Thursday, March 26, 2009

Why There Will Be No Recovery

by T. Doom Pickens

The childish and irresponsible behavior of Congress and the Administration last week has disintegrated what little remaining trust any prudent, ambitious business owner or entrepreneur might have in the relationship between the government and the private sector. Within a matter of weeks a feckless House of Representatives first enacted a law specifically permitting bonus payments and subsequently, in response to torch-bearing mobs sanctioned by our President passed a measure to target and punish the recipients of the very same bonuses they themselves authorized. Regardless the form this legislation may take if ever enacted into law, the fact that it could have even been put to the floor for a vote is chilling to any who value their liberty or the free market.

While I join most others in questioning the competence of those at AIG who had a hand in its demise, I have even more serious doubts about the judgment of any who would choose to remain under the de facto directorship of 435 members of Congress who have little if any experience at managing any enterprise or even reading and comprehending their own legislation. The American people are now major, if not majority stakeholders in these gigantic failing institutions and no employees with the competence to rescue a return on our investment would submit to the indignity of rule under such an abusive, capricious employer. We should take no comfort in having our investment in the hold of a conservatorship crewed by those with “no place else to go”.

If I were a patriot like Mr. Liddy who came from retirement to toil at this endeavor for no pay and I was subjected to the same self righteous, opprobrious, prosecutorial examination at the feet of one of the principle architects of this financial disaster I would have considered it even more effective and patriotic on my part to have submitted my resignation to him personally and publicly on the spot. “Mr. Frank, with all due respect, take this job and shove it.” I suspect that many who remain after having the bulk or all of their incentive pay removed, confiscated or extorted from them under threat of personal exposure to public wrath by Mr. Cuomo will put most of their energy into tweaking their resumes, making sure the desk blotter is properly aligned and sharpening their pencils down to the eraser.

This unprecedented assault, this bill of attainder, an imperious government targeting it’s wrath upon a select group of law-abiding citizens, has doused the fire of ambition and is in danger of extinguishing what little glow remains in the coals of this entrepreneur and businessman, and it will have the same chilling effect upon countless thousands of others upon who the citizens at large and their economy will depend for 80% of employment opportunity and economic growth.

Once the government decides that individual compensation or wealth, whether deemed to be justifiably earned or not, is somehow the property of the state, there can be no distinction between employees of enterprises that receive more than a certain amount of TARP money and individuals of any description who merely reside or conduct business within its jurisdiction and who are unfortunate enough to enjoy success worth confiscating.

Where does it stop? Today’s tax break to stimulate growth is tomorrow’s raison d’ĂȘtre to punish any success that might inure to those who take advantage of it. In the insatiable appetite for what little taxable income or assets will remain after trillions in deficit spending, rampant inflation, lower taxable incomes and higher unemployment, almost any who are successful under such irresponsible governance will be deemed to have somehow unjustly benefitted at public expense and the fruits of their success will be returned to the people in a compulsory act of Mr. Biden’s “patriotic duty”.

For example the entrepreneur who raises the capital to develop a wind energy farm, the tenuous economics of which are affected to some degree by the Production Tax Credit and whatever other benefits archeologists may some day unearth from the stimulus package, could very well be targeted for retribution if the project is “unreasonably” successful and profitable in a few years. We already have a situation where it actually costs money for one to donate their entire income to charity, so how much further are we from a special 90% tax on capital gains from any investment that outperforms inflation over the next few years? And why should 90% or 100% taxation be considered the upper limit when there is so much more undeserved reward out there to be taxed? In light of current government rationale a 200% tax on the income of anybody with a net worth of more than, say five million dollars might seem perfectly reasonable, however people like me will always find it unreasonable because we have learned first hand what works and what doesn’t.

I have not been educated in the ivory towers of staid institutions; mine was obtained in the finest two American institutions, the workplace and the marketplace. When my financial statements bleed red ink it is not merely a theoretical or hypothetical result projected on a screen in the classroom, but rather it is a result that causes my banker or the spouse of a dismissed employee to pick up the telephone and project into my ear. After high school I worked for the son of Polish immigrants whose father died in a mining accident, and Frank quit school in seventh grade to work as a mechanic to support his mother and younger siblings. He was an under-educated genius who built a medical equipment sales and service enterprise employing over fifty people and with revenues in excess of $50 million. Every new challenge and evolution in the marketplace, some of his own invention, was ably mastered by his ingenuity, industry, uncanny vision and resolve.

In the seventies this icon of the American experience was under assault… newly formed OSHA inspectors unleashed upon him by striking union organizers attempting to disrupt the familial workplace and having the good fortune to be in the top marginal tax rate, 70% at the time, were enough. But wage and price controls and the rapid increase in federal intrusion, spending and stagflation were the tipping point for him and further industry or risk taking on his part was pointless in light of the meager marginal and emotional returns. After all, he already had everything a person of modest origins could need or want; the homes, the boat, the RV, grown and educated children… and now being an entrepreneur just wasn’t fun any more. He felt that society both needed and despised him.

So, at the vigorous age of fifty-three he sold his business to his largest competitor for what cash they could afford, purchased multiple RV lots around the country near his children and spent his remaining years roving about for months at a time and wintering in Florida. In other words, he “checked out” decades ahead of schedule while he was firing on all cylinders and had so much more to offer, and within a few short years the business he founded no longer existed, but the lesson I learned about the qualities and motivations of the entrepreneur remains.

Those who have read The Millionaire Next Door by Tom Stanley and Bill Danko will understand the value of citizens like Frank, and we need these people now more than ever, many who are boomers dangerously close to retirement and for who “checking out” is even more compelling. We are in grave danger of squandering this huge but seldom noticed or appreciated national resource, and there are far more of them providing a greater proportion of our collective prosperity today than there were in Frank’s time. I now find myself at the same age and facing remarkably similar times as Frank did back then, and like he I now ask myself, “Why should I risk my assets and energy if success is certain to be punished and not rewarded?”

The sensible strategy is to take a break, do some interesting or enlightening consulting for pocket money, sit on a board or two and perhaps write an editorial. I know many pondering the same; other seasoned empty-nesters actually finding the prospect of their businesses being pared back to their earlier romantic roots somewhat attractive… the “mom” half of a mom and pop dry-cleaner or restaurant, her wardrobe and decorating now timeless and complete, deciding to eliminate the bookkeeper or cashier and going back to keeping an eye on things… and him.

The bottom line is, little in the way of stimulus to economic activity or employment at the grass roots, where it is most needed and most permanent, is going to occur no matter how much paper the government throws at the problem, because countless family businesses will “keep it in the family” and others of all sizes as well as serial entrepreneurs like me will hold off financial or sweat equity investments until we see that a majority of our fellow citizens have returned to their senses and decided to be governed by rational people.

It’s not that banks won’t loan us all that fresh money the government is printing, we just don’t need it. This whole problem is very familiar to us and we understand that the solution to a crisis brought on by too much debt can never be even more debt. Many of us have tried that earlier in our own careers and know it doesn’t work, therefore when we see our government proclaim, “Drinks are on me!” we don’t want to be around at the end of the night when the bill comes due and party-goers discover who “me” is.

Am I predicting a doom and gloom scenario? Absolutely not. Unlike those in the political arena who assure us recovery is inevitable based upon history, hope and a professed optimism in America, I do so with much greater certainty thanks to confidence in myself and my brethren, the engine of America. What many seem to overlook is that the starters and producers are, after all, the starters and producers. We have never paid much attention to analysis and predictions based upon complex monetary or economic theory but rather our own nose for good or bad opportunity and when we decide to recover, America will recover. Sure we may be at a numerical disadvantage politically from time to time, but we will always have the upper hand in this game of chicken because it is within our power to live within our means and modulate our success, thus the degree to which we allow ourselves to be punished.

We won’t lose our $30 million homes in the Hamptons because our hedge fund collapsed, nor do we have resumes to polish as few of us have ever needed one. We have paid for our homes, autos and toys, have not forgotten how to do our own laundry and can find our way around the supermarket aisles. We’ll even look out for each other by patronizing our own establishments instead of chains and big box stores, doubling the frequency of our hair cuts, etc., and we can stay in this form of hibernation indefinitely. We’ll be just fine. Eventually, after our fellow citizens endure the “educational moment” they deserve over the next two to eight years and learn that government cannot save them at everybody else’s expense, they will restore an environment of trust within which we feel we can do business and those of us who have not “checked out” permanently will be back in the game, rested, reinvigorated and more successful than ever.