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The Public Policy
Government vs. Production
Numbers don’t lie: America’s been heading in the wrong direction for at least the last fifty years.
Impose the world’s highest corporate income tax rate, and we can expect the result will be too few corporations and too much government.
“The United States may soon wind up with the distinction that makes business leaders cringe — the highest corporate tax rate in the world,” wrote New York Times reporter David Kocieniewski last week.
“Topping out at 35 percent, America’s corporate income tax rate trails that of only Japan, at 39.5 percent, which has said it plans to lower its rate,” reported Kocieniewski.
Include additional taxes imposed at the state level, and the corporate tax rate in the U.S. jumps to more than 40 percent in 19 states.
Leading the pack are Iowa and Pennsylvania with corporate income taxes, respectively, of 12 percent and 9.99 percent, creating the nation’s highest barriers via taxation to new corporate investment and associated new jobs.
Similarly in relation to obstacles to business expansion: Create an education system that produces four times more college graduates in social science and history than in engineering and computer science, and we can expect to see too many American firms unable to compete in the global marketplace and too many academics writing papers on America’s lack of competitiveness.
In “We’ve Become a Nation of Takers, Not Makers” Stephen Moore, senior economics writer for the Wall Street Journal, reported that in the U.S. today, “there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million).”
In short, we got better at expanding bureaucracies than manufacturing cars, better at making rules and regulations than producing clothes or oil.
It wasn’t always this way. The world’s first automatic transmission was invented in 1904 in Boston. The year before, Orville Wright became the first person in history to be a passenger in a machine that had raised itself by its own power into the air in full flight.
In 1960, the aforementioned 2-to-1 ratio between government employees and manufacturing workers in America was weighted precisely in the opposite direction, as Moore reported, with “15 million workers in manufacturing and 8.7 million collecting a paycheck from the government.”
Add to manufacturing the other key sectors in the American economy where people still make something tangible, something touchable, and the total employment still doesn’t equal the bloated payroll levels in the government.
“More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined,” explained Moore.
“Even Michigan, at one time the auto capital of the world, and Pennsylvania, once the steel capital,” reported Moore, “have more government bureaucrats than people making things.”
Well, not exactly. It’s not fully accurate to say that government bureaucrats aren’t “making things.”
They made a federal anti-poverty program that’s produced a price tag of more than $13 trillion since the mid-1960s, plus trillions more at the local and state levels.
About the Author
Ralph R. Reiland is the B. Kenneth Simon professor of free enterprise and an associate professor of economics at Robert Morris University in Pittsburgh.
Letter to the Editor View all comments (34) | Leave a comment
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jpp| 5.10.11 @ 6:54AM
That's why most member of both parties are really liberals - they are statists: they simply want to perpetuate the bureaucracy, the state, the rule by lawyers.
In the past 30-40 years, this growth of the state and it's PR department, the MSM is all we do anymore.
The ever pervasive media, saturates all of us with tales of how life is unfair, how some don't have as much "stuff" as others, yadda, yadda, yadda. And thus government responds by advocating more redistribution of wealth in the name of "social justice" and of course, with the objective of obtaining political power for those politicians who constantly advocate these ideas.
I think its all because we have moved from our families being the primary thing in our lives to the "greater community", which like I said, may be because of constant 24/7 media.
That's why we fight "liberal wars" like Iraq and Afghanistan. If mooooslims are killing mooooslims, why should I care? In fact, I'm in favor of that!
Other than revenge for 9/11, our wars are liberal because we fail to acknowledge the real enemy - Islam. So instead we fight in order to "dampen down violence" or to fight "extremism" and other nonsense words.
Bob K.| 5.10.11 @ 8:13AM
Professor Reiland,
It must get tiresome writing about our educational system and our corporate tax policies as the sole cause of our economic problems.
Can I humbly suggest that you look at the problem from this angle? Start looking at the Government, Business and Educational Axis with a critical eye.
For too long now we have done nothing about our governmental policies which allow easy outsourcing of our work to companies with cheap labor. Nor have we done anything about the governmental policies that allow the importation of cheap labor from people in the so called "hard" sciences field who have degrees in those fields from foreign universities which are inferior to our higher schools of learning. They compete with our own graduates and will work for much less money because they can't find work in their own countries. (I deliberately have not mentioned our governments open border policy to bring in cheap labor to compete with our own low income populace.) This is about it's policy to keep the wages of high income earners lower.
People with educations really aren't totally stupid. They notice this and they vote accordingly.
I'm beginning to think that business and government like it this way and that the Academy assists them in this endeavor. But then, I am not, like yourself, an economist, which is one of the college study programs I never see criticized as being "soft" and "useless" like many others are.
Yet many graduates with this major end up working for the government in the federal programs you criticize here. Which is not to say that I think we need these programs, nor for that matter the economics graduates that design them either!
What are your thoughts?
Indiana Alex| 5.10.11 @ 9:23AM
If businesses in the high tech field could not use foreign born labor, in or out of the US, they wouldn't be able to compete globally. There are not enough home grown engineers to fill required positions, and the statement about foreign degrees, suggesting they aren't equal to ours.?. Like the US is the cream of the global academic crop?
Rising taxes are forcing companies to cut costs in order to grow profits. Labor is the biggest cost for most companies. In order to lower labor costs, companies are using contingent labor, which in the tech field is mostly non-native, and/or fully off shoring entire projects.
The article seems to point out that all of this is taking place so that companies can continue to grow, while supporting a bigger and bigger government that produces nothing.
PolishKnight| 5.10.11 @ 10:05AM
Kudos to BobK for beating me to the point and Indiana Alex for setting up the pins for me to knock down.
There's plenty of engineering talent that's unemployed here but it's the wrong color and gender: white males plus supposedly costs too much. So big business, which wants to be "profitable" (notice the double quotes), claims that there's a shortage of engineers and demands more H1B's. Then they get a two-fer effect: They save money and meet "diversity" goals. (Ironically, white women and black men who were the primary beneficiaries of affirmative racism and sexism are now left behind. Karma is like that!)
Is any money really being saved? Not much from what I see. The outsourcing is usually run by overpriced VP's and lawyers who get more money than any savings. The code and product produced by the outsourcing is usually so bad that expensive (gasp) white male engineers are required to pick up the mess.
The good news about this is that racist outsourced engineers on H1B's tend to hire each other and so these Harvard douchebags often wind up on the street once they're considered redundant. Haha! Good luck selling that 10 million dollar McMansion you owe 20 million on!
Indiana Alex| 5.10.11 @ 1:15PM
I'm guessing neither of you are in the technology industry.
First off, H1B's are not cheaper than American engineers. Many H1B's in the technology field work for consulting firms, and are generally paid more than FTE's but, for the most part, don't have a comparable benefit package.
If companies have the opportunity to hire a H1B, remember, thier supply is limited by regulation, do you honestly think a competitive business is going to hire the cheaper or the better engineer?
In a highly competitive field, the company that hires the cheaper engineers will lose.
But here's where the off-shore comes in. Companies, for the most part, can only keep contingent labor for 18 months. Most of the contingent labor market are H1B, so after 18 months, a lot of knowledge is lost with the contractor.
If a company chooses to off shore some of it's production, these self imposed restrictions do not exist.
When it comes to making textiles, just about anyone will do. When it comes to engineering if a company chooses cheaper over better engineers, it will not survive.
Dai Alanye | 5.10.11 @ 4:12PM
What incredibly simplistic thinking! Of course companies pay the same salaries to foreign as domestic technical people, but the increased supply holds down overall costs. In addition, the foreign types are probably more docile. I often wonder how many extra millions this policy enables Bill Gates to waste on "charitable" socialistic endeavors.
With regard to any shortage of engineers, let my former boss, Manager of Engineering at one plant of Exceedingly Large American Company have his say. "The problem with too many engineers at ELA Company," he said, "is that they aren't."
Aren't engineers, is what he meant, having been made into "managers," and all too often seeming to have forgot the skills they learned.
Another of the problems we face is that the rewards for not working--unemployment and other benefits--make not working seem more attractive than working. To cope with this we import--legally and otherwise--foreign workers. Not a good long-term situation, my friends.
Bob K.| 5.10.11 @ 6:24PM
It doesn't matter what fields we work in. This is nonsense. Either you support Americans working in American industries or you don't. China has a China First policy and Japan has a Japan first policy. If you believe that the Global Economy (and I reference here your first post)takes precedence over the American Economy then renounce your citizenship and become a Global Citizen and see if you can get work in China or Japan. THAT is what we are competing with and we are bringing in the Globes workers to help put our American workers out of work while China and Japan and the rest of the Far East laugh at us!
George S| 5.10.11 @ 8:39AM
Speaking of the Wright brothers, how would they have ever gotten OSHA approval for the Wright Flyer? Without a federal bureaucracy they were free to develop an idea that a century later would spawn the TSA. It seems the fruits of free enterprise plant the seeds that grow into government intrusion.
Gordon W.| 5.10.11 @ 9:26AM
As I do remember the Wright brothers were a partnership and flew the plane themselves. Meaning OSHA would not have intruded on their practice flights.
Bill Hussein O'Stalin| 5.10.11 @ 8:58AM
It is much more difficult to invent a product than it is to invent a government agency.
There are many government agencies steeped in corruption and inefficiency, yet somehow those agencies are never bought to task.
That would appear to suggest that it's Capitol Hill who really needs a fine tuning. The legislators create all these agencies yet never demand efficiency or satisfaction.
Congress's concept of oversight is to create toothless Inspector Generals who are often run off after their tepid investigations.
The end result is that the state survives and thrives because Capitol Hill is staffed with complete idiots, both the elected members and their unelected staffs.
Byron| 5.10.11 @ 9:54AM
I think we need to back up and try to reconsider this mega-renaissance that has happened over the last few centuries and especially the last century. Art, science, industry, invention and medicine all took a leap on a literally biblical scale. It was a product almost exclusively of the dreaded and most hated Dead White European and American Males, (DWEAMs), so the whole thing was terribly politically incorrect and no amount of apologizing will ever suffice for this stunning success. Do to this egregious sin we all have to frame these halcyon days as dark, (black as carbon), and hellish. This self loathing is at the heart of the counter offensive to bury productivity. But a country has to produce things of value or beg and borrow from countries that do. This, I think, is where we stand today.
Stormzeye| 5.10.11 @ 10:00AM
Some great companies were started in the US by foreign-born graduates of US and foreign universities. We don't graduate enough math and science professionals because of the poor secondary education system...thanks Teacher Unions. Allowing foreigners to compete here is not the problem. Competition is good for everyone. The reason there is a great decline in manufacturing jobs is because of "productivity". Robots build things. We need people to repair and program the robots. We don't need people to do assembly work. A lot of government work is the last refuge of the unskilled. We must stop enabling this type of "employment" by shrinking government and forcing people to learn marketable skills.
Bob K.| 5.10.11 @ 10:23AM
OK Stormzeye,
Where can one find a list of these "marketable" skills with the salaries they pay listed next to them?
If they exist I think people will line up for the training.
John Navratil| 5.10.11 @ 12:31PM
Bob K.,
"Line up for the training?" Surely you jest. But it is telling that you assume the people need be the passive recipient of training rather than principally engaged in keeping their skills up. Whose responsibility is it, ultimately, to be marketable?
Our bureaucracy gives us the most expensive education system in the world with mediocre results. Is there any reason that people should not be literate in English and Mathematics upon graduation from High School; that means calculus for those entering engineering and, at least, algebra for everyone else.
We have job training programs galore. During the recent budget dust up, I seem to remember 60 separate and overlapping programs at the federal level.
I've been in the programming world for forty years. A lot has changed and I've had to keep up. Doctor's keep up. CPAs keep up with the FASB's and continuing education. Lawyers read slip notes. Engineers constantly read application notes to new devices. Artists explore new media. Even the preacher working from a fairly static dogma must come up with an interesting homily if the flock is not to fall asleep.
I've had to compete with youngsters who sit in their underwear with a Sam's book learning Visual Basic and, after the requisite 21-days, call themselves programmers. I switched into an area where they cannot easily compete. It was essentially a career change.
I don't wish anyone a career disruption, but I cannot prevent it, either. Making it someone else's problem does not help.
Stormzeye has it right. At the very least, move people out of the government so that can stop doing harm. They will either sink or swim. My money is on the swimming.
Bob K.| 5.10.11 @ 6:49PM
Stay on the subject John.
We are talking about government policies of bringing in workers to work for less wages than Americans are paid and the outsourcing of American Jobs in other cases. This is not done by China and other countries that we compete with in your so called "Global Economy." Just what do you think caused the upheaval and reversals in our last election?
Until you understand the basic fact the ALL ECONOMY IS LOCAL you won't understand why people vote like they do here in our Democratic Republic or why China does what it does in it's trade with us.
The answer has nothing to do with education and everything to do with patriotism and national pride.
John Navratil| 5.10.11 @ 7:25PM
Bob K.,
I am on the subject. Let's say we wish to stop cheap overseas labor from competing with American jobs. I'll call it Chinese here, but it is really every other world economy. How would you do it? You could simply say "Buy American" or you can add a tariff to make the effective labor rate match the U.S. labor rate. In order for this to work, you would raise the tax until there was NO revenue from it as there would be no incentive to buy from overseas when you could get it down the block. What have you accomplished? You would have no cheap goods and the quantity purchased would drop. Similarly, there would be no money being exported and a reduction in exports. The effect would be to shrink the all economies overall (this is what a trade war is). While many would like to deny Stolper-Samuelson, I've yet to see a persuasive argument against it.
In the end, you cannot eat patriotism and national pride. This competition is what drives innovation. Otherwise, all we would really have to do to get the American worker on top is raise the minimum wage to $50/hour.
The reason you have a $1000 computer is because it is built in China. I reject your premise that all economy is local. If the American worker cannot compete in this global economy, that is a problem for all of America.
John Navratil| 5.10.11 @ 7:25PM
Bob K.,
I am on the subject. Let's say we wish to stop cheap overseas labor from competing with American jobs. I'll call it Chinese here, but it is really every other world economy. How would you do it? You could simply say "Buy American" or you can add a tariff to make the effective labor rate match the U.S. labor rate. In order for this to work, you would raise the tax until there was NO revenue from it as there would be no incentive to buy from overseas when you could get it down the block. What have you accomplished? You would have no cheap goods and the quantity purchased would drop. Similarly, there would be no money being exported and a reduction in exports. The effect would be to shrink the all economies overall (this is what a trade war is). While many would like to deny Stolper-Samuelson, I've yet to see a persuasive argument against it.
In the end, you cannot eat patriotism and national pride. This competition is what drives innovation. Otherwise, all we would really have to do to get the American worker on top is raise the minimum wage to $50/hour.
The reason you have a $1000 computer is because it is built in China. I reject your premise that all economy is local. If the American worker cannot compete in this global economy, that is a problem for all of America.
Bob K.| 5.10.11 @ 8:32PM
You missed the point again. It is not in America's interest to bring in foreigners to take jobs from Americans nor is it in America's interest to outsource it's jobs, technology and resources to foreign countries.
As for your disregard of patriotism and national pride as an important issue here, I suggest you take that sentiment and the arguments you laid out here to your local municipal governmental meetings and set them out before the voters and the people you elected in your own home town and then tell come back and tell us if all economy is not local!
John Navratil| 5.11.11 @ 6:41PM
Bob K.,
I'll do that when I get back from installing an instrument in Brazil.
I got your point - one which I consider a bit short on economic theory, but I certainly do not think you got mine. It is a simple disagreement over fundamental economics.
Indiana Alex| 5.10.11 @ 1:24PM
Well, Bob, I guess these poor lost souls could do what I did when I was downsized 15 years ago, and found my skills lacking in the new economy.
I looked at the want ads, saw what jobs paid really well, researched what skills were required for those positions, spent what little money I had at the time for the training materials (this is readily available for most skills required in the tech industry, from study to certification), and gave myself an abbreviated crash course, because I needed to work to feed my family.
Of course, in the Liberal mind, people need to be told what to do, becuase they aren't smart enough to figure it out themselves.
I wonder where this mentality comes from?
PolishKnight| 5.10.11 @ 10:25AM
It's funny to hear two sides of dog-eat-dog capitalist thinking on the right:
On the one hand, there's not enough cheap labor here to clean hotel rooms, pick crops, and wash dishes in restaurants. So we need more illegals.
Then on the other hand, there's not enough expensive labor such as engineers so they need more H1B's.
Then they gripe that the socialists are winning elections from unskilled welfare recipients and "crybaby" unemployed engineers.
Yeah yeah yeah, Guys. I know how important it is to not be jealous of Bill Gates and not impede his plan to become a trillionaire and to see us become just like China and India because they're the future. Oh, and support all the wars in the Middle East.
Guys, it's really hard to care when there's nothing in this for me. At least the left promises something to their suckers. Can't you come up with something other than a lot of great low income jobs or the opportunity to become a billionaire by asking my rich dad to fund a startup like Microsoft?
Kurt| 5.10.11 @ 11:17AM
Polish Knight,
There is more than enough labor in the US to do all the jobs you mentioned, but so many are allowed to play the victim card and join the ranks of all the welfare and disability scammers that enjoy a greater lifestyle than a person working at a low or even middle income job! I join the rat race almost every day to make a living and provide for my family and find it appalling that an ever growing number of people are allowed to bypass work for a government free ride! Why work if you don't have to when you can scam the system and do better than many that do the right and moral thing and provide for themselves through hard work? This MUST be stopped if America and her past greatness is to survive and not become a third world cesspool!
RAMIII| 5.10.11 @ 2:12PM
Hear Hear! We have, in fact, engaged the moral hazard and unless we repent it will surely cause our doom. You name it: Mortgage Crisis, Auto Maker Bailouts, Welfare, etc. etc. they all spell the same end.
Take an example from Israel in the OT.
Jeremiah 2:13 For my people have committed two evils: they have forsaken Me, the Fountain of Living Waters, and hewed themselves out cisterns, broken cisterns, that can hold no water.
You may think these things are unrelated to our current situation -- be assured they are not. When we mock and reject our Creator -- the circumstances will mock and deride us -- when it will be too late to change the outcome.
Dai Alanye | 5.10.11 @ 4:52PM
"We don't graduate enough math and science professionals…"
The problem is we don't properly utilize those we DO graduate, a situation worsened by the fascination for degrees many employers have.
"We need people to repair and program the robots. We don't need people to do assembly work."
Robots and similar expensive devices are purchased to avoid the hiring of expensive labor. The fact is we DO need assembly workers--and farm laborers, construction and restaurant help, slaughterhouse workers and all the others whom we replace with foreigners legal and illegal because "Americans won't do these kinds of jobs."
Nonsense! Americans did them in the past. But present government policies make the hiring of Americans expensive, and lures people from the workforce by offering benefits for NOT working. I don't blame the individuals. After all, why put in forty hours in an uncomfortable environment when you can take home almost as much while having time free to fish or pick up cash money for doing side jobs?
Al Adab| 5.10.11 @ 11:36AM
The more we have centralized control of the economy, the worse our national condition has become. We err in attempting to solve that problem through more central planning and law rather than through free markets and the invisible hand. Case in point is the government attempting to tell Boeing where it can and cannot locate a plant. Have we fallen so far that only when our choices comport with government preferences are they allowed? There is a word for such a society and Liberty is not the word.
Nunya| 5.10.11 @ 1:18PM
First things first: We did not become great because of government, but in spite of government. We did not invent planes and manufacturing processes because some government agency designed such, but because we had people that had ideas of their own, and the will to see it done. Government is not an enabler of invention and innovation--it is the enemy of same, no matter what Obozo thinks.
Legions of bureaucrats who have to review and advise on every aspect of a business do not encourage innovation. When OSHA, EPA, FDA, DOT, IRS, and 100 other agencies have to rule on what a business can and cannot do, it stifles innovation and invention. I am not looking to have slave labor and no work rules again, but at some point a government that sucks the life out of an economy must stop. Either that, or the country that the overreaching government is trying to control falls apart.
Our government is too large, and it's growth continues because that's what the ruling class wants. We must cut out those portions that need cutting or face continued loss of liberty with the ultimate end that we become slaves to our own government (which is what the ruling class ultimately wants). USSR, anyone?
Negro X| 5.10.11 @ 11:19PM
Education needs to be reformed along with government, telling students that they are worth X regardless of how stupid they are is ridiculous. Wealth is not an entitlement, you earn minnum wage because that is all you are worth.
Oldefarte| 5.10.11 @ 3:11PM
Ralph's article hits the bullseye! Government is what liberals design as a RELIGION, which extracts taxpayers' hard earned income via their taxiation and redistributes same to their favored indigent class, all purposely in return for their votes at election time. Liberals bed mounting with environmentalists have historically driven our once manufacturing base into foreign countries whose citizens work at cost containable wage/expense levels for manufacturers. This is why we no longer MAKE ANYTHING in this country, and we have labor unions and Democrats to thank for same. We need to recalim our manufacturing base by eliminating all labor unions [as Scott in Wisconsin, Kasish in Ohio, etc are doing with governmental unions], force governments to create tax discounts to manufacturers sans labor unions, create the resulting high paying manufacturing jobs in the process, eliminate/reduce government excess fraud and abuse accordingly, and get back to being a manufacturing country that MAKES THINGS!!!!!!!!!!!!!!
Oldefarte| 5.10.11 @ 3:15PM
PS: Government also needs to provide tax discounts/incentives to community-type colleges or high schools to institute/expand their use of TRADE-TYPE SCHOOLS which will teach not only crafts relative to manufacturing and building things!!!!!!!!!!!!!
cicero| 5.10.11 @ 4:03PM
New game:
Basic premise: All social maladies can be traced to a government program that spawned or subsidized it.
Name the malady - find the government program.
Steve in Pittsburgh| 5.10.11 @ 6:31PM
Exhibit A: The Pittsburgh that Ralph and I know and love.
LV hanadbags | 5.10.11 @ 10:06PM
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Dee See| 5.10.11 @ 11:36PM
NO discussion of these issues is even worth
our time that doesn't focus on the globalist,
'benny violent' EUGENICS and RED China
sellout, set-up and TREASON crowd.
Think Rockefeller/Carnegie/Gates/Milner Group/Rothchild Int./CFR/RIIA/Tavistock
Institute/the men behind the curtains of our
'occult societies' et al.
AS the 'EUGENICS fortuitous' Fukishima
disaster continues exploding we think even skeptics are ready to concede the need for HUAC meets NUREMBERG ---is more urgent
by the day ---by the hour.
chaussures mbt sapatu | 5.11.11 @ 3:13AM
nice job!