How to Cut Unemployment in half by 2017

The Crisis and the Proven solution

The recovery of jobs from this recession has been very slow because President Obama increased spending (nearly $1 trillion on stimulus),  raised taxes(Carbon tax), and raised business cost ( Obamacare).  President Reagan also inherited an economy in deep recession and growing unemployment. By contrast, he cut non-Defense spending, lowered taxes, and reduced business cost. The graphs below shows that Reagan’s policies created four times as much economic growth  as Obama, and cut unemployment three times as much^[1].

Obama’s three “solutions” to unemployment were tried by Presidents Hoover and Roosevelt from 1930 to 1940. Here is what Roosevelt’s Secretary of the Treasury, Henry Morgenthau, said in 1939:

"We have tried spending money. We are spending more than we have ever spent before and it does not work. … I say after eight years of this Administration we have just as much unemployment as when we started. … and an enormous debt to boot."^[2]

The idea that we can spend ourselves out of recession was invented by the economist John Maynard Keynes and is the unquestioned dogma of Obama’s economic advisers like Larry Summers and Paul Krugman. They have blamed slowdown of growth in 2011 on Republican spending cuts, but in fact spending has actually increased by 5 percent^[3]. Four Presidents; Clinton, Reagan, Kennedy and Harding have faced high unemployment. They all cut unemployment by reducing taxes and non-Defense spending. Presidents Kennedy said:

“An economy constrained by high tax rates will never produce enough revenue to balance the budget, just as it will never create enough jobs or profits.”^[4]

Obama wants to further increase taxes on those who earn $250,000 per year and has said that “Only a few percent of small businesses make more than $250,000 a year.” The problem is that these small businesses create nearly two-thirds of all  new jobs in America,^[5]   and most of their profits are reinvested in the business as seed for growth to invest in new products, new inventory, new facilities, new equipment, all of which stimulates demand. Taxes on small business must be reduced to 10 percent. Obama must not eat these seeds, for their fruit is 15 million new jobs. The uncertainty in taxes, the unknown cost of Obamacare,  cap and trade Carbon taxes, along with myriad other anti-business policies, is causing businesses to sit on $2 trillion in cash rather than invest.

Why do Obama and his economic advisers continue to pursue an economic dogma that has always failed? As the late Irving Kristol once said:

 “It takes a PhD in economics not to be able to understand the obvious."

Bringing Manufacturing Jobs back from China

Over 2.9 million American jobs have been moved overseas in the last decade primarily due to excessive American taxes on companies. But it is possible to bring all those jobs back and more if we reduce taxes on business and reduce useless regulations. Motorola was losing money on their computer board operation in Phoenix and moved it to China where it continued to lose money. They then moved it back to Phoenix and applied the waste reduction method known as Lean Six Sigma and made it profitable, creating 1,500 American jobs. We can induce more companies to follow Motorola’s example if we fix our tax policy. Lean Six Sigma is described in the six books Mike George wrote on the subject

Creating the incentives to bring the jobs back to America

Businesses in America pay 35 percent taxes compared to an average of 22 percent for the seven biggest economic powers. A business is given money by investors to earn the highest return.

We need to reduce corporate taxes to 20 percent to make America competitive. A lower corporate tax would help put millions of Americans back to work, which will by itself generate tax revenue. Tax revenue grew by fifty percent from 1995 to 2000, driven solely by strong growth. In just two years, from 2004 to 2006, tax revenue went up by nearly twenty five percent.^[6]

But to bring back manufacturing, companies will have to invest in factories, equipment, etc. Companies are sitting on $1.2 trillion in cash which they earned overseas and have already paid foreign taxes. Under current tax law, they must pay 35 percent tax if they bring this money back to America. We must reduce this tax to the zero.

But we must also create an environment where new companies who will bee leaders in the technologies for the 21^st Century can find capital to grow. Silicon Valley is the result of a single company, Fairchild Semiconductors, which was established by executives who would one day found Intel and spawn more than 60 other high tech companies which created Silicon Valley. These companies were able to start with just an idea and then make a public offering of stock to get the capital to grow. This is no longer possible. Sarbanes-Oxley imposes accounting costs of millions of dollars a year on even small public companies making it impossible to go public

Congress defeated the “Cap and Trade” Carbon emissions law, but the EPA is implementing it based on Obama’s Executive Order. Many scientists, including Nobel Prize winning Physicists, say that the data does not prove that global warming exists and is man made^[7]. Nevertheless, the EPA will impose unknown costs possibly totaling hundreds of billions of dollars on business to no productive end. It is time for a moratorium on business regulations. Sarbanes-Oxley, Dodd-Frank and Obamacare must be repealed as they make it difficult for small business to hire and get loans.

Finally, American education is failing to produce graduates who can work in manufacturing or create the next great company. Americans used to score near the top of international tests in Math and Science and are now near the bottom^[8]. Misbegotten Federal programs like “Race to the Top” do not even set a goal of “racing to the top” of these tests. This must be the overall objective of education so that we can end unemployment in America.

Conclusion: if we start in 2013, we can reduce unemployment to less than 5 percent just like Clinton, Reagan, Kennedy, and Harding. Or we can stay on  Obama’s path of Hoover and FDR and suffer ever higher unemployment.

Michael L. George is the Founder of Strong America Now and retired founder of the George Group which applied the waste reduction method known as  Lean Six Sigma to Xerox, Caterpillar, ITT, Alcan, Eli Lilly among other Fortune 500 companies, as well as the US Army and US Naval Aviation,. The George Group was sold to Accenture in 2007. Mike also founded International Power Machines which was sold to Rolls-Royce in 1984. He earned a BS in Physics from the University of California and an MS in Physics from the University of Illinois.

The author wishes to thank Professor Alain Enthoven of Stanford University and Karen Rago, Executive Director of Service Lines, University of California San Francisco Medical Center for many useful discussions and criticisms.

Join Strong America Now and sign our pledge