What a field day for the heat
A thousand people in the street
Singing songs and carrying signs
Mostly saying, "hooray for our side"

Sunday, July 17, 2011

The stories we tell ourselves

The certainty argument.


US business are uncertain about the future and so they're keeping their money on the side line? Businesses don't know what's going to happen with regulation, taxes, health care, demand, which way the wind will blow tomorrow and so they're not willing to hire, make investments, buy lunch, whatever?

This clashes with "the stories we tell ourselves" that our business are inventive, risk taking (why we can't tax them, because we should reward risk taking), our brave business men creating jobs out there.

Well, one of these things isn't true (for our larger culture). Either we have brave business people, or ones who are too afraid of their shadow to make a move. IMHO, this is what happens when MBAs run businesses. I'm sure there are some good MBA Management people out there, but they're few and far between.

Then we have the line about "businesses need their profits because they plow those back into their businesses and create growth." Well, businesses have been creating and sitting are large sums of profits. And profits, by their very definition, means that they're not putting that money back into their business (or else it would be "expenses"). What to know how to get businesses off the stump and start putting that money to work?

Tax it.

"Your (the business world) isn't going to use it? We will." Remove loopholes that allow them to horde their cash. Remove loop holes that allow businesses to write of large sums for very little activity. And what will happen? Businesses will spend that cash on the things they should be spending on (R&D, buying/updating equipment, expanding markets, hiring people, etc). And if not, well, they'll help reduce our deficit. Win win if you ask me. But don't tax that money (or keep the same level we have now) and that money will sit.

As a side note, businesses also run out the line about how they found efficiencies and can now do the same amount of work with fewer people, so why should they hire more? This, again, is one of the reasons we shouldn't have MBAs running our businesses. Okay, I've been on this merry-go-round before, so let me help you all out, Skippy? Working your people at the level you are now (higher productivity level without new hiring, investment in new materials, or new equipment means one thing, you're working your people harder) will lead to them breaking. That's not what you want. Because when they break, they break hard. You might not remember why we have the phrase, "Going postal." I do. You may not remember why we have a large Social Security Disability payment (and application process). I do. You might not remember when people would trade jobs every six months because they wanted to find better pay/hours/bosses. I do. This was all back in the 90s after the 92 recession ended and we heard the same argument (why hire when we can do more with less) from the management community.


Anonymous said...

Have you ever owned a business?


Steve Buchheit said...

I'm a freelancer, Cassie. I've also helped manage a studio (because the owner didn't want to/couldn't because she was distracted by her home life).

At the studio, I was also there when the owner cut her salary and took her pay out from the profits (as an S-corp distribution, which, thanks, to the Taft Administration, aren't taxed under the Ohio tax code, and are considered Capital Gains under the federal code, which is taxed lower than income). I also managed a 14 person art department for E&Y back in the 90s. While I didn't have full control, I did have to meet numbers of productivity and manage a budget as well as being the personnel manager. Not to mention my experience with budgets and business as a councilman.

Also, I do know the difference between "Fully Realized Profits" and "Profits Before Expenses". In this case, we're discussing the former, but the companies are trying to confuse it with the latter (they have to disclose these numbers in the appropriate categories in their SEC reports, quarterly and final).

So, here's a link, http://www.washingtonpost.com/wp-dyn/content/article/2010/07/14/AR2010071405960.html Non-financial companies are sitting on $1.8trillion cash (Profits after expenses - or "cash in the bank").

Also, as to "uncertainty", if that was a problem, we would never have gone after new clients. Talk about uncertainty in sinking cash into a project.

Anonymous said...

With your experience, I'm surprised at your comments.

Either we have brave business people, or ones who are too afraid of their shadow to make a move.

It's not either/or. It's both/and. The economy - and frankly, the government and its rules/regs - is not a non-entity in decision-making about business.

Let's go back to light bulbs for a very weak hypothetical, but it works for an illustration. (Pun intended.)

I own Business A. I need to upgrade my lighting in my business. I prefer incandescents for a variety of reasons - my product looks better under them, my fixtures currently work with them, I like them better, what-have-you.

Right now, there's a repeal working its way through Congress. Hey, if it goes through, I get to continue to buy the product I like best. If it doesn't, and I don't want to use CFLs and halogens have some side issues that concern me. LEDs aren't an option because of their poor quality of light.

What do I do?

I sit and wait to see what Congress is going to do. Maybe I go out and buy up a supply, delaying my decision. Maybe I hold onto the cash pending the development of a better light bulb.

You want to tax that money that I'm holding on to for future investment whenever I have to make a decision? How on earth is that a good thing?

Uncertainity is indeed an issue. Maybe it's the MBAs running the show. Maybe it's my uncles in their businesses -not one of them is an MBA, btw - who say "Until I get a clue what's going on with the health care, I'm not doing anything."