economics Archives - Page 6 of 7

On the National Debt

submitted by jwithrow.

Journal of a Wayward Philosopher
On the National Debt

October 7, 2014
Hot Springs, VA

The S&P is down to $1,953, gold is up to $1,212, oil is up to $89, bitcoin is up to $330, and the 10-year is down to 2.38%.

Looks like the 10-year Treasury rate is still well-corralled for the moment. And gold is still on sale.

Yesterday we examined a few of the traps cleverly hidden for infants coming into the world at this time – prompted by wife Rachel and my expectations of a little girl named Madison set to begin her journey here on Earth within the next few days or weeks. Today let’s look at the overt trap that boldly claims the right to little Madison’s future earnings: the national debt.

It is popular today for politicians to speak out against the national debt and boldly claim that ‘we’ (they love this ‘we’ business) need to balance the government’s budget and begin to pay the debt down. This sounds great and people will vote for you for making such a statement, but there are two problems this leaves unaddressed – one based in economics and one based in morality.

First, the economic problem: the national debt is not $17.75 trillion as advertised. The national debt is actually closer to $200 trillion if you calculate it according to generally accepted accounting principles (GAAP) which require you to record all future liabilities on your balance sheet. Most of these future liabilities that are not included in the official debt figure are Social Security and Medicare commitments. These future commitments are completely unfunded which means there exists no underlying revenue support and no asset backing. The only way these future commitments can be met is if enough money comes into the Social Security and Medicare programs versus going out. Demographics tell us that 10,000 Baby Boomers will retire EVERY SINGLE DAY for the next ten years, however, which suggests that a huge number of people are going to move from being contributors to these programs to recipients.

Oh, and both Social Security and Medicare already run annual deficits.

These politicians must be expecting quite a bit from my little Madison if they plan to balance the budget and pay down the debt with her future earnings.

But they don’t actually plan to balance the budget and pay down the debt. The simple fact is it can’t honestly be done without defaulting on the existing commitments in some capacity. There’s just too much debt and not enough production. Which leads us to the moral problem: this system is incredibly, unbelievably immoral.

Why should anyone be taxed and forced to pay for anything against their will? What kind of system assigns debt to infants from the moment they draw their first breath in this world? What kind of system incentivizes debt, dishonesty, consumption, and exploitation while punishing honesty and production?

My answer: a really bad one.

So did the economic problem lead to the moral problem or vice versa? I am not sure but history does suggest that dishonest fiat money seems to always undermine the morality and stability of society.

I will have more thoughts on that in a later entry. In the meantime be sure to order a copy of The Individual is Rising for a more in depth look at these economic problems, some financial strategies to prepare for the Great Reset, and more.

Focusing our attention back on the debt-trap: how best to prepare Maddie for life in a society that plans to confiscate her future earnings to pay for the immorality of earlier generations?

It is a shame that I have to spend any time at all on this question here in what is supposed to be the “Land of the Free”. The more I think about it, the more I become convinced that education is the key to preparing our children for the world that awaits them.

Not education of the public kind, however. It looks to me like the public schools are setting children up to be victims of the immoral System. The public school system fosters a herd mentality and requires students to subordinate themselves to “authority” at all times. Such an environment is not going to stimulate the creativity and self-confidence necessary to thrive in a society that expects the next generation to pay the debts of the previous. Instead, this method of education is going to condition students to happily embrace their servitude to the System as it pillages the fruits of their labor in the name of the “common good”.

Far better to create an individualized educational experience tailored to Madison’s unique skills and interests. Instead of forcing subjects upon her, why not let her guide her own education? Rachel and I will probably need to do most of the guiding in the early years, but I suspect Madison will be plenty capable of determining her own path as she grows and matures. Enabling self-education in this manner will certainly do a better job of preparing her for adult-hood than the government school system that conditions students to always seek guidance and permission from “experts” instead of trusting their own abilities.

Of course this self-education will need to be blended with social activities as well. Fortunately, one can find all manner of groups, clubs, and activities using a simple internet search these days so I don’t see this being much of a problem. What will Madison like to do? Dance? Aikido? Art? Music? Softball? All of the above?

The world will be her oyster…

More to come,

Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on the Great Reset and regaining individual sovereignty please read “The Individual is Rising” which is available at http://www.theindividualisrising.com. The book is also available on Amazon in both paperback and Kindle editions.

Maddie Coming Soon

submitted by jwithrow.

Journal of a Wayward Philosopher
Maddie Coming Soon

October 6, 2014
Hot Springs, VA

The S&P opened at $1,975, gold is down to $1,190, oil is hanging around $88, bitcoin back up slightly to $327, and the 10-year is checking in at 2.44%. While this wouldn’t be a bad time to pick up an ounce or two of the yellow metal, the 10-year Treasury rate is what’s really worth keeping an eye on. How long can the Fed keep rates suppressed? Some say forever; some say until December. I say “I don’t know”. Assuming the folks who say forever are wrong, what then happens when rates go up? Some say the Fed can manage the increase in a gradual fashion; some say the poor 10-year Treasury has been cooped up for so long that it will blow through the roof once free of its chains. I say “I don’t know” again but I tend to think the latter is probably more likely. And then…

Shifting gears from economic future to family future, wife Rachel is 39.5 weeks pregnant as of today! Coming soon: a little girl. How exciting! We shall call her “Maddie”. With Rachel busy working on her nesting list, I close my eyes and try to catch a glimpse of the future that awaits little Madison.

Look at all those traps.

Heavy metal toxins in infant vaccines? Round-up ready GMO fruits and vegetables? Ouch.

Government-run public school system designed to feed the administrators and instill collectivist ideals in the children? Probably best to steer clear.

Skyrocketing college tuition? Will there even be jobs left in this economy in twenty-some years?

Opening my eyes, I am confident that we have a pretty good plan to help Maddie tackle the college problem: an infinite banking insurance policy paired with a “hands-off” approach. We can fund a life insurance policy for Madison as soon as she turns two weeks old. With an annual premium of $3,000 per year, the policy will have a cash value of at least $60,000 by the time Madison reaches adult-hood. Then we sign the policy over to her and say follow your passion. Want to travel the world? Go for it. Want to start a business? Here’s your working capital. Want to go to college? No need for student loans.

Of course that $60,000 cash value figure is based on today’s purchasing power. I am confident the insurance company will be able to keep up with inflation via long-term investments and sound actuarial pricing on new policies such that Madison’s policy dividends will keep up with inflation also. Or maybe the dollar crashes and the insurance industry has to denominate their policies in gold in order to survive. Wouldn’t that be something! Then we wouldn’t need to worry about inflation because we would be using REAL money again!

Or maybe this strategy blows up in our face… who knows. We examine the Infinite Banking Concept (IBC) in more detail in our book “The Individual is Rising” – you can get it here.

So what is college for anyway? As best I can tell, people go to college to receive a degree that says they went to college. Then they try to get a job where they can sit behind a desk all day. That’s pretty much it. I suspect there was a little more to it years ago (early-to-mid 20th century?) and of course there are some exceptions – especially in the specialized fields like engineering.

Think about it. What is the first thing people say when they go to a job interview? “I have a degree in such and such”. This is supposed to be a strong selling point for the potential employee… but is it really? What does having a degree actually tell you about someone? You can probably safely assume that this person has spent a fair amount of time drinking cheap beer. I don’t know that you can really deduce much else. Doesn’t everybody have a degree these days? Doesn’t the government finance ninety-some percent of those degrees?

Doesn’t sound like much of a selling point to me.

We live in a ‘have’ oriented society – we place a premium on ‘having’ things. A degree, a nice car, a big house, a fancy wardrobe, you name it. We tend to link our own self-worth to what we ‘have’. We shouldn’t do that. Much more important than ‘having’ is ‘doing’. What are you doing to make your life better? What are you doing to make your family’s life better? But wait, there’s something even more important: ‘being’. What is the nature of your character? Are you a kind and strong-willed person? Can others count on you to be honest? Do you understand that your self-worth is derived from what’s within? Do you recognize how powerful and wise you truly are?

Having is nice. Doing is great. Being is essential. Focus on the being and everything else will fall into place. This is the one lesson I hope my daughter learns from me; any other lessons imparted from me to her will be of lesser importance. I also firmly believe it is a two-way street… I can’t wait to find out what she has to teach me also!

Back to the present: looks like I have some tasks assigned to me on wife’s nesting list. It is best not to keep her waiting.

Until the morrow,

Joe Withrow
Wayward Philosopher

Debt Impedes Economic Recovery

submitted by jwithrow.

Debt is nothing more than an obligation to pay for present spending with future earnings.

A little bit of debt used to increase future earnings is a good thing. A little bit of debt used to increase present spending at the expense of future earnings is not a very good thing. A lot of debt used to increase present spending at the expense of future earnings is a good way to make it very difficult for there to be any earnings in the future at all.

At the macroeconomic level, the U.S. has chosen option three. Japan and Europe have done the same.

The great thing about economics is that there is a ‘response’ system built in that maintains a sort of chaotic order in the general market.

When there is significant capital formation within the system, interest rates go down. Decreasing interest rates send a signal that it is a good time to borrow so homes are purchased and businesses expand.

Interest rates then rise as more debt is taken on and thus capital available diminishes. This sends a signal that it is not a good time to borrow so mortgages are paid down and business debt is reduced. This leads to gradual capital formation within the system that will trigger a decrease in interest rates and the cycle perpetuates.

But guess what happens when you have an Ivy League graduate that thinks it is his job to force interest rates lower and keep them suppressed?

That’s right! The market does not receive the proper signal and it looks like it is still a good time to borrow. So even more homes are purchased and businesses keep on expanding.

Then we get the idea that home prices should always go up, stock prices should always go up, businesses should always expand, and GDP should always grow.

And we end up with more debt.

U.S. debt has grown by more than 60% since the financial crisis began in 2008. Global debt has grown by more than 40% in the same time period.

It turns out that a problem of too much debt cannot be solved by taking on more debt.

The events of 2008 sent a signal that it was time to stop borrowing and to liquidate debt but we didn’t listen. The economy will undoubtedly blow up again and the next crisis will be even bigger because the debt is now even bigger.

The only way for the economy to truly recover is for a mass-liquidation of debt to occur. Until then we can expect the Fed to keep fudging the numbers and blaming economic stagnancy on the snow.

We happen to like snow and find it to be much more desirable than the Fed, both economically and ascetically.

The Middle-Class is Fading

submitted by jwithrow.

The middle-class is fading. Fast.

The jobs that have been lost since the financial system teetered on implosion in 2008 have not come back. Those jobs are not coming back. More education won’t bring them back. More laws won’t bring them back.

The government’s job report says that more and more jobs are being created, but guess what? They are mostly low paid part-time or temporary jobs; they are not the middle management jobs in the high rise buildings.

As for why the middle-class is being wiped out, it’s no mystery. This very same scenario has occurred all throughout history. One can look back as far as the time of the Roman Empire and see that there is nothing new under the sun. History rhymes and those ignorant of history are doomed to repeat its mistakes.

You see, every time the currency of the land has been inflated and debased, the middle-class has been destroyed. Inflation transfers value from those who must work to earn currency to those who control the currency supply.

They don’t tell you this in school. They don’t tell you this in college. They don’t even tell you this if you major in finance or economics. They probably don’t know themselves. So most people never understand what is happening. Their paycheck gets bigger and bigger so they can’t figure out why they can never get ahead. They don’t realize that their bigger paycheck is buying less and less. They don’t understand the difference between nominal income and real income.

In Roman times it was the government that controlled the currency supply. The Romans would collect taxes and tributes from citizens and conquered peoples and they would then melt the precious metal coins and add in cheaper metals such as copper to re-mint more coins of lower value. They would then pay the Roman army with these cheaper coins and pretend that they had the same value as before. The general market caught on to this process and began to charge higher prices for food and goods in response. The middle-class was destroyed over time and eventually the economy collapsed. Then the Empire fell.

In modern times it is the Federal Reserve and the other central banks of the world that control the currency supply. They do this by simply creating currency units from nothing and using the new currency as they see fit. They inject some of this new currency into the banking system, they use some of the new currency to buy government debt, and they inject some of the new currency into the IMF and foreign central banks. This directly leads to more and more debt and an increase in consumer prices across the board.

They are printing currency at will so why is the middle-class working so hard for 2% annual raises?

The rules of the game have changed and those unable to recognize this and adjust accordingly will be wiped out with the middle-class – just as has happened throughout history.

Making the Income Tax Fair

submitted by jwithrow.

Well tax season is here once again and we have been hearing a lot about the need to make the income tax system more fair and equitable.

We couldn’t help but overhear a woman’s conversation the other day on the subject matter:

“Did you know that Mr. So-and-so’s tax refund was ten thousand dollars!? He doesn’t claim much of his business income but he claims all of his children, can you believe that!? It’s just not fair – that’s exactly what’s wrong with America!”

And that got us to thinking – maybe she is right.

Maybe we do need a more fair income tax.

After all, some people only pay 15% but some people pay 25% and even others pay 35%! And some corporations don’t even pay 10%!

You know what, we agree with our angry woman. We do need to have a more fair income tax!

We think the tax system should be structured based on our American heritage. Our income tax should foster liberty and justice for all. This is the land of the free, is it not?

Our income tax should make sure that every single American shoulders an equal burden, especially the rich! And our income tax should make sure that corporations pay the same amount as people!

Yes, dear friend, having thought it over more we are one hundred percent on board with a fair income tax.

Now we are not sure what our inspirational angry woman had in mind to make taxes more equitable, but we have thought of a pretty good solution.

Get rid of the income tax completely. Make it 0%.

Now it’s fair!

And now it’s modeled after our American founding principles. How can a man be free if he is not allowed to keep the fruits of his labor?

What’s that you say? How will we pay for all of our government operations?

Easy – we won’t. And we shouldn’t.

Oh, and it’s not ‘our’ government. If it were ours then we would be the boss. Instead, the government tags and monitors all of us at all times.

Mr. So-and-so has the right idea.

The Economy Can Never Fully Recover as Long as This Remains…

By Paul Rosenberg, Freemansperspective.com

When I was a young man, the older men I admired were the independent businessmen. Being a corporate suit issuing orders to underlings never appealed to me, but being a successful man who controlled his own life and business… that did.

Perhaps as a result, most of my friends are independent business people of one sort or another. Not long ago, I had a notable conversation with one of them, during which he said:

You know, Paul, business used to be fun. I’d take my children around and show them what we were doing, and explain the differences we’d make.

I waited just a beat as he winced and then continued:

Now, I don’t want to drag my kids into my business. Every time I move, there are regulations, permissions, forms to file. It takes up most of my time, for nothing. Business isn’t fun anymore. If I could find something else, I’d get out.

And this is a man who has been in his business since childhood, who loves to tell stories about it, and who used to enjoy his work immensely. If this guy is looking for the exit, the problem is dire.

It’s pretty obvious why

I have limited faith in government statistics, but there are a few informative ones on this subject:

The US Small Business Administration (SBA) recently reported that the annual cost of complying with government regulations is more than one trillion dollars per year and has been since 2005.

It goes on to report that big businesses (500+ employees), pay about $7,550 per employee to comply with the regulations. Small businesses, on the other hand (up to 20 employees) pay about $10,600 for every person they employ. And this is just one reason why small, independent businesses are being swallowed up by giant corporations.

Also bear in mind that this is just the cost of compliance with federal regulations. States also impose regulations on businesses. So do most of the county and city governments, especially large city governments.

New rules are produced constantly, and the cost of compliance rises constantly. In the US (and many other places), the cost of doing business has long since become prohibitive.

The Work-Arounds

Clever folks always find ways to get around this insanity, of course. But those ways are extra work and probably help relatively few people.

#1: They get rid of their employees

They find niches in their fields that allow them to escape the endless paperwork, penalties, and senselessly wasted time that comes with being an employer. (If you’ve ever had employees, you know what I mean.)

And what of the workers? Well, some get hired by the few related-industry employers that remain, while others have to take a mind-numbing mid-level corporate job just to pay the bills or get insurance. The rest are living on food stamps, disability, or a dozen other welfare programs.

#2: They go offshore

If your business is not resident where the regulators are, they usually can’t say anything about it.

Not many business people have moved abroad, but lots of them have set up offshore companies and are conducting business on the Internet. These people get their lives back… if they can find a way to make it work.

That is the dirty little secret of offshore companies, by the way: It’s not about escaping taxes; it’s about escaping all that ridiculous, insulting, pointless paperwork. No more spending days crunching numbers at tax time, no filing new reports every time you do something. You just take care of your customers and deliver good product. (Which ought to be enough.)

#3: They pay politicians for protection

Why would anyone donate thousands of dollars to a politician unless they expected to get something in return?

Big businesses pay politicians so that they can make a phone call to get problems that arise fixed. Small businesses can’t afford that, and most small business owners have moral problems with bribery.

Legit Is Dead

Unfortunately, the old “American way” of working hard, conducting honest business, and succeeding is gone, dead, and buried. It may still happen from time to time, but infrequently and off the beaten path.

Not long ago, I found this sign posted on a streetlight in Chicago:

The sign is right – the old “legit” way of doing business is dead. If you want to get ahead these days, you either try to play a game that is rigged against you, you pay politicians to bend the rules for you, or you avoid the situation entirely.

It seems that the best and brightest – the would-be drivers of the economy – are choosing the last option.

What does that say about where things are going?

Paul Rosenberg

[Editor’s Note: Paul Rosenberg is the outside-the-Matrix author of FreemansPerspective.com, a site dedicated to economic freedom, personal independence and privacy. He is also the author of The Great Calendar, a report that breaks down our complex world into an easy-to-understand model. Click here to get your free copy.]

What We Forgot About Free Market Capitalism Part Two

submitted by jwithrow.

Failure is just as much a facet of free market capitalism as success is.

In a free market economy, well managed businesses with desired products and services will succeed and poorly managed business with undesired products and services will fail.

Consumers, when well informed, will make decisions based on their individual preferences; they will either buy the highest quality product at the lowest price for which that product is available or they will buy a lower quality product for a price lower than the higher quality product. Consumers are typically not very interested in paying high quality prices for low quality products.

So, in the free market, businesses must constantly strive to either offer the best product at the lowest price or a suitable product at a very low price. This requires businesses to focus on improving efficiency and decreasing costs without sacrificing product quality. If a business cannot offer competitive products at competitive prices then it will not be in business for very long.

This model aligns the interests of both businesses and consumers and creates a self-regulating incentive structure.

In the free market system, businesses have an incentive to offer quality products to customers at the best price and they have a disincentive to offer poor products at poor prices. While this is a simple representation, the incentive structure is one of the core principals underlying the free market system.

But what happens if businesses are not allowed to fail due to government intervention?

We have seen numerous cases of this scenario in recent years. The “too big to fail” banks were propped up by the federal government when they came to the point of failure. Fannie Mae and Freddie Mac were taken under receivership by the federal government when they came to the point of failure. General Motors was temporarily taken over and propped up by the federal government when it came to the point of failure.

This is moral hazard.

Oh, and we should probably mention that the federal government cannot actually bail anything out with its own capital. To fund the bail-outs, the government has to appropriate capital from the private sector in the form of tax dollars and it has to borrow money from the Federal Reserve that was created out of thin air.

So the business losses were socialized but the profits remained privatized – this is fascism in action.

By creating moral hazard in this way, the disincentive piece has been removed from the system and the incentive model has shifted away from a consumer focus and to a focus on generating high profits with no regard for risk. Such a model is a win-win for the favored businesses and the government cronies that they support. The losers are everyone else as the economy turns to mush.

Coming full circle, failure is a welcome facet of free market capitalism. Maybe not for the companies’ doing the failing, but failure is a force for creative destruction that serves to weed out the businesses that cannot offer quality products at reasonable prices.

This is why it is ridiculous to claim that any company is “too big to fail” as justification for bail-outs. Sure there would be temporary hardship were the major banks to fail, but this would eventually free up capital and clear the way for sustainable banking practices to be implemented.

Feel free to read more on the matter here and here.

What We Forgot About Free Market Capitalism Part 1

submitted by jwithrow.

One of the most important elements of free market capitalism is the price system. The capitalist price system provides information on supply and demand in the marketplace and individuals make business and investment decisions based on this information.

The economic system that America now employs is not free market capitalism and there are legions of regulations in place that distort the market pricing system every step of the way.

The most insidious price distortion is the suppression of interest rates.

Interest rates are simply the price of money. Like everything else in the market economy, interest rates are self-regulated by the forces of supply and demand. If there is a high quantity of capital in the system available for lending then interest rates will naturally be low. Low interest rates will entice borrowers to engage in long term financing – purchasing homes, expanding businesses, etc. Interest rates will then naturally rise as the capital available for lending diminishes. High interest rates are not attractive to borrowers so individuals and businesses will focus more on short term projects. This will lead to increased capital formation within the system which will gradually trigger falling interest rates.

But what happens when a central bank suppresses interest rates and keeps them near zero for an extended period of time? Well, this destroys the entire pricing system and distorts the entire market system.

Artificially suppressed interest rates send a false signal – which is exactly why they were suppressed in the first place. Artificially suppressed rates still entice borrowers to take engage in long term financing but this is a Keynesian trap. The problem is that there is not sufficient capital formation in the economy to warrant the low interest rates and thus there is not a true demand for all of the long term projects undertaken.

This is called mal-investment.

“If you build it, they will come” is a great catch phrase in the movies but it’s just not how the real world works.

Despite what the economics textbook says, there is no such thing as a ‘mixed economic system’. There is simply no room for the suppression of interest rates or the distortion of prices in a capitalist system.

There are only two choices:

Free markets
Central planning

Free market capitalism presumes an honest and functional price system that is not manipulated by a central bank.

Oh, we should probably mention how interest rates are suppressed.

The Federal Reserve creates currency units out of thin air and uses them to buy long term Treasury bonds at low rates. What could possibly go wrong?

By the way, you can read more on this topic here, here, and here.

Distinguishing Wealth from Money

submitted by jwithrow.

At Zenconomics we feel like it is extremely important to differentiate wealth from money. Pop culture and mainstream personal finance relentlessly tell us that the two are one in the same but they are mistaken.

The key to differentiating wealth from money is to understand the difference between exchange value and use value. You already implicitly understand this difference but it is not immediately apparent in our culture today.

Money, by nature, holds an exchange value. You can exchange money for goods and services and the quantity of goods and services for which you can exchange money is determined by the value of your money. But this is all that money is good for – serving as a medium of exchange.

Wealth, on the other hand, holds both exchange value and use value.

You can exchange wealth for goods and services and the quantity of goods and services for which you can exchange wealth is determined by the accepted value of your wealth. Wealth in most forms, however, is not as easily exchanged for goods and services and this is precisely why money plays a vital role in a developed economy.

Unlike money, wealth also holds a use value. You can ‘use’ wealth in some capacity. Take real estate for example.

If you own residential real estate then you can either live in the home or you can rent the home out to a tenant to generate income. These actions both utilize use value. Of course, you can also sell real estate for money which utilizes exchange value.

Maybe your real estate consists of farm land which could be used to produce food. Now your real estate, which is wealth if owned outright, can be utilized to produce additional wealth in the form of food. Now your food has both an exchange value and a use value. You can take your fruits and vegetables down to the farmers market and exchange them for money if you want to utilize the exchange value. Or you can eat your fruits and vegetables if you want to utilize their use value.

It is important to point out that an asset must be owned free and clear of an attached debt in order for it to be considered personal wealth.

If you own a home with a big mortgage on it then you are one financial emergency away from losing the home and thus the case could be made that you do not truly own the home yet. This is not to say that taking out a mortgage to buy a property is a bad idea, but be cognizant of the fact that you will need to satisfy the mortgage before the property can truly be considered wealth.

It is also important to point out that some forms of wealth may hold better exchange value than others. A classic car collection may be extremely valuable to the owner but it may be difficult to find a willing buyer if the owner wished to exchange the collection for money in the future.

To reiterate, money is not wealth.

In fact, the only reason to hold money is to use it to purchase desired goods and services. There is no other use for money.

And if you want to maximize your own wealth, you must wisely use money as a tool to acquire wealth.

**For more of Joe’s thoughts on the “Great Reset” and personalized asset allocation please read “The Individual is Rising: 2nd edition” which will be available later this year. Please sign up for the notifications mailing list at http://www.theindividualisrising.com/.

A Frank Letter to the Homeless Man Under the Bridge

By: Paul Rosenberg, Freemansperspective.com

I see you standing here, asking for help, about once a week. You are always polite, and I respect that. I’d like to do something for you… something that would matter long-term. Giving you a few notes or coins now and then may be fine, but I’d really like to improve your situation more permanently.

In other words, I’d like to give you a job.

I used to hire people, and I especially liked hiring people who had been denied breaks. I did that whenever I could. If you and I could be transported back in time, I’d hire you. And I’d feel good about it, because I think having a job would do you a lot of good.

That fact is, however, that I can’t hire you, and I’d like you to know why.

I used to run my own contracting firm. I enjoyed the work and I liked being able to drive past a building and say, “I made that.” Having employees, however, was torture. I liked having them in some ways, of course – I liked the guys and it made me happy to see them take care of their families with paychecks that I signed. That was very gratifying. But it wasn’t enough, and there are three reasons why:

#1: Making Payroll

My first problem was simply cash flow. I was solely responsible for having enough money in the bank every week, and that could be nerve-wracking, especially when customers weren’t paying their bills on time. It’s not fun to think that a family won’t be able to buy groceries if you can’t collect your invoices.

Still, that part didn’t cause me to give up on employees. It was hard, but so long as my employees were working, we were making money, so there was always something coming in at some point. Somehow, I was able to pull it off.

#2: Being Hated

Over time, some of my employees became jerks. This seemed to grow from envy and from stupid ideas about labor versus management. These guys decided that I was getting rich off of them, and demanded I pay them more – more than they deserved and more than the company could afford.

And the really nasty part was this: It was always the guys I had done the most for who hated me most. And as soon as I sat down with them and explained why I couldn’t pay them more, they started stealing from me.

I fired the thieves, of course, but these experiences really soured me on employees. I had not only given these guys a job, but I had legitimately felt good about helping to feed their families. In return, they hated me, called me names, and stole from me.

By itself, that was almost enough to make me swear off employing people, but not quite.

#3: The IRS

What really drove me over the edge was dealing with the government and the IRS in particular. They were abominable.

I had to file forms with every payroll, and if anything on them was wrong, they penalized me – heavily. And if I paid them a single day late, they penalized me – heavily. And if they said I did something wrong – even if I didn’t – there was no way to change their verdict. Reason and evidence simply didn’t matter.

I eventually talked to a tax lawyer who explained the situation to me. He said:

Forget about fighting, Paul. There is no ‘innocent until proven guilty’ in tax court. You’re automatically guilty, and you have to try to prove yourself innocent… which is very hard and very expensive. Just pay them. I know you hate that, but you have no other choice. Fighting them would ruin you.

It wasn’t just the money that got me about this – it was that they were nasty, arrogant, heartless tyrants. Having the facts on my side didn’t matter. Intelligent arguments didn’t matter. Either I paid what they demanded or they would hurt me worse.

In many ways, it wasn’t much different than the local gang of street thugs demanding protection money.

So, that’s why I can’t hire you: Having employees locked me into a single role in life, that of a despised slave. When I finally realized that, I walked away.

I was lucky that I had the ability to move into specialties and to thrive in difficult niches; other guys probably couldn’t have.

So…

What I really want you to know is this:

I’d like to help you. You deserve a chance at a decent job. I’d like to be the guy who gave it to you, but the system demands that I must live as a slave in order to do so. And I won’t do that.

I very much wish that things were different, and I feel sorry every time I drive by that I can’t hire you. But I would never ask anyone to live as a slave, and I won’t live that way myself.

I wish you well, and if life in these parts should ever pull back from the present reign of oppression, I hope to run into you. And on that day, I hope to either hire you or do business with you.

We would both have much to gain from it.

Paul Rosenberg