May 25, 2010
Chicago, IL, USA

I woke up this morning to a rather interesting newspaper headline:

“Private Wages Fall in Historic Pay Shift”

The article went on to explain how wages from the private sector, as a percentage of total US personal income, have shrunk to their lowest level in history. In other words, it’s clear evidence that government jobs and entitlement programs are slowly taking over the economy.

I’ve been visiting the United States for less than a month, criss-crossing around 7 states between conferences, a few doctors’ appointments, and seeing friends/family. Yet, my own observations underscore this point.

I’ve met numerous people who are on the jobless roll that have actually turned down employment because they’d rather get paid to do nothing. They make $300/week to surf the Internet all day in their pajamas– where is the motivation to produce?

A recent article from the Detroit News provides some pretty clear numbers on the issue: even in the nation’s hardest hit area, a laid-off landscape worker who makes $12/hour when employed receives nearly as much in after-tax benefits for doing nothing.

Some businesses in the private sector have tried to hire new workers and found that their incentives to work (wages) cannot compete with the government’s incentives to not work (unemployment benefits).

It’s interesting how the social consensus seems to have shifted; in many respects, the stigma of being unemployed is gone (just like the stigma of foreclosure), and the attitude is now “I’m going to milk the system for as long as I can.”

This is troubling. In the United States, many unemployed seem to be totally ignorant of how their benefits are actually funded: the government confiscates wages from the remaining productive workers.

It is as if many unemployed think that President Obama is charging their unemployment benefits to his AMEX card instead… or pulling the money out of his “stash” (thanks to David Galland at Casey Research for providing the audio link).

Don’t get me wrong, I recognize that many people lose their jobs through no fault of their own, and this can be an unfortunate and gut-wrenching turn of events in their lives. But I have little respect for the “milking the system” attitude with total and complete ignorance for where the money actually comes from.

It’s not like anyone on unemployment would go door-to-door demanding of their neighbors and friends to pay benefits so that they can be idle.

But with the government as an intermediary to do the confiscation, many people are more than happy to remain unemployed and woefully ignorant of the source of the funds.

Aside from providing incentives for people to not work, it’s also clear that the government provides incentives for businesses to not hire.

The new healthcare bill, while a clear victory for many people who demand socialized benefits, represents another debilitating tax on small businesses that reduces their incentives to hire.

I also saw an interesting interview recently with Cisco CEO John Chambers; his company has $30 billion of cash on its balance sheet, much of it overseas. Due to IRS tax rules on repatriation of overseas profits, however, Chambers has a strong disincentive to invest that enormous amount of cash in the United States.

As such, his smartest business decision is to invest the money and create jobs overseas rather than bring the money home and create jobs in the United States.

Bank bailouts have also been detrimental for economic growth in the US; the Federal Reserve has loaned major banks hundreds of billions of dollars, effectively at zero interest. The banks can then turn around and buy US Treasury securities, re-loaning the proceeds back to Uncle Sam, at a healthy profit.

Not only does this constitute US debt monetization, but it also provides a strong disincentive for banks to make job-creating loans in the economy.

If the banks had been left alone with their balance sheets in shambles, they would have been forced to roll up their sleeves and start making smarter loans with whatever capital they had left in order to turn a profit.

In that case, the market would dictate interest rates; if a bank only had $100,000 remaining to loan out, for example, businesses might bid the rate up to 20%… but at least private capital would be flowing in the economy at the correct price set by the market.

What we have instead is a strong incentive for banks to generate free profits, courtesy of the government, and not bother taking the risk on business loans which create jobs.

Overall, while politicians talk a good game about creating jobs, their actions only provide strong impediments to a healthy labor market.

With a sticky unemployment rate around 10% (more like 17%), the government’s ultimate solution is to simply bring the unemployed on to the government’s payroll performing unnecessary functions that detract from productivity… this includes all the thugs at TSA and registered sex offenders going door to door for the US Census Bureau.

Unfortunately, as the prevailing trend seems to be increased government control over the economy, the only direction, at least for now, is down. This is a rigged game, and I think it won’t be long now before productive citizens finally realize it… and stop participating.

For many, this may mean leaving the game altogether and heading overseas where they can exist outside of this corrupt system.

It’s true that no place is perfect, but I’m convinced that a well-prepared expatriate can find far greater personal and economic opportunity with minimal disruption and interference overseas… and that is the whole nature of our ongoing conversations.

If you have a personal story that you’d like to share, let me know.

About the author

James Hickman (aka Simon Black) is an international investor, entrepreneur, and founder of Sovereign Man. His free daily e-letter Notes from the Field is about using the experiences from his life and travels to help you achieve more freedom, make more money, keep more of it, and protect it all from bankrupt governments.

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