World Demographics

            The traditional World power structures are being radically altered. The developed countries of the west are struggling to compete with rising powers in the developing world. Much of this struggle is along the lines of natural resources and the outsourcing of cheap jobs, but developing countries have one major natural advantage that the Western world cannot compete with and that is their large and youthful populations. This natural asset is a huge factor in the growth we see in many up and coming country’s. According to the C.I.A Fact book, India has a median age of 25.9 years old, Brazil is at 28.9 years old, Indonesia is at 27.9 years old and Mexico has a median age of 26.7 years old. These are major up and coming markets, countries where jobs are being outsourced to and which are receiving an incredible amount of foreign investment. Besides being young many of these emerging economies most notably China and India have populations that are infinitely larger than the United States, which is the third runner up. Having a large population leads to a large number of professionals and production as a result (even in the face of mass poverty). On the flip side, the traditionally large developed economies have much older populations. The United States has a median age of 36.8 years, Japan 44.6 years and Germany 44.3 years. These countries represent the 1^st the 3^rd and the 5^th largest economies respectively. In terms of sheer number of people the United States and Japan are the only two countries that are in the top ten most populated countries. The gap in workforce is also continuing to rise dramatically. Between 2000- 2009 India grew by roughly 153 million people and China grew by around 70 million. The United States grew at approximately 25 million people, slightly less than Nigeria, Pakistan and Indonesia and slightly more than Brazil. Japan managed a meager 350,00 person growth rate and Russia (which is arguably semi- developed) declined by more than 6 million in size.  The ultimate question is of course, why is this an intrinsic advantage for the developing countries of the world? Having a young population shores up welfare spending, leads to the growth in new manufacturing markets and makes the professional sector more internationally competitive.

            Developed countries are in the dilemma of investing an enormous amount of their national budgets for taking care of their elderly, an investment that leads to no returns. The United States invests tremendous amounts of its GDP on welfare of retirees namely Social Security and Medicare. The Following chart from The Congressional Budget Office shows the increase of spending on Social Security from 1962 to its projections on what spending will look like in 2082 if the system is radically reformed.

           The European Union is not devoid of elderly spending either. Its comprehensive welfare state mixed with its aging population is not sustainable. The New York Times elaborates on the age shift in the European Union,

“According to the European Commission, by 2050 the percentage of Europeans older than 65 will nearly double. In the 1950s there were seven workers for every retiree in advanced economies. By 2050, the ratio in the European Union will drop to 1.3 to 1.”

The graying of Europe has undoubtedly put a massive stain on its resources. The New York Times furthers,

“With the retirement of the baby boomers, the number of pensioners will rise 47 percent in France between now and 2050, while the number under 60 will remain stagnant. The French call it “du baby boom au papy boom,” and the costs, if unchanged, is unsustainable. The French state pension system today is running a deficit of 11 billion Euros, or about $13.8 billion; by 2050, it will be 103 billion Euros, or $129.5 billion, about 2.6 percent of projected economic output.”

Below is a table from CBS and Eurostat on the national spending on Social Security in the Euro zone as it relates to old age.

            As we can see the developed Euro zone is growing older and as a result it needs to designate a higher percentage of its budget to maintaining the so called “nanny state.” Isabel Sawhill co-director of the Center for Children and Families at the Brookings Institution illustrates,

            “A nation that neglects its young is, arguably, a nation without much of a future. The choice is ours. We need to invest more, and more smartly, in the education and training of the current workforce and the next generation, to provide excellent early education for every disadvantaged child, dramatically improve the quality of teaching, and establish national standards for what all children should know. To fund these goals, we need to gradually reallocate public spending from the elderly to the young. Almost half of current federal spending is dedicated to the elderly, and seniors could absorb virtually all-federal revenues in just a few decades. We need to rein in the growth of Social Security and Medicare in order to invest in early childhood education and health programs, some of which have a track record that would make a venture capitalist drool.”

Developing countries that do not have this aging problem are free to spend their money on investments that bring returns like education, infrastructure and research and development.

Malini Bhupta of India Today writes,  “Given that economic growth is being driven by domestic consumption, industries linked to indigenous demand will rebound faster than those sectors and companies indexed to the US economy like the IT services industry.  With the Indian Government planning to pump in $100 billion into infrastructure development, this sector will see a surge in demand for people in times to come. “

Bhupta links a sound infrastructure with economic vitality. Currently India is constructing a 3,625-mile superhighway to link Delhi, Mumbai, Chennai and Calcutta to accommodate all the new drivers on the road. This highway will make trade and transportation across the country both easier and quicker. Ambitious infrastructural projects are not limited to India alone. While China is aging like the United States and Europe its retirement benefits are not nearly as extensive and its youth workforce is several times larger. As a result it has been able to pump money into projects such as connecting its oil pipelines to that of Kazakhstan’s thereby ensuring a steady supply of natural resources. Not all young developing countries are spending their money wisely. As I mentioned before Indonesia is one of the emerging Asian tigers, yet UNESCO Institute for Statistics (UIS) reports that only 1.5 % of its total annual expenditures goes into education. The major point is that these younger countries with less extensive social welfare systems have an extreme advantage in terms of how they can allocate their spending. Whether they utilize this to their full advantage is another question.

            The largest growth in developing countries has been in the industrial sector. Likewise, manufacturing jobs have been on of the largest losses in older more developed countries (China again being the exception in terms of older countries.) 

          

The Economist elaborates in “Industrial Metamorphosis”,

“For the first time since the industrial revolution, fewer than 10% of American workers are now employed in manufacturing. And since perhaps half of the workers in a typical manufacturing firm are involved in service-type jobs, such as design, distribution and financial planning, the true share of workers making things you can drop on your toe may be only 5%.”

Where we have been losing jobs developing countries have been gaining. The World Institute of Development Economics Research (UNU- WIDER) elaborates,

“In other developing countries, such as Brazil, Mexico, India and China, there were early beginnings, but for a variety of reasons, industrialization did not really take off. After 1950 this changed. Most developing countries experienced rapid structural change with large declines in the share of agriculture, and increases in both manufacturing and services. The pattern of structural change differed from that in the past. The service sector was already large in 1950 and its share increased in parallel with that of manufacturing.”

The Service sector and the manufacturing sector are the two largest sources on economic vitality in developed countries. Whether it is in the form a textile mill in Tijuana or an IT office in Bangalore, large, developing countries with youthful populations are becoming increasingly competitive.  The fact that they represent untapped cheaper labor is a big factor, but without the youthful market presence the jobs wouldn’t be moving there. 

In the same way manufacturing is becoming increasingly competitive there has been an explosive growth in the professional sector in many developing countries. In this aspect countries with large populations have the most advantage. With an increase in economic growth the number of college graduates has exploded in India and China.

            Rediff India Abroad elaborates, “ The India Science Report, for instance, shows that India had a total of 48.7 million graduates in 2004, up sharply from 20.5 million in 1991. And while just around 29 per cent of those enrolled for graduate courses went in for science in 1995-96, this is now up to 35 per cent.”

China’s population of current students and alumni is even more impressive.

The People’s Daily Online reports “The number of people in China with at least a bachelor's degree surpassed 70 million, the second highest in the world, according to a report released by the Ministry of Education on May 27.”

            Developed countries like Germany or France will never be able to maintain the number of professionals India or China has simply because of sheer size. As a result of this explosion is secondary education you already seen a growth in industries that has typically been dominated by developed countries.

            If the European Union, the United, Japan and the rest of the developed world want to stay competitive they have to find ways to change their demographic trends. Whether this means attracting more immigrants, cutting services, or proving incentives for children, reform is vital. While the United States is not nearly in as bad of shape as Europe, it still has a larger elder population than our up and coming rivals. Making investments in things that provide no returns will ultimately led to the competitive down fall of the developed world. 

corporate taxes

Nations need to collect taxes in order to generate revenue that provides for needed services. Government’s have an obligation to their citizens to do as much and ensure the general welfare of the populace. However, government’s should under no circumstance implement taxes that stagnate economic growth and creates very little revenue. The corporate tax is the perhaps most destructive tax mechanism we have. This is especially true during a period of lackluster economic growth when businesses need all the incentive they can get to grow and expand.
            One of the principal reasons we should cut the corporate tax rate is that we are no longer competitive with other industrialized nations. Europe is often criticized as not being conducive to business however Europeans have way more reasonable capital gains rates than the United States does.                                                                                                 Daniel J. Mitchell, a Senior Fellow at the Cato Institute writes, “Every developed nation except the United States has reduced corporate rates since the Reagan tax cu such that the average top corporate tax rate in industrialized nations has fallen by nearly 20 percentage points. All European nations—even the bloated welfare states of France and Sweden—have lower corporate rates and generally better corporate tax systems than America.”

The countries that have low corporate taxes have experienced rapid economic growth. Governor Mitt Romney elaborates on the relative success of economies on CNN Late Edition: 2008 presidential series with Wolf Blitzer.                                                                         “We have a roughly 35% corporate income tax rate. It’s almost tied with Japan, which is the highest in the world. Nations like Ireland have learned the game. They’ve put the rate down at half of ours or less and have attracted a lot of jobs. The challenge with a corporate tax cut is that it takes a while to have an impact. It has a significant positive impact over time. It’s probably not likely to have an immediate boost because it takes a while for companies to make investment decisions. But it is a good idea.”

In this response Mitt Romney articulates that while a cut in corporate tax rates would take a while to sink in all and all it is a good long term strategy.

            Besides the global disadvantage a nation has by having a high corporate tax rate, corporate taxes are not an effective way to raise revenue. In addition to the national rate of corporate taxes, states can levy on additionally taxes. Oregon is an example of a state that maintained a low level of state corporate taxes but at the same time had no problem raising revenue.

David Brunori a research professor of Public Policy at the George Washington Institute of Public Policy and Joseph J. Cordes Professor of Economics and Associate Director at the School of Public Policy and Public Administration elaborates,

“Table 1 presents data on the percentage of revenue raised by the state corporate income tax in 2001, along with the actual amounts of revenue raised. Even in states with long traditions of progressive taxation, which would seem most likely to rely on the tax, the revenue gained from corporate taxes is minimal. For example, Oregon, historically one of the most progressive states in terms of taxation, has no sales tax and a history of relatively high personal income taxes. The state raised only 5.7 percent of its tax revenue from corporate levies in 2001.”

            The reason for the inability of the corporate tax to generate substantial revenue is a result of pure mobility. Businesses are always going to move to places were they are able to maximize profits and in so doing appease their shareholders. Consider recent attempts of legislation trying to punish companies who open up shop Bermuda and other well known tax havens.

John Martin of ABC News writes, “Rep. Richard Neal, D-Mass., plans to introduce a bill that would seek to deter American companies from moving to paper headquarters in Bermuda and elsewhere outside the United States.

            I think it's a sophisticated way of avoiding taxes," said Neal, whose legislation would redefine such corporations as American for tax purposes, meaning they would owe their full U.S. taxes anyway.

"Where we are getting ready for a $40 billion proposal to rebuild our national defenses, $13 to $18 billion for homeland security,’ Neal told ABCNEWS, ‘why should we suggest that those who are in the best position to pay [taxes] be allowed to go out of their way to avoid them?’”

            Unfortunately politicians like Rep. Richard Neal are missing the pivotal point that business are not charities and are not intended to act as such. Innovation and quality products are creates when companies are allowed to maximize their profits. Businesses do not have a moral obligation to the American public they have a moral obligation to their employees and their growth, we need to give them incentives rather than patronize them

President Obama's Jobs Plan

            With 10% unemployment monetary policy is being geared towards job creation. Jeffery M. Jones of Gallup writes, “Unemployment now stands alone as the top issue in Gallup's latest update on the most important problem facing the country. Thirty-one percent of Americans mention jobs or unemployment, significantly more than say the economy in general (24%), healthcare (20%), or dissatisfaction with government (10%).”

 

 

Naturally job creation has been a major platform for the Obama administration. But many people have been disappointed by what they view as futile efforts or what they perceive as bad policy all together. The American people haven’t associated legislative successes with job growth or deficit reduction, despite the White House insisting it does both. However, Obama has since passed two significant jobs bills.

The first bill occurred during the middle of March 2010.

Bill Brian Montopoli of CBS News elaborates on the provisions of the bill,  

“The bill includes $17.5 billion in tax cuts, business credits and subsidies for state and local construction bonds, and moves $20 billion into the highway trust fund for spending on highway and transit programs. It exempts businesses that hire unemployed workers from paying the payroll security tax through December of 2010.”

For such a minor bill there was an extraordinary amount of political pandering.  

 Manu Raju & Patrick O'Connor of Politico elaborated on February of 2010 a month before the bill passed,

“At a closed-door White House session, Pelosi expressed skepticism over an administration proposal to offer tax breaks to businesses that create new jobs. And Boehner urged President Barack Obama to abandon much of the Democrats' current agenda on the ground that it's killing jobs by creating uncertainty in the markets. The White House session with congressional leaders was supposed to be a step toward bipartisanship, with a focus on jobs. But Pelosi made it clear that there's disagreement, even among Democrats. “

Obama’s policy on cutting taxes has experienced criticism within the Democratic establishment, from Nancy Pelosi no less. Additionally the Republicans are crucifying his efforts to increase tax credits, subsidies and regulations.

            This political obstacle was seen in the second and most recent jobs bill that has been blocked by Republicans. Patricia Zengerle of ABC News writes,

“President Barack Obama pressed Senate Republicans on Tuesday to pass his $30 billion plan to help banks boost lending to small businesses, blasting the opposition for playing "political games" with a measure he says will help generate jobs. “

            The president was furious and blamed the Republicans for playing political games at the expense of small business, where 60 % of the job losses have occurred. Obama responded to Republican efforts at blocking the bill by stating, "And yet, the obstruction continues.  It is obstruction that stands in the way of small business owners getting the loans and the tax cuts that they need to prosper.  It is obstruction that defies common sense."

            Attempts at constructing monetary policy have become increasingly difficult. This type of political rhetoric is why the favorability ratings of both the Republican and Democrat parties are at an all time low. 

 

President Obama's Jobs Plan

            With 10% unemployment monetary policy is being geared towards job creation. Jeffery M. Jones of Gallup writes, “Unemployment now stands alone as the top issue in Gallup's latest update on the most important problem facing the country. Thirty-one percent of Americans mention jobs or unemployment, significantly more than say the economy in general (24%), healthcare (20%), or dissatisfaction with government (10%).”

 

 

Naturally job creation has been a major platform for the Obama administration. But many people have been disappointed by what they view as futile efforts or what they perceive as bad policy all together. The American people haven’t associated legislative successes with job growth or deficit reduction, despite the White House insisting it does both. However, Obama has since passed two significant jobs bills.

The first bill occurred during the middle of March 2010.

Bill Brian Montopoli of CBS News elaborates on the provisions of the bill,  

“The bill includes $17.5 billion in tax cuts, business credits and subsidies for state and local construction bonds, and moves $20 billion into the highway trust fund for spending on highway and transit programs. It exempts businesses that hire unemployed workers from paying the payroll security tax through December of 2010.”

For such a minor bill there was an extraordinary amount of political pandering.  

 Manu Raju & Patrick O'Connor of Politico elaborated on February of 2010 a month before the bill passed,

“At a closed-door White House session, Pelosi expressed skepticism over an administration proposal to offer tax breaks to businesses that create new jobs. And Boehner urged President Barack Obama to abandon much of the Democrats' current agenda on the ground that it's killing jobs by creating uncertainty in the markets. The White House session with congressional leaders was supposed to be a step toward bipartisanship, with a focus on jobs. But Pelosi made it clear that there's disagreement, even among Democrats. “

Obama’s policy on cutting taxes has experienced criticism within the Democratic establishment, from Nancy Pelosi no less. Additionally the Republicans are crucifying his efforts to increase tax credits, subsidies and regulations.

            This political obstacle was seen in the second and most recent jobs bill that has been blocked by Republicans. Patricia Zengerle of ABC News writes,

“President Barack Obama pressed Senate Republicans on Tuesday to pass his $30 billion plan to help banks boost lending to small businesses, blasting the opposition for playing "political games" with a measure he says will help generate jobs. “

            The president was furious and blamed the Republicans for playing political games at the expense of small business, where 60 % of the job losses have occurred. Obama responded to Republican efforts at blocking the bill by stating, "And yet, the obstruction continues.  It is obstruction that stands in the way of small business owners getting the loans and the tax cuts that they need to prosper.  It is obstruction that defies common sense."

            Attempts at constructing monetary policy have become increasingly difficult. This type of political rhetoric is why the favorability ratings of both the Republican and Democrat parties are at an all time low.