Perhaps the most destructive policy of this administration has been the dramatic extension of unemployment benefits to 99 weeks.

We have accumulated debt to give to the most unproductive act imaginable; paying people not to work.  Nancy Pelosi’s now famous idiotic statement that is the most productive way we can spend money because the poor and the unemployed will spend that money and thus stimulate the economy  is so wrongheaded that were it not for her stature it would be foolish to even reply.

It is not a debate of stimulating demand vs stimulating production.   Production is stifled not just by the impending higher taxes, but by the regulations which are approaching European Kafkaesque lunacy.  We have learned that short term stimulus does not stimulate long term growth, especially when we have experienced a dramatic retrenchment.

We would have been better off to stimulate the economy with a broad tax cut that would have stimulated demand and production.  We would have been better off creating public works projects rather than paying people to do nothing.

By paying 99 weeks of unemployment we have not only poured borrowed money down the least productive hole, we may have destroyed the work incentive for millions of Americans, and further created a stigma that will make the most chronically unemployed the hardest to hire.

Steady work is habit that once broken is hard to restore.  With such high unemployment there should not be a single piece of trash on the street, or a single public building in need of a paint job.  There should not be a single unwashed public vehicle.

It fascinates me that in spite of record high unemployment that so many employers seem to have a problem hiring at the low end of the wage spectrum.  Part of this is because of the 40% increase in the minimum wage just before the recessions, and part of this is because of the generous unemployment benefits.  This is not limited to the 99 weeks of unemployment;   it includes food stamps, subsidized health care and often subsidized housing.  A decent job threatens one to lose all of these benefits and it is hard to find a job that pays enough to replace all these benefits especially when computed in after tax dollars.

But the biggest damage is to the expectation and spirit of the worker who now discovers that he can no longer have he has come to expect.  99 weeks is no longer temporary- it becomes expected.  Employers are hesitant to hire those who have been out of work a long time.  As companies have cut back they laid of the least productive and have seen their profits grow on lower volume.  This is a not a reality they are unhappy with.

Work is more than a necessity, it is a habit.  For many Americans who have benefitted from our generous unemployment benefits it has become neither.

John graduated high school.  Being of good character but not being a great student ,  he got a job in contracting starting at $30,000 a year.  He was dependable and was promoted to supervisor. Over thirty years his income grew an average of 3% per year. Thirty years later he made over  $60,000 a year.  Over that period his income grew 105%. He was solidly middle class.

John’s  friend  Paul went to college and got a degree in accounting. He started at $50,000 and over the years was promoted until he finally decided to start his own accounting firm. Over the same thirty years his income grew to over $200,000 a year or about 5% a year.  His income grew 312%.

When their careers started Paul made just 67% more than John, but thirty years later Paul made over 200% more than John. With a 3% annual growth John’s income doubled.  With a 5% growth Paul’s income quadrupled.

Should we be upset that Paul’s income grew so much more than John’s?  Does this mean that we have experienced a surge in inequality that hampers  the middle class?

Should we be happy that John’s income has grown over 100% or should we be critical of a society where the growth in the upper income is so much more than the growth in the middle class income?

A slight difference in the growth of these incomes, 2% a year, accumulates to widen the difference over time.  Is this bad?  Does this make us a bad country?

At a 30% tax bill Paul probably pays more in taxes than John makes.  Is that wrong? Should we contend that Paul is not paying his fair share?

John built Paul’s new office.  Paul does John’s taxes.

Neither John nor Paul is complaining about their station in life.  Why should anyone else?

Gasoline prices are  falling.  On behalf of all of those who blamed the evil oil companies for the high prices I would like to thank them for lowering prices.

The oil business is booming in North Dakota.  Unemployment there is at 3%. They are paying $15 an hour for waitresses,  and strippers from Vegas are going there because they can make much more money- as much as $2,000 to $3,000 a night.  Even better,  the oil available there is reducing our dependence on foreign oil.  If this is new to you, you should ask why so little of this development is covered in the news.

More and more companies are moving manufacturing operations back to the United States, a movement called reshoring,  from China and other overseas locations.

Technology and innovation is erratic.  Technology that changes our lives goes through phases from discovery to growth to consolidation.  The growth in the 1920’s was followed by the lost decade of the 1930’s.  The strong growth of the 1950’s and 1960’s was followed by the lost decade of the 1970’s.  The strong growth of the 1980’s and 90’s was followed by the lost decade of 2000- 2010. We may be in position for a very strong growth and innovation spurt.  Recent legislation has caused businesses and individuals to sit on their cash.  There is plenty of liquidity in the market. The legislative and regulatory disincentive to deploy it is creating a huge pent up demand.

How much of the lost decades were due to normal consolidation of previous gains and how much of it was due to restrictive government and economic policies?  It is debatable.  Perhaps the success of the growth decades made us feel rich enough to support expensive government programs that proved too much to bear during normal periods of consolidation.  Attitudes toward wealth and growth bear a remarkable similarity in the 1930’s, the 1970’s and the first decade of the new millennia.

The lost decades led to major changes in policy that heralded new periods  of growth.  We will look back of the lost decade of Bush and Obama as a gateway to new growth and innovation.  Perhaps the elements of new growth are all around us just waiting to be unleashed.

That is the message for the next election.

One of the rules of the Dodd Frank Financial Reform bill was the cutting of the bank fees charged for debit cards.  I have read much about the financial collapse of 2008 and I do not recall any analyst who thought that high debit card fees had a significant role to play.

I did find many that found that imprudent lending practices initiated by Fannie Mae had a role, but that agency was left untouched in Dodd Frank.

The debit card fee cut was supposed to reduce the fees businesses were charged and thus put more money in the pockets of businesses and consumers. Of course the reduction in fees the bank collected would have a negative effect on bank earnings, which would more than offset the stimulative effect of lower fees.  Shortly after the passage of Dodd Frank Bank of America laid off 30,000 employees.

In order to recoup the lost revenue banks are raising other fees.  Free checking for small accounts is becoming a thing of the past and fees are now being charged to debit card users to make up for the lower transaction fees they are allowed to charge merchants.

But at least the businesses will benefit from the lower fees, right?

Wrong.

Many of the consumers who resist the new monthly fees will switch to credit cards which charge higher transaction  fees to the merchants (but lower or no fees to the consumers) and are not subject to Dodd Frank restrictions.   How will this affect my company?

Let’s assume a transaction of $100, a common size transaction at my company.  If a customer used a debit card they used to charge a flat fee of forty four cents to the merchant. Under Dodd Frank the bank can now only charge me twenty one cents.  But since the consumers can now avoid the new monthly fees by using credit cards instead of debit cards I now pay a fee of 2% or two dollars on that same transaction. (Merchants with smaller average transactions will pay a higher percentage for credit cards.)  Instead of cutting my transaction fees in half they have quadrupled my transaction costs.

Thank you Dodd Frank, you damn idiots.

What this rule has done is to give credit cards a competitive edge.  Visa and Mastercard will make more money, consumers will not.  Since the fees for credit cards are higher this may actually increase income for financial institutions that move more business away from debit cards to credit cards.  To the extent that consumers will just use cash more,  the merchants will save money and the financial company will lose fee income.  Banks will modify their products to make credit cards more like debit cards by using prepaid features.  Your spending on the credit card can be limited to the amount you have deposited in another account.

Businesses and consumers will adapt to the new law, but for the relative few that will reap some benefit many more will experience higher fees and greater inconvenience.

Google's Eric Schmidt

In the Wall Street Journal L. Gordon Grovitz writes Google Speaks Truth to Power.

Excerpt:  (Quoting Eric Schmidt, executive chairman of Google)