Why Businesses Aren't Investing in the US: CEO

            

             The U.S. economy is still sluggish on its way of recovery from the great recession occurred during 2008-2009. Why? It is because the unemployment rate is still stubbornly remaining high at about 9 percent as compared to the low 5 percent before the great recession. How about Gross Domestic Production (GDP)? If unemployment has still not gotten back to where it was before the recession, should the GDP do the same, right? No, it is not. Indeed, the national real GDP growth rate has gotten back to where it was before the recession.  In first quarter of 2012, the real GDP increased 2.2%. One may wonder if GDP has gotten back to where it was before the recession, why the unemployment rate still could not do the same. There was an answer for such the question from an article written by Bruno Navarro of CNBC on Friday 27^th April 2012 called “Why Businesses Aren’t Investing in the US: CEO.”

            On the article, Mr. Bruno reports the discussion between a CNBC’s host Larry Kudlow and International Paper CEO John Faraci. Indeed, during the discussion, Mr. Faraci explained the reason why businesses are not investing in the US economy. According to him, businesses are not investing in the US economy because consumer spending has been slow thus creating no demand for businesses to open offices or factories here. As the result, no job is created; it is the reason why unemployment still could not drop. Also according to Mr. John, the real GDP has increased well because the country has been able to produce more with fewer employees. That is the reason why while GDP has recovered but unemployment rate has still not done so (Navarro, 2012).

            So, what does it means to Americans and the government? Indeed, the government should create some kind of mechanisms for people to spend increasingly without damaging their future consumption or wealth. One of those is tax. Lowering tax will leave more money for people to spend. Unfortunately, under Obama’s administration, the government has tried to increase tax. Another mechanism the government should do is to encourage population to grow. In fact, like other developed countries, U.S has low population growth rate. Without more people are on the economy, there would be no additional demand for products or services including housing market.  

Click here to read the whole article.

Which Is Fairer: 'Buffet Rule' or 'Romney Rule'?

If watching news these days, it is hard to not see any articles or videos that talk about the 2012 presidential campaign. One of the hottest issues during the campaign has been circled around future tax. Indeed, in September 2011, president Obama announced his “tax reform” that proposes to tax on rich people. On the other hand, his opponent Mr. Romney proposed to “...double down on the tax cuts for the wealthy.”  On the Kudlow Report from CNBC on Friday 13^th April, the topic is continued discussed; this time, it was a debate between Republicans and Democrats on which one between “Buffet Tax” and “Romney Rule” is fairer.

            According to Keith Boykin of Clinton administration, “It’s not about class warfare… [it’s] not about attacking wealth… [it’s] about making sure that everybody’s paying their fair share.” On the other hand, Matt Lewis of the Daily Caller argued that Buffet Tax would damage the country’s economy because taxing on wealthy people who invest in the country and create jobs on the market would discourage them to stop putting their money here. He also recalled the initial purpose of setting low tax on capital gains was to encourage investors to invest in the market, implying that Buffet Tax would go against the very first purpose of capital gain tax. He added: “I feel like Democrats and Joe Biden would rather get revenge and get even with the rich than spur the economy.”

            As first reading the article, I keep wondering about Democrat Keith Boykin’s saying that “[it’s all] about making sure that everybody’s paying their fair share.” But what is a true definition of “fair share?” It is generally true that rich people should pay higher tax to help the society they belong to. However, How much more should they pay to be fair? There is no single answer for it because it depends on different people from different background and income status. Would it be fair if letting the voters answer it by going for whatever the majority of people think? I would not think so. In fact, there are more poor people than rich people in the country, and poor people would like a tax that is as high as possible on rich people. If determining the best answer for what is fairness based on people’s opinions seems impossible, why not leave the answer to the economy? That is, whichever tax plan that may be best for the economy, then it should the fair one. Indeed, as long as the economy is good, everybody would be happy, and no one would disagree with it. If so, Buffer Tax would not be fair. Why? Because it hamper economy recovery/growth by discouraging investors to invest in the economy; without investments from investors, companies could not grow and new firms would not be established neither, means less new jobs would be created. On the other hand, decreasing tax on capital gains would encourage both domestic and foreign investors to invest in the economy, spurring the economy to grow.

Click here to read the article.

10 Signs That Job Market is Improving

On April 11^th, Cindy Perman of CNBC news posted an article called “10 Signs that job Market Is Improving.” Indeed, the article listed 10 factors that signal a recovery of the economy after the recession in 2008. So, here are the 10 factors:

1. Jobs have been continually added. After the last recession which caused job losses for two years, number of employment have been increased continually for 18 months.
2. Companies are not lying off employees anymore. According to the article, “planned layoffs hit a 10-month low in March, down 27 percent from February and 8.8 percent from a year ago.”
3. New jobs are created. According to it, the number of jobs opening (not number of added jobs) has increased 16 percent in February from previous year.
4. Companies also continually plan to hire more employees, increasing 16 percent in March from previous month.
5. The jobs have been increasingly opened in particular cities.  
6. Hospitality industries such as hotel, restaurants, or house services revealed a great increase in hiring, 48 percent in March from previous year.
7. Jobless claims dropped to the lowest 378,000 since April 2008
8. The growth rate of national wage increased 1.4 percent in the first quarter, equaling to the rate at pre-recession.
9. There are still shortages on many types of jobs which wait for perspective workers to acquired required skills. They are usually fall in technology and healthcare industries.
10. People are voluntarily to quit their current jobs to seek better jobs, meaning that there are many opportunities on the current job market which is attractive enough to persuade people to quit their jobs. According to the article, the percentage of employees who voluntarily quit their jobs has risen to 4 percent.

Overall, these factors are all about employment rate and are showing that more and more people have been hired! It is good news because it signals the economy is recovering! Indeed, companies are hiring more employees resulting increase in national income. As the result, consumption is expected to increase as people have more incomes to spend. In turn, it causes companies to produce more, meaning more employees would be hired. The round only stops when companies over-produce. Indeed, at this point of time, we are still very far from over-production as unemployment is still very high; it is still ranges between 8 to 9 percent. Thus, the economy may still recovering/growing during the next few years before finishing its cycle to enter another recession.

Still, how fast is the economy recovering?

While reading the article, I keep asking myself this question. Indeed, after the recent great recession which ended in 2008 as unemployment rate stops rising and starts decreasing, the fact that the market has been recovering seem to very obvious. However, the most important question is how fast it is recovering. Which indicators may appropriately show how fast the economy is growing? It is a tough question that we need to know in order to know exactly where the economy currently is and how it is expected to be in next few years. Unfortunately, the article does not discuss on this issue and thus I could not answer myself this question. After all, academic theory usually suggests indicators such as consumer confidence to be a good choice.

Click here to read the article.

Welcome!

Welcome to my blog!