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SUPPLY AND DEMAND, NOT TAXES, CAUSES COMPANIES TO HIRE OR FIRE

SHARE SUPPLY AND DEMAND, NOT TAXES, CAUSES COMPANIES TO HIRE OR FIRE

The American economy often seems to be like one of those outside rearview mirrors - the ones that carry the warning "Objects may be closer than they appear."

The image you get, in other words, is distorted.Our view of the economy is distorted by our lack of understanding of all the figures and statistics that we hear. And it is distorted by politicians.

Let me give you a few for-instances.

On top of all the other disappointing economic news last week, on Friday we got the employment figures. Nationally, unemployment went back up to 7 percent, having cheered everyone a while earlier by dropping to 6.9 percent.

Why? Well, Sen. Robert Dole and the U.S. Chamber of Commerce say it is because manufacturers and other business people have been turned to quivering mounds of jelly by the prospect of higher taxes under the Clinton regime and therefore are not hiring any new employees.

I beg to offer an alternative viewpoint. Employment is not going to get much better while we do the necessary job of reducing the deficit. Later, maybe, but not "while."

Others disagree, but it is my observation that taxes, while a source of irritation, are not the defining criterion for hiring workers. Consider this: If Businessman B is told his taxes are going down, would that make him run out and hire more employees? Not unless his volume of business justifies it. Business is the engine of employment, but it is not an eleemosynary exercise. That's one reason salary expense is deductible on Schedule C.

If Company A is getting more orders for the flagellated widgets it makes, and already has its folks working overtime, it can either hire a couple more widget assemblers or tell its customers, "Sorry, we refuse to make any more widgets, even though you want to buy them." Call me old-fashioned, but I still think business hires and fires on the basis of supply and demand more than on a fear of taxes.

But fear is very important in stifling the demand for widgets. When the U.S. consumer started buying stuff last fall, it looked like the recovery might be on. Then he noticed his neighbors were continuing to be laid off, and he stopped buying. Again, taxes are not the decision-makers. Spending is, and spending is held back by fear.

I say Clinton isn't in trouble because he broke promises. He's in trouble because he's tried to keep more promises than we are willing to accept. I am reminded of a old New Yorker cartoon, in which a well-dressed man lies dead on the floor. A woman in an evening gown stands over him, a smoking pistol in her right hand, her left hand held to her head as she says to herself, "You silly fool. What HAVE you done?"

Similarly, many of the 43.8 million Americans who voted for Clinton last fall (and who evidently felt good enough about it to spend money in the last quarter of 1992) woke up on Inauguration Day and said, "What HAVE we done? This guy actually meant what he said about reducing the deficit!"

And they stopped spending, and that is what's wrong with the economy. Nothing devious or mysterious about it. Thank you for your time, and feel free to leave a small donation with the ushers on the way out.