Allan Meltzer calls it like it is with the sub head on this article:
Let us put our minds together and imagine for a moment, a world in which we ran businesses.
We must buy and sell and add value. We must hire and employ and sometimes even fire. We must take what we have and mix all the depths of our creativity along with every ounce of our passion and most of our effort and life into the raw materials of labor and goods to develop a product. And then we must sell that product for more than it cost us to make it.
Let us say we’ve found that point at which enough people who want it can afford it. That’s something we learned in economics years ago in college when our professors went gaga for a whole semester over these two curved lines and we spent the whole semester trying to figure out where they met.
And we’ve controlled out costs until they are just below that point where the curves of cost and demand meet. That is called a profit. We’re a small outfit and don’t spend too much effort on innovation except to encourage it when and where we can. And so with our costs mostly flat, we can’t really increase the quality or complexity of the product without making it more expensive, which would take us out of that sweet spot in pricing and we’d lose customers as a result.
This is where many small businesses are. This is also where many medium and even a few large businesses are. In fact, most companies who employ most of the people and shuffle the most money around most efficiently are in this boat, right alongside us.
Most businesses don’t operate from malicious greed, despite what Hollywood and the popular culture will try to get us to believe. Most businesses operate with the understand that they can only make money so long as they are making sufficient numbers of other people sufficiently happy.
Some people don’t get this.
Most professors outside of business school don’t get this. And many professors inside business school don’t either. It’s a curse of our amazing educational system that it has attracted and nurtured minds that are as closed to facts of life as any that walk this earth and still remain sentient.
Most people who get into politics and become successful at it are the same, though they are for a different reason.
You get what you ask for and what you deserve. And because many people in America, average Joes and Janes alike, do not get this, politicians take what is called a populist stance, and become whatever they must in order to win a few more votes.
Sock it to ’em, the little man says on the corner. And the big Man, because he wants to keep that little man needing him and thus voting for him, echoes the cry. But when the big Man speaks, things may actually happen.
Regulation, taxation, “fair shares” and “spreading the wealth” all sound so very good to those of us living on the dole or spending too much time gazing up the tall ladder above us filled with so many other people and wishing there were an easier way than taking it one step at a time.
In hopes of making it easier to climb the ladder, and perhaps out of a little jealousy at those who have gotten higher on the ladder than you or I, we subscribe to the notion that the government ought to be the arbiter of the “fair share”, the decider of “enough”. Actually, it’s mostly out of jealousy. We don’t want to climb the ladder, we’re content in our squalor and mediocrity. We just want everybody else to roll in the same mud we are.
So there is the promise of taxation and regulation, making it harder and more expensive to make those products and to deliver those services than it was before. We hope that the extra taxes and regulation will fill the government purses and that we’ll benefit from the largesse, but we’re not expecting to buy a new house based on the unearned raise.
Or maybe we are.
The problem is, instead of helping everybody up the ladder, taxation and regulation only chop the ladder a little shorter. Sure, you’re nearer the top, but only because the top was lowered, not because you’re any higher.
So that company we’re each running in our heads right now, it has the costs balanced carefully with the price to hit that sweet spot where we can attract the most people possible. But now you have to task Sally and Harriet and Jim and Larry to filling out these forms and making sure these reports are run. Why? Because the government decided they know better how to run your company than you do. Except, instead of these forms and reports benefiting you, you’re paying 4 people just to fill out forms and run reports instead of produce goods and improve your services.
That’s dead weight.
You have to spend resources without a corresponding benefit to you. Of course you raise prices but you can’t raise the quality, but now fewer people can afford it. Or you cut quality but keep the prices level, and now fewer people buy it because it’s not as attractive.
You have to lay people off. Now you’ve sloughed off your dead weight onto the general economy. Your taxes and everybody else’s taxes are now paying for the employees you used to pay independently.
That’s the reality of taxation and regulation.
Productive businesses don’t like taxes and regulation, and they’ll seek ways to avoid and minimize their exposure to them.
Now, what about the threat of taxes and regulation?
The threat of taxation and regulation is the same effect as the fact of taxation and regulation, except magnified.
Once the taxation and regulation are in place, there is little the business can do. If it wants to survive it does the best it can to manage costs. Quality suffers, but because it suffers for most other companies too, it’s only the consumer (you and I) who lose out in the crap we pay real money for in the stores. That’s inflation. The same dollar used to by a real sweet whiz bang that is still whiz banging away 20 years later and now that dollar just buys a whiz, and a cheap one at that. But the costs have stabilized and now we just have to keep pressing ahead if we’re going to survive as a business.
When the taxation and regulation are threatened, companies go into protection mode. Any ejectable dead weight is ejected. Any loose operations are cut. Anything that can be jettisoned is jettisoned. And real people are fired. And real lives are hurt.
Just for the threat of taxation and regulation.
It’s not that the businesses are mean and vengeful. In your mind-business you know you’re a good employer. You’re caring and you’ve got a great little family growing out of all the individuals you’ve hired. But with your costs already high and threatening to go higher, you’ve got to let someone go. If you don’t let someone go, you’ll be forced to let all of them go when you’re bankrupt. You have to cut their pay or fire them, there’s no middle ground. And even though they say they understand and are glad to still have a job even if it doesn’t pay quite as many bills as it did, you know you’ve hurt them deeply and they really are upset at you.
Were you a fool for getting into business in the first place?
Those who claim to love the most and care the most and feel the most are often guided by uneducated and ignorant feelings into callous and silly actions with effects that are not silly.
Allan Meltzer has seen silly people’s desires ignored to the benefit of entire nations:
In 1980, I had the privilege of advising Prime Minister Margaret Thatcher to ignore the demands of 360 British economists who made the outrageous claim that Britain would never (yes, never) recover from her decision to reduce government spending during a severe recession. They wanted more spending. She responded with a speech promising to stay with her tight budget. She kept a sustained focus on long-term problems. Expectations about the economy’s future improved, and the recovery soon began.
That’s what the U.S. needs now. Not major cuts in current spending, but a credible plan showing that authorities will not wait for a fiscal crisis but begin to act prudently and continue until deficits disappear, and the debt is below 60% of GDP. Rep. Paul Ryan (R., Wisc.) offered a plan, but the administration and Congress ignored it.
We don’t need feelers and healers at the head of this nation. We need heads, brains, experienced and opinionated people with strength of character and resolve. But mostly, experienced and sound.
When there is a strong plan there is hope. Real hope, not in change, but in the future.
For just as the threat of taxation and regulation stagnate and stifle and strangle and hurt, a sure and steady plan which shows how those in authority will not abuse their power but will shrink themselves and leave to the businesses the running of those businesses and leave to the people the living of lives and leave to the churches the telling of morals and leave to the press, the real press and not these buffoons gasping for relevancy in front of their unblinking cyclopses, the telling of the truth, will result in growth as sure as if that plan were in effect.
So throw out the buffoons who don’t know the bitter end from the over priced breadstick they had on your dime at some gala affair list night. Throw out the scoundrels who’d rather take your child’s inheritance than force their own children to work honestly. Hamstring the bums who prefer the golf course to the desk, the courts to the shoreline, make then 1st term lame ducks, the whole lot of them.
After all, we’ve got businesses to run.