiramani says.

He spent three years revamping the firm’s services and replacing the management team with professionals who were better able to help it successfully grow and survive as a mid-sized firm. Since 2010, when the company jumped the small-business threshold for a second time, “our rate of growth has definitely slowed,” he says. “In the mid-tier squeeze, there is a lot of pressure.”

Indeed, firms above the small-business designation but which still had less than $3 billion in annual revenue got 34% of government professional-services contracts in 2010, compared to about 40% in 1995, according to a report from the Center for Strategic and International Studies in Washington, D.C., to be released this month.

The gains in market share went to both small companies, which got roughly 22% in 2010, and large companies, which got 44%.

“We could see our revenues slip,” says David E. Gardner, chief operating officer at Access Systems Inc., a government vendor that has $65 million in revenue and about 300 employees. The firm is right on the cusp of becoming ineligible for government set-asides. “I don’t have great optimism for the next couple of years,” he says.

Rose Wang, owner of Binary Group Inc., of Arlington, Va., has a different strategy: Her information-technology management and strategy consulting firm outgrew the set-asides in the last 18 months. She is now looking to get a bite of the small-business contracts by collaborating with small contractors.

“I think we could stay flat or grow slightly,” she says. “But we won’t see the rapid growth we saw in the last couple of years.”

Under a 1977 law, many federal agencies are required to set aside work for small businesses as a means of awarding 23% of all federal contracting dollars to them.

“There’s only one line we can draw,” says Michele Chang, senior advisor in the Office of Government Contracting and Business Development at the Small Business Administration, which sets the limits, generally based on revenue (currently from $750,000 to $35.5 million) or employee counts (from 50 to 1,500 employees). The limits are currently being reevaluated thanks to last year’s Small Business Jobs Act.

“The government, perhaps inadvertently, has created a system that penalizes companies for being successful,” says Robert Burton, a former deputy administrator of the Office of Federal Procurement Policy under the Bush administration, who is now a Washington, D.C., lawyer in private practice.

Dan Gordon, the current administrator of the procurement policy office, says the Obama administration is making efforts to help growing contractors, by increasing transparency about upcoming business opportunities and breaking up large contracts into multiple, smaller ones that are within a mid-tier’s reach.

“There is a huge range of opportunity in government contracting for firms of all sizes,” he says. “We want every company to get in there and have those companies be successful.”

Mid-size firms face a broader range of challenges than the small-fry. About 55% of them say they don’t have sufficient access to capital and 45% say they are challenged by international competition, according to research by Ohio State University and General Electric Co.’s GE Capital financial arm.

Rep. Gerald Connolly (D-Va.) recently proposed legislation that would give mid-size firms with less than 1,500 employees an opportunity to compete for select contracts before the competition is open to larger companies.

But several small-business groups oppose such changes. “Instead of creating a new program, take care of the problems we know exist today” such as meeting the 23% contracting goal for small firms, says Margot Dorfman, chief executive of the Washington, D.C.-based Women’s Chamber of Commerce.

By EMILY MALTBY

Article source: Wall Street Journal

 

The Occupy Wall Street demonstrators are demanding “people before profits” — as if profit motivation were the source of mankind’s troubles — when it’s often the absence of profit motivation that’s the true villain.

First, let’s get both the definition and magnitude of profits out of the way. Profits represent the residual claim earned by entrepreneurs. They’re what are left after other production costs — such as wages, rent and interest — have been paid. Profits are the payment for risk taking, innovation and decision-making. As such, they are a cost of business just as are wages, rent and interest. If those payments are not made, labor, land and capital will not offer their services. Similarly, if profit is not paid, entrepreneurs won’t offer theirs. Historically, corporate profits range between 5 and 8 cents of each dollar, and wages range between 50 and 60 cents of each dollar.

Far more important than simple statistics about the magnitude of profits is the role played by profits, namely that of forcing producers to cater to the wants and desires of the common man. When’s the last time we’ve heard widespread complaints about our clothing stores, supermarkets, computer stores or appliance stores? We are far likelier to hear people complaining about services they receive from the post office, motor vehicle and police departments, boards of education and other government agencies. The fundamental difference between the areas of general satisfaction and dissatisfaction is the pursuit of profits is present in one and not the other.

The pursuit of profits forces producers to be attentive to the will of their customers, simply because the customer of, say, a supermarket can fire it on the spot by taking his business elsewhere. If a state motor vehicle department or post office provides unsatisfactory services, it’s not so easy for dissatisfied customers to take action against it. If a private business had as many dissatisfied customers as our government schools have, it would have long ago been out of business.

Free market capitalism is unforgiving.

Producers please customers, in a cost-minimizing fashion, and make a profit, or they face losses or go bankrupt. It’s this market discipline that some businesses seek to avoid. That’s why they descend upon Washington calling for crony capitalism — government bailouts, subsidies and special privileges. They wish to reduce the power of consumers and stockholders, who hold little sympathy for blunders and will give them the ax on a moment’s notice.

Having Congress on their side means business can be less attentive to the will of consumers. Congress can keep them afloat with bailouts, as it did in the cases of General Motors and Chrysler, with the justification that such companies are “too big to fail.” Nonsense! If General Motors and Chrysler had been allowed to go bankrupt, it wouldn’t have meant that their productive assets, such as assembly lines and tools, would have gone poof and disappeared into thin air. Bankruptcy would have led to a change in ownership of those assets by someone who might have managed them better. The bailout enabled them to avoid the full consequences of their blunders.

By the way, we often hear people say, with a tone of saintliness, “We’re a nonprofit organization,” as if that alone translates into decency, objectivity and selflessness. They want us to think they’re in it for the good of society and not for those “evil” profits. If we gave it just a little thought and asked what kind of organization throughout mankind’s history has accounted for his greatest grief, the answer wouldn’t be a free market, private, profit-making enterprise; it would be government, the largest nonprofit organization.

The Occupy Wall Street protesters are following the path predicted by the great philosopher-economist Frederic Bastiat, who said in “The Law” that “instead of rooting out the injustices found in society, they make these injustices general.” In other words, the protesters don’t want to end crony capitalism, with its handouts and government favoritism; they want to participate in it.

Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 CREATORS.COM

Article source: Creators.com

 

Random thoughts on the passing scene:

Like so many people, in so many countries, who started out to “spread the wealth,” Barack Obama has ended up spreading poverty.

Have you ever heard anyone as incoherent as the people staging protests across the country? Taxpayers ought to be protesting against having their money spent to educate people who end up unable to say anything beyond repeating political catch phrases.

It is hard to understand politics if you are hung up on reality. Politicians leave reality to others. What matters in politics is what you can get the voters to believe, whether it bears any resemblance to reality or not.

I hate getting bills that show a zero balance. If I don’t owe anything, why bother me with a bill? There is too much junk mail already.

Radical feminists seem to assume that men are hostile to women. But what would they say to the fact that most of the women on the Titanic were saved, and most of the men perished — due to rules written by men and enforced by men on the sinking ship?

If he were debating Barack Obama, Newt Gingrich could chew him up and spit him out.

Whether the particular issue is housing, medical care or anything in between, the agenda of the left is to take the decision out of the hands of those directly involved and transfer that decision to third parties, who pay no price for making decisions that turn out to be counterproductive.

It is truly the era of the New Math when a couple making $125,000 a year each are taxed at rates that are said to apply to “millionaires and billionaires.”

On many issues, the strongest argument of the left is that there is no argument. This has been the left’s party line on the issue of man-made global warming and the calamities they claim will follow. But there are many scientists — some with Nobel Prizes — who have repudiated the global warming hysteria.

With professional athletes earning megabucks incomes, it is a farce to punish their violations of rules with fines.

When Serena Williams was fined $2,000 for misconduct during a tennis match, that was like fining you or me a nickel or a dime. Suspensions are something that even the highest-paid athletes can feel.

Most of us may lament the fact that so many more people are today dependent on food stamps and other government subsidies. But dependency usually translates into votes for whoever is handing out the benefits, so an economic disaster can be a political bonanza, as it was for Franklin D. Roosevelt. Don’t count Obama out in 2012.

Politicians can solve almost any problem — usually by creating a bigger problem. But, so long as the voters are aware of the problem that the politicians have solved, and unaware of the bigger problems they have created, political “solutions” are a political success.

Do people who advocate special government programs for blacks realize that the federal government has had special programs for American Indians, including affirmative action, since the early 19th century — and that American Indians remain one of the few groups worse off than blacks?

I hope the people who are challenging Obamacare in the Supreme Court point out that the equal application of the laws, mandated by the 14th Amendment to the Constitution, is violated when the president can arbitrarily grant hundreds of waivers to the Obamacare law to his political favorites, while everyone else has to follow its costly provisions.

People who live within their means are increasingly being forced to pay for people who didn’t live within their means — whether individual home buyers here or whole nations in Europe.

Regardless of how the current Republican presidential nomination process ends, I hope that they will never again have these televised “debates” among a crowd of candidates, which just turn into a circular firing squad — damaging whoever ends up with the nomination, and leaving the voters knowing only who is quickest with glib answers.

Have you noticed that we no longer seem to be hearing the old familiar argument that illegal aliens are just taking jobs that Americans won’t do?

To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate Web page at www.creators.com. Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His website is www.tsowell.com.

COPYRIGHT 2011 CREATORS.COM

Article source: Creators.com

 

“The way I think about it is, you know, this is, uh, you know, a great, uh, great country that had gotten a little soft, and you know, we didn’t have that same competitive edge that we needed over the last, uh, couple of decades. We need to get back on track.” — President Barack Obama.

The gall is breathtaking, even from a man who as a presidential candidate said, “We are the ones we’ve been waiting for.”

This from a President who, in chastising the rich, said, “I do think at a certain point you’ve made enough money.”

This from a man who, during the brief time he actually worked in the private sector, represented a black woman who accused a bank of redlining her out of a loan. The proximate cause of the housing bubble and meltdown is the notion that the “underrepresented” deserve a home, whether or not they qualified under traditional lending criteria.

This from a man who told a Toledo plumber that government should “spread the wealth around” by taxing “the rich” and giving the money to others, because “it’s good for everybody.”

This from a man who blasts any suggestion that young people just might be capable of investing a portion of their Social Security contribution into an account that they manage. Former Congresswoman and vice presidential candidate Geraldine Ferraro, in opposing the idea, fretted for those who lack “the knowledge and the wherewithal” to handle the responsibility.

This from a flip-flopper who initially opposed the 1996 welfare reform — legislation that resulted in a 50 percent reduction in the welfare rolls, and without a corresponding increase in teen pregnancy. Then-state Sen. Obama called President Bill Clinton’s support of the federal bill “disturbing,” and a year later — on the Illinois state Senate floor — he said, “I probably would not have supported the federal legislation.” A decade later, when presidential candidate Obama was asked if he would have signed or vetoed the ’96 reform bill, he repeatedly dodged the question, insisting that he looked to the next 10 years, not the past 10 years. Then his campaign began running ads touting the reduction of welfare cases made possible by the 1996 reforms.

This from a man who blames corporations for “shipping jobs overseas,” yet shows no concern for the high corporate tax rates — rates that would be unnecessary were the federal government to actually stick to the handful of duties permitted by the Constitution.

This from a man who thinks it’s the government’s job to “invest” in “green jobs of the future” because the private sector cannot be trusted to take risks.

To the extent America has gotten “soft,” Obama can’t mean working hours.

The average American works longer hours than other people in the industrialized world, including the Japanese, the Germans and the British.

Nor does Obama, by “soft,” mean the growing and unsustainable reliance on government. In 1900, government, at all three levels — federal, state and local — took about 10 percent of the American workers’ pay. Today, if one assigns a price to unfunded federal mandates imposed on the states, government’s take approaches 50 percent. Obama and his party encourage government growth and expect Americans to depend on it for health, welfare and retirement. These are, they tell us, “human rights.”

So, let’s recap the President’s playbook.

Step one: Pursue a three-year course of extracting higher taxes; mandating costly new regulations, not least of which — in ObamaCare — represents a breathtaking expansion of federal power; and pass an FDR-like nearly trillion-dollar “stimulus” package.

Step two: Enact “look, we’ve done something!” regulations to “rein in Wall Street greed” — regulations that have nothing to do with the Freddie/Fannie/Community Reinvestment Act housing meltdown. Sign “credit card reform” laws that prevent bankers from raising fees on “the defenseless.” Never mind that banks roll their eyes and find other ways of keeping profits up. Funny how these bankers and other businesspeople seem not to consider their actions crooked. They think they operate in a competitive marketplace and owe a fiduciary obligation to shareholders to maximize shareholder return.

Step three: Let the investment community know that — because they represent the enemy — they’re a piggy bank from which government can extract more and more without, of course, eroding the business community’s willingness to risk capital. Expect the “greedy,” “taxed-too-lightly” business community to absorb the higher taxes and costly regulation — and yet continue to make the same hiring and investment decisions even as the White House vows to impose even more regulations and raise taxes even higher.

Step four: After succeeding in undermining economic growth through left-wing, redistributionist, government-can-capably-invest-in-green-jobs-of-the-future policies, accuse the business community of engaging in risk avoidance. Hammer them for “sitting” on “$2 trillion” in money. Tell them they should “get off the sidelines and expand. … Get in the game.”

Step five: Finally, accuse the American people of failing him, not the other way around.

We end with another quote from then-newly elected Barack Obama: “I will be held accountable. … If I don’t have this done in three years, then there’s going to be a one-term proposition.”

Larry Elder is a best-selling author and radio talk-show host. To find out more about Larry Elder, or become an “Elderado,” visit www.LarryElder.com. To read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 LAURENCE A. ELDER

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What’s the common thread between Europe’s financial mess, particularly among the PIIGS (Portugal, Ireland, Italy, Greece and Spain), and the financial mess in the U.S.? That question could be more easily answered if we asked instead: What’s necessary to cure the financial mess in Europe and the U.S.? If European governments and the U.S. Congress ceased the practice of giving people what they have not earned, budgets would be more than balanced. For government to guarantee a person a right to goods and services he has not earned, it must diminish someone else’s right to what he has earned, simply because governments have no resources of their very own.

The first order of business in reaching a solution to the financial mess in Europe and the U.S. must be the recognition that governments have been doing a class of unsustainable things, mostly giving people special privileges and things that they have not earned. It’s a matter of not simply what’s good or bad for the beneficiaries but what its effect is on society at large and the welfare of a nation.

Take the understandably humane motivation to provide health care services for the medically indigent. If one is concerned about the health needs of a person, why shouldn’t the government also provide him with resources for nutrition? Good health is not just medical services and food but a decent place to live. Furthermore, good health is a matter of not just physical well-being but mental well-being as well, so why not have government-sponsored vacations? That’s not such a far-fetched idea as one might imagine. Antonio Tajani, the European commissioner for industry and entrepreneurship, has declared vacationing to be a “human right.”

Growing social spending in the name of health is just one example of a much larger process affecting the whole of our societies. There’s a process that we might call contagion, in which spending automatically and unavoidably breeds more spending.

For example, if government provides subsidies for wheat farmers, corn farmers will organize and protest that it’s unfair not to grant them subsidies. What case can be made for government’s not granting subsidies to all farmers? Then there’s contagion across borders. If European farmers get subsidies, American farmers are going to demand subsidies to “even the playing field.” How about government bailouts? There’s contagion there as well. If Congress bails out General Motors, what’s the justification for not also bailing out Chrysler and JPMorgan Chase, Bank of America, Fannie Mae, AIG, Citigroup and other failed enterprises? Bailouts are contagious both in the short and the long run. Bailouts create what’s known as a moral hazard, in which people have reduced incentive to mend their ways.

The bottom line is that the sole tendency of the welfare state is for it to grow and consume more and more of a nation’s income. According to “Measuring the Unfunded Obligations of European Countries” (January 2009), by the Dallas-based National Center for Policy Analysis, by 2050, the average EU country will need more than 60 percent of its gross domestic product to fulfill its obligations. According to the 2008 Social Security and Medicare trustees reports, the combined unfunded liability of just these two government programs has reached $101.7 trillion in today’s dollars.

It turns out that if Congress taxed away our entire $14 trillion 2011 GDP and put it in the bank, it would just barely cover Social Security and Medicare liabilities. That observation suggests that we can’t tax our way out of our fiscal mess. In order to avoid permanent stagnation or total economic collapse, governments must start the process of reducing welfare spending. I wouldn’t recommend cold turkey for a heroin addict, neither would I recommend cold turkey for all those people who have been addicted and made dependent upon government handouts. We must find a compassionate way to wean people off government.

Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 CREATORS.COM

Article source: Creators.com