Amer. Intelligence Test: Brother Can You Spare a Trillion? – Jobs Are Key to Any Plan

Once upon a time, there was a political campaign that had a core concept used to set its course and provided a ‘north star’ to keep on track. The core concept is aptly referred to by the phrase: “It’s the economy, stupid!” (ITES). This thought has provided numerous copycat expressions but they are at best minor cords to the original theme. There is a reason that ITES is a salient concept to guide a campaign, decisions, societies, or their governments. The reason is that economics can be likened as a functional equivalent to the laws of physics in how various social systems operate. In this context, the state of America’s economy is directly related to American jobs; because jobs, employment/unemployment, wages, taxes, productivity, and numerous other factors are the variables feeding into defining the operating Economy.

So, as we look to reinvigorate the economy, jobs, infrastructure, and the middle-class it’s going to be essential that the decisions, policies, efforts and investments that are made will result in the intended outcomes; rather than being surprised by the unintended consequences that often come from wishful thinking. There are several things in our favor. The US economy is very diverse, it doesn’t operate uniformly across the nation even within the same or related industry, and the clear majority of it is beyond the comprehension of politicians. Of course, we are vulnerable to influences and ideologies that have a remarkable capability to do maximum damage with little thought; yes, Congress.

If jobs are key to America succeeding, then it would be good to know whether our political leaders could pass an intelligence focused on jobs and the economy. Do you think they can? Can you?

Question A:   What is the March 2017 US unemployment rate?

(1). 0% to <1 .0="" o:p="">

(2). 1% to <2 .0="" o:p="">

(3). 2% to <3 .0="" o:p="">

(4). 3% to <4 .0="" o:p="">

(5). 4% to <5 .0="" o:p="">

(6). 5% to <6 .0="" o:p="">

(7). 6% to 7%

(8). > 7%

Question B:   How much of an increase above the prevailing rate over the last 7 years in employment (jobs added per month) in the US would be needed to support the economy required to achieve 25 million additional jobs over 10 years?

(1). 0% to 2%

(2). 2% to 4%

(3). 4% to 6%

(4). 6% to 8%

(5). 8% to 10%

Question C:   How low can US unemployment get?

(1). 0%  (full employment)

(2). 0.1% to <1 .0="" o:p="">

(3). 1.0% to <1 .5="" o:p="">

(4). 1.5% to <2 .0="" o:p="">

(5). 2.0% to <2 .5="" o:p="">

(6). 2.5% to <3 .0="" o:p="">

(7). 3.0% to <3 .5="" o:p="">

Question D:   How much additional revenues would be imposed upon the average taxpayer in order to pay-down $9.5 trillion of the ~$19.5T US deficit over ten-years?  Assuming the current Federal Budget is held at the 2016 level?

(1). $0

(2). Under $500.00

(3). Under $1,000.00

(4). Under $2,000.00

(5). Under $3,000.00

(6). Under $4,000.00

(7). Under $5,000.00

Question E:    What is the increase on corporate taxes to deliver their contributions to Federal Revenues? Assumes Individual and Corporate contributions stay proportional to current levels. 

(1). $0

(2). Under $500,000.00

(3). Under $1,000,000.00

(4). Under $2,000,000.00

(5). Under $3,000,000.00

(6). Under $4,000,000.00

(7). Under $5,000,000.00

Question F:    How many people are unemployed as of Feb 2017?

(1). No more than 2M

(2). No more than 4M

(3). No more than 6M

(4). No more than 8M

(5). No more than 10M

(6). More than 10M

Question G:   If the US is going to pay off $9.5T in Debt and spend $1T on Infrastructure projects over 10 years, what percentage of the current Federal Budget and future budgets would that require?

(1). No more than 10%

(2). No more than 20%

(3). No more than 30%

(4). No more than 40%

(5). No more than 50%

Question H:   How much additional income would be required if the tax rates were reduced to provide the revenues for the current budget for Individuals (I) and Corporations (C)? How much for the additional spending on Debt reduction and Infrastructure for (I) and (C)? Suppose the Individual rate was reduced an effective average of 5%, and the corporate rate by an effective average of 10%.

Current Budget:  I = ?, C = ? ;   Debt Reduction & Infrastructure:  I = ?,  C = ?

(1). Up to 10% more

(2). Up to 20% more

(3). Up to 30% more

(4). Up to 40% more

(5). Up to 50% more

(6). Up to 60% more

(7). Up to 70% more

(8). Up to 80% more

(9). Up to 90% more

(10). More than 90%

Question I:      If the median US income is $51,000, how many new jobs are required to deliver the required tax revenues to replace the taxes lost to the rate-cuts?  How many to cover Debt Reduction and Infrastructure?

Answer: Rate-Cut: ? ;  Debt Reduction + Infrastructure:  ?

(1). Less than 10 M

(2). Less than 20 M

(3). Less than 30 M

(4). Less than 40 M

(5). Less than 50 M

(6). More than 50 M

Question J:    Do increased US-based jobs increase or decrease US international trade?

(1). Increases

(2). Decreases

(3). Has no effect

(4). It depends on the jobs

Question K:   Do increased US-based jobs increase or decrease trade among all other nations excluding the US?

(1). Increases

(2). Decreases

(3). Has no effect

(4). It depends on the jobs

Question L:    Do the types of US jobs matter?

(1). Yes

(2). No

ANSWERS:

Answer - A:  5,  It’s 4.7% from Bureau of Labor Statistics

Rationale - A:      This is basically a return to the 2007 pre-financial crisis level. Note: this is below the 5.8% average from 1948 to 2017, so its reach a level that would be indicative of what would be expected of moderate economy.

Answer - B:  4. Monthly jobs added would have to be 6.1% higher than the last seven years’ average.

Rationale - B:      Starting in December 2009 (after the ‘great recession’ job-losses bottomed-out) the jobs added averaged 196 thousand per month. The rate required to add 25 M over 10 years would be 2.5 M per year or 208 thousand per month. Since 208 / 196 = 1.061, jobs must grow at a 6.1% higher rate than they have over the last seven-plus years. That increase is 1.44M jobs over 10 years, or an additional 12 thousand per month.

Answer - C:  6.  In June of 153 the US reached 2.5% unemployment.

Rationale - C:      The 2.5% in June 1953 is viewed as the lowest recorded unemployment since records have been kept on a comparable basis (1948 to now). There was an estimated unemployment level during World War II in 1944 of 1.2%. This required the US and the rest of the world being in an all-out war production situation. It may not be practical to view reaching that level without being in a comparable situation, which may not be worth achieving that goal.

Answer - D:  5.  An Average taxpayer would incur an additional $3,230.00 on their tax bill.

Rationale - D:      This equates to an additional tax rate of 6.3% on incomes (Ave. Income is ~$51,000.00). If you consider that some individuals don’t earn the average or pay taxes, then the costs to those above the average pay even more. After ten years, the $19.5T Debt will be $13.7T. These estimates were based on the interest rate on the Debt being the current low 2.2%, if it increases with an improving economy and grows to a projected 4.4% the Debt remaining after 10 years will be $15.7T.

Add in 25M new jobs beginning right now and the additional tax rate is 5.4% or $2.75K.

“Houston, we have a problem!”

Answer - E:  3.  The average corporation would owe an additional $950K.

Rationale - E:      The corporate current effective average tax-rate of 22% would become 29%. And as with the individuals, the corporations would experience the same disproportionate shifting of burden. If they are above average earners the amount increases.

The 25M new jobs will have some impact on Corporations, but it’s will depend upon how many more corporations there would be. Regardless the general impact will be comparable to the individuals.

“Danger! Danger! Will Robinson.”

Answer - F:  4. 

Rationale - F:      The current Bureau of Labor Statistics says the unemployed count is ~7.5M

Answer - G:  5.  Approximately 45% more added to today’s budget would be needed.

Rationale - G:     The Debt repayment and Infrastructure plus the $550B in Revenue shortfall would be about $1.6T or just under half the budget. This may be a problem for those who want to reduce Federal spending on a dollar-for-dollar off-set basis, particularly is they want to add $54B to Defense and not touch Social Security and Medicare and just a few other things. Over 75% of the budget is for stuff that isn’t really discretionary. So even if those items can be reduced it won’t happen quickly or easily; and most importantly there is no way that politicians are competent to do it intelligently.

Answer - H:  Current Budget: I = 4, C = 9.  Debt Reduction & Infrastructure: I = 5, C = 7.

Rationale - H:       Dropping the Individual rate by 5% (effective rate of 14.96%) requires an Average Individual Income level of $68K [an increase of $17K over the average $51K amount – 33%). Reducing the Corporate rate by 10% (effective rate of 12%) requires an Average Corp Income level of $1,744K.[an increase of $790K over the average $952K – 83%].

Now adding the Debt Reduction and Infrastructure spending on top of the current budget would require the average Individual income to rise 47% an additional $23.9K on top of the $51K; and average Corporate incomes (taxable) would have to increase $64.4% and additional $612.5K on top of the $951K.

Now we could add 25M jobs, and leave all the other salaries as is. These individuals would have to earn on average.

Answer - I:  5.  Rate-Cut: 48.1 M new jobs; Debt Reduction + Infrastructure:  67.4 M new jobs.

Rationale - I:        A reduction in the Individual tax rate of 5% (20% become 15%) would need 48.1M new jobs to replace revenues for the current budget.

The number of new jobs needed (at the $51K level) for Debt Reduction and Infrastructure would require 67.4 M new jobs. This would make employment

The net is that significant new revenues are required to deal with current Federal budget demands, and even more for accommodating Debt Reduction and Infrastructure spending. Jobs is a way to attain these revenues, but the number of jobs required may be a challenge.  This would require significant employment of individuals under 15 and over 65 years old.

Answer - J:  4

Rationale - J:       I assume everyone got this right because this should have been easy to answer. However, that doesn’t mean that you know much about what will happen, because the impact of a change in US production (jobs) is excessively hard to predict in advance of the impact on trade and consequently upon US-based jobs.

Consider how you would determine the impact from the following scenario on US jobs.

Assume that US brand automobiles must be made in the US. Since this is not true for all brands or models, this would clearly increase jobs in the US. However, not all cars made in foreign countries are imported to the US so is the requirement that it must be made in the US if it sold in the US? If that’s the requirement then would cars to be sold in foreign markets be made here also or in separate plants overseas? Would the cost increase domestically, how about internationally? Does that change the sales level, profitability, and thus feedback onto the jobs? What about parts and components for the manufacture? Is the US job for everything or just the ‘finished’ product?

And this isn’t even a difficult scenario. It doesn’t include impact on other industries because of the impact on the automotive industry. Like would trade in agriculture change because of change in automobiles?

There is no doubt that US jobs are important and necessary to the US economy, but if the jobs don’t lead to a more productive competitive outcome then the job could be a step backwards.

Answer - K:  1

Rationale - K:      Because the US’s competitive position is constrained by a self-imposed requirement of domestic production on a number of industries, the competitive opportunities for other nations would promote opportunities at the expense of US industries. It’s not that the US can’t have a trade environment and a jobs environment that are beneficial to the nation, it’s just that it doesn’t result from a ‘simple-minded’ edict that ‘this’ and ‘that’ must be manufactured in the US. There are much more effective and profitable ways to create jobs in the US than through a popular ‘wishful’ thinking policy.

Answer - L:  1

Rationale - L:      I presume that virtually everyone knew this. Who would want to do those jobs that no one would even do in the US, or that would be so expensive to be done in the US that it would be so uncompetitive no one would buy the product. I think Milton Friedman would advise us to pursue jobs that we are more competitive at doing than a foreign entity could produce at a lower price to the nation. He would also tell us to pursue jobs that will be key to the future. And, lastly Milton would strongly advocate, as he did consistently through his life, that the government doesn’t spend money as effectively as individuals.

A governmental edict on how businesses and the economy are to operate is a ‘well intentioned’ path that often leads to bad outcomes. What’s often lost in this last piece of wisdom is that whether the government’s edicts are stated to be imposing government on industry or removing government from involvement in industry, the government is changing the factors that control the economy. The results of those changes do not have to, nor usually do, result in the outcomes that the government intended, wanted and can accept. Unfortunately, the nation will receive the consequences of governmental decisions based on the laws of physics, the principles of economics, and the decisions of other nations despite the ‘wishful’ thinking of our politicians.