December 5, 2012

My Presentation to the CEO Roundtable

Today, President Obama and House Speaker Boehner are making presentations to an organization called the Business Roundtable. According to their web site, they are "an association of chief executive officers of leading U.S. companies." They wield a lot of political and economic influence, so getting these CEOs behind one's deficit-reduction plan would be a coup.

I'm sure Obama and Boehner will each present their plans to avoid the austerity bomb (fiscal cliff), and make the same arguments we've all already heard. But if I had the opportunity to address this group, here's what I would say. I'm not an economist, so I'm kind of talking out of my ear on this, but it would be interesting to see their reaction.

My Imaginary Presentation to the Business Roundtable

Look at this chart:

The red line is the percentage of GDP represented by corporate profits. The blue line is the percent of GDP represented by wages. These days, the word among VC's is that consumer-focused startups are out, enterprise-focused startups are in. You can see why: the enterprise is where the money is.

The only problem is, that blue line represents your customers. 

Take a look at this:

Look at the red line. It shows the change in available disposable income for your customers. It's recovered since the recession ended, but it's still down from the pre-recession high, and on a recent downward trend.

Think about this: Your employees (pointing at random guy in front row) are your customers (pointing at another random guy), and vice versa. If your customers don't have enough disposable income, they will not buy your products. Profits will suffer. Share prices will drop.

There are two solutions to this: the government solution, and the free-market solution. In the government solution, the government raises taxes on your income and your companies' income. The government subsidizes your employees' basic needs, like food and health care, that they can't afford. 

The other solution, the free-market solution, is for you to choose to raise your hourly wages in the U.S. and give people who want to work full-time the opportunity to do so. Your employees will have more disposable income, they will be able to take care of themselves, and the government doesn't have to get involved. As a matter of fact, that would increase taxable revenue while decreasing entitlement spending. And the potential increase in demand would ensure that all of you still have customers who can afford your products five, ten, fifteen years from now.

Either way, you're going to be losing money in the short term. But will that money go towards increased government entitlement spending, or will you allow your hard-working employees to earn it the old-fashioned way? It's your choice.

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