“Journalism is dead in America…”
---Sean Hannity 2009
Journalism may not be completely dead yet. However, the industry in aggregate seems to be dying. Newspapers are in steep decline; and the cornerstones of the craft (magazines & periodicals) are locked in a death spiral. Similarly, local television news programs have experienced dramatic declines in viewership for more than a decade; and revenues for radio stations with all-news formats have flatlined.
The explosion of social media in recent years has undoubtedly disrupted the news and publishing industries. These days, online news sources are a staple for a vast majority of adults in the United States. In fact, 43% of U.S. adults turned to social media, news websites and news apps for political news this past election cycle. In parallel, online media subscriptions grew at an astonishing 300% rate last year.
So why are so many industry bellwethers floundering in an era where content is supposedly “King”? The sad truth is that publishers in aggregate have largely abandoned their tradecraft. Most bought in to the assertion that “the broad opportunities…involve supplying information or entertainment“ while largely neglecting the other two pillars of their art: educating & enlightening their audiences. Additionally, many unwittingly bought into the assertion that their audiences “must be rewarded with deep and extremely up-to-date information that they can explore at will.” Quantity over quality seems to be the manta; and publishers are paying a hefty price for their shoddy craftsmanship.
Make no mistake, the digital publishing realm is a world within itself. Cyberspace happens to be real estate; and publishers failed to fortify their kingdoms when they colonized their online territories. Metaphorically speaking, they entrusted pirates to patrol their waters at the outset. Gradually, the pirates established strongholds within the publishing castles and extorted their naivety. Today, these pirates hold the publishing world hostage; charging those they deem fit a king’s ransom to publicize and distribute their wares to the public at large.
By pirates, we are referring to search engines, social media companies and content aggregators (specifically: the likes of Facebook, Twitter, Google and YouTube). Perniciously, they have a stranglehold on the distribution and circulation of Web content. In parallel, these same companies also control a lion’s share of the advertising market within the online publishing world. Like robber barons of the 19th Century, the tech giants have created monopolistic empires of their own, decimating the publishing industry and leaving behind a wake of public discord in the process.
We will examine the genesis of the present situation in this article. We will also explain why the status quo has become a threat to democracies around the world as well as our own Constitutional Republic here at home. Lastly, we will offer our thoughts on how to best balance the playing field and hopefully restore public trust in our media institutions.
Just the Facts, Ma’am
A free fall within the publishing industry has been evident for years. In 2013, U.S. newspaper circulation fell below the lowest level in recorded history as digital consumption became more mainstream. According to PEW Research, the shrinkage has continued at an astounding rate since then. In 2018 for example, the combined circulation for print & digital daily newspapers in the U.S. fell 8% for weekdays and 9% for Sundays. Sadly, the future looks even bleaker for publishers if present trends continue.
Revenue for magazine and periodical publishers was expected to decline 13.8% in 2020 according to IBISWorld. As revenues from print advertising dry up, digital revenue streams simply are not accounting for the difference. This isn’t surprising given that the bulk of revenues generated through digital advertising (52%) now go to Facebook and Google rather than to the publishers themselves.
Picture cyberspace as a solar system and the World Wide Web as a planet within that system. Now imagine you were a publishing mogul looking to set up shop on that planet. You probably would not dump your wares onto the surface of that planet without understanding and testing the terrain first. Yet, this is essentially what a vast majority of publishers and news outlets did when they launched their online publishing ventures.
The surface of the Web itself happens to be fluid and transparent. Adroit travelers within cyberspace are able to see everything on the surface web at quick glance; meaning that it’s ripe for piracy and theft. Much like the surface of the Earth; most of the solid ground on the Web lies well below the planetary surface.
In aggregate, the Web’s subterranean layers are known the deep web which is often ignorantly conflated with the dark web - the Web’s murky undersurface that is permeated with illegal content. That said, the deep Web is where the bedrock lies. In fact, around 90% of the world’s websites exist within the deep web rather than the surface web. Sites within the deep web are not indexed by the search engines and oftentimes aren’t made visible to the public in general. Additionally, websites within the deep web are frequently encrypted to ward off pirating operations as well as hackers.
When publishers first launched into cyberspace and claimed their domains on the Web, hackers were a clear predatory threat. Consequently, protocols were quickly established within the surface web to deter hackers. Savvy tech pirates on the other hand, were lying in wait. Many of them appeared innocuous on the surface. They had a native understanding of the Web’s subterrain and were often collegial toward publishers. However, business ventures are a combination of war and sport and pirate captains soon prepared their vessels to perform stealth forms of grand larceny within the publishing world.
Houston, We Have a Problem
The original champions of the World Wide Web were long on dreams and big on aspirations. In a 1994 speech to the International Telecommunications Union, then Vice-President Al Gore remarked:
WHere, Mr. Gates fully recognized the viability of the emerging markets as well as their enormous potential for scale. He also implied that social upheaval of some sort would be inevitable as macroeconomic principles played out over time. In those days, cyberspace was much like the North American continent during the 17th century. In effect, the World Wide Web would be an ethereal fountain for new raw materials with computer code comprising the basic elements.
Navigational maps would be required to conquer the terrain. They would be required to link people and institutions together; and to effectively promote trade. Also, library systems would have to be built to warehouse the perpetually renewing supply of maps. Inevitably, something along the lines of the Great Library of Alexandria would need to be built for the public at large to catch on and colonize the Web.
Intuitively, one would think that visionaries and architects devising the National Information Infrastructure would have realized this at the outset and built one into their rollout plan. Yet, it was left entirely up to the private sector to develop, build, and maintain them instead. Consequently, rudimentary libraries sprouted up throughout the 1990s. They are of course known as search engines today.
The first of these search engines was named Archie. Archie made its debut in 1990. That said, it was more of a simple card catalog than an exploratory tool for Web. Archie was followed by W3Catalog and JumpStation in 1993. Jumpstation was the first search engine to combine crawling, indexing and searching all into one package; features which are now industry standards. This innovation was followed in 1994 by Webcrawler; the first tool that enabled visitors to search for any word on any webpage, which is also of course an industry standard today.
During the latter part of the decade, competition within this category heated up as Web usage became more mainstream. Several search engines debuted during this period vying for popularity. Among the better known: Magellan, Excite, Infoseek, Inktomi, Northern Light, and AltaVista.
Then in 2000, Google gained traction. The brainchild of entrepreneurs Sergey Brin and Larry Page quickly rose to the forefront of the market largely due to their sophisticated PageRank system as well as their novel paid-search capabilities. Both were game-changing features as far as e-commerce was concerned, especially for publishers, entertainment companies and media outlets. For that matter, an argument can be made for the whole of Western civilization as well.
The Booty Call
Mr. Brin & Mr. Page met as undergrads at Stanford University. Mathematical geniuses armed with computer science backgrounds; they set out to change our world by organizing and cataloging the World Wide Web in an effective and easy to reach manner. A sophisticated mathematical gear system was at the heart of their solution, better known today as algorithms. The machinery they developed was groundbreaking to say the least.
From the outset, Google’s product had an intuitive end-user interface and an engaging demeanor. It was also fast and efficient. Beyond that, Brin & Page’s search engine was generations ahead of their competition mechanically. Both factors were enormous competitive advantages and they quickly leaped to the top of the market. The company has remained there ever since; driving the most of their competitors into the graveyard.
Being one of the greatest free-market success stories of all-time, stories about the Google’s origin, founding and history are widely known. Most point to their earnest desire to change the world for the better during the company's nascency. Journalist Steven Levy provides such an example in his book: In the Plex, recounting the origin of the Google’s infamous slogan ‘Don’t Be Evil’:
WAnd while Google’s founders insist that they were not moved by money, they were entrepreneurs at heart and ingrained their passion for success within the corporate culture. Regardless of their profit motives, competing to win has always been a strategic imperative for the company. As Mr. Brin once remarked: “We want Google to be the third half of your brain.”
The company understood from the outset that the World Wide Web happens to be a world of real estate. A world comprised of the elements visible to the naked eye and measured by occupancy. Over time, the search industry’s 800-pound gorilla has effectively built locks on both.
Google’s domain is arguably the most valuable piece of cyber real estate ever created as far as occupancy is concerned. More people visit Google every single day than other site on the Web. They also spend a great deal of time there. An average of 16 minutes per day; taking in over 17 page views during their stays.
Early in the game, publishers and the media seemingly thought allowing Search Engines like Google to freely crawl, catalog, and index everything they created was a wise and business savvy idea. Time has proven them wrong. At least for the ones that consistently fail to appear above the fold on Google’s first page of search results that is. Google has controlled over 86% of the global Search market for well over a decade. On top of that, they presently have a stranglehold on the industry’s advertising market – estimated at over 80% for 2019. In short, the conglomerate has effectively monopolized both industries.
Make no mistake, free press in America is no longer free. In effect, the media and the press have acquiesced to a sophisticated band of pirates who pilfer their profits and arbitrarily doll out their creative assets to the public. Online publicity has essentially become a pay-for-play racket over the years. Arguably, designed along the same lines as the Payola schemes that have scandalized the music industry off and on again since the 1950s. Like a mafioso godfather, Google demands tribute. And the publishing world willingly lines up to kiss their ring day in and day out.
Mr. Brin & Mr. Page no doubt had a sense of humor about them when they christened their pirate vessel. They originally dubbed Google’s new technology BackRub – a tongue-in-cheek phrase used within underworld establishments that are known to supply Happy Endings to their clientele. God knows if they had this in mind when they set out to conquer the Internet. That said, the monopoly they spawned within their dorm rooms has since grown to become the most powerful member of an oligarchical information technology syndicate. A syndicate that has grown so powerful that it now threatens the very fabric of free society.
What We’ve Got Here Is Failure to Communicate
It is little wonder that Western civilization began to fragment almost in parallel with Mr. Gore’s 1994 speech. Competition within the news and entertainment industries went into hyperdrive with the advent of the Web. With the internet, fringe publications were no longer hidden behind the counter of a local newsstand. Instead, they were right out in the open for all the world to see. Everything from hardcore pornography and violent videotaped crimes; to exploitative human tragedy exposes and even the narcissistic rantings of deranged sycophants. The public gobbled this garbage up like kids in a candy store and they continue to do so today
In other words, Big Tech assumed the role of moral arbiters on behalf of the Democrat Party and their organized affiliates. If you happen to be a student of early 20th century history, this should send shivers up your spine. This is exactly what fascist and communist regimes of that period did with big industry. They seized control of mass communications deemed, distorted and twisted the truth, and stymied dissent in order to extinguish any and all opposition to their will. The atrocities committed by autocrats in within both systems speak to the consequences.
We are seeing more of the same today out of big tech. Like greedy European industrial profiteers the did with the Nazi and Soviet regimes, Silicon Valley's pirate captains are presently settling into an unholy alliance with China’s fascist regime. America's tech giants deliberately tilted their algorithms toward one side of the political equation in advance of the 2020 elections in order to to serve their overseas corporate interests; Our nation is now sliding toward tyranny. Our Bill of Rights and the free market be damned for all eternity if this trend continues.
All that Glitters Isn’t Gold
Vice President Gore delivered a second speech on the UCLA campus in 1994 where he remarked that: “the future of language is in our hands. Or put more broadly, the future of communications.” He went on to share a parable by author Toni Morrison:
Ironically, mass communications have not been nurtured. The buckshot approach taken by the Clinton Administration to catalog and index the Internet backfired on the public. Foolishly, politicians allowed carnivores into Publisher’s hen houses. Obliviously or corruptly, they have taken handouts from Big Tech fat cats and overlooked the best interests of their constituency. Our inalienable rights are now being crushed or smothered by capitalist wolves in the hands of greedy communist pigs largely in consequence.
The time has come to break up the Big Tech’s four horsemen for the good of the nation and all of humanity. Congress must recognize Amazon, Facebook, Google & Twitter's key commodity happens to be information capital. Everything you do or say online can be monetized; meaning that an individual's right to privacy effectively no longer exists. Worse still, beyond the inherent threat to our personal liberties and guaranteed freedoms; there is perhaps an even greater threat to our national security interests if the Big Tech oligarchs continue to remain unchecked.
With the exception of Amazon, Big Tech’s other three horsemen effectively serve as public utilities in the digital age. Collectively, the top brass within these companies effectively dictate and control the flow of information from town to town and city to city across the country. Facebook being akin to Bell Telephone and National Public Radio; and Twitter being world's “town square” so to speak. Similarly as we've mentioned, Google effectively serves as a global public library; and an argument could be made that their conglomerate also serves as a sort of mass transit system within the cyber world as far as business and commerce are concerned.
Beyond the breakup, re-formulating America's communications infrastructure will require an innovative approach. Re-tooling our National Library system seems a natural place to start. The information superhighway requires a Grand Central Station; and the National Library has that potential if properly scaled.
Author: Erik Gagnon - Managing Partner, Chi Rho Consulting
“The public library system of the United States is worth preserving.”
---Henry Rollins (American Musician)
Up front, we want to make one thing perfectly clear: we are NOT in favor of nationalizing our primary schools nor our secondary educational institutions. Under our Constitution, these matters reside with our state and local governments; and we believe that it should remain that way. Nevertheless, it would be foolish or naive to ignore that the fabric of American education is changing dramatically during the digital revolution.
Take a look at the numbers. The education market in the United States has grown dramatically since the advent of the Internet and it's only expected to grow more over the next several years. In short: the ED hasn't kept pace with the changes; and it’s time we recognize the cultural shift that's occurring as a result. In other words, we ought to re-engineer and re-tool our educational systems; and we ought to act quickly!
THE STARTING POINT
The amount of information available today to the public over the world wide web is unprecedented in our history. Concurrently, the information age has spawned a number of innovations in the field of education. Among the most sweeping changes in primary and secondary research:
When you take a step back and look at the big picture, it's evident that how and where we learn in this era is much different than it was before. This led us to ask the following questions:
These are the fundamental questions we’ll address in this article. We’ll argue that Americans need to fully understand and quickly accept the fact that educational tools like Google, Wikipedia, and the Dictionary.com’s of the world all serve the public interest and ought to be nationalized to some degree. In other words, a complete re-tooling of our Department of Education is long overdue.
AS SIMPLE AS 1,2,3
Here’s where we’d start:
The proposed system would re-tool the Department of Education; and also support crucial National Security and Defense initiatives. We’ll explain what we mean as you read on:
MOST OF US NOW CARRY A “POCKET LIBRARY”
Like 77% of all Americans, I own a smartphone; and I often download and access useful apps for personal education, writing and research purposes. The apps on my device include a couple of different Search Engines (Google and Bing), a global encyclopedia (Wikipedia), a dictionary and a thesaurus (my preferred version is Merriam-Webster), as well as a multitude of other small reference tools (e.g. area code lookups and zip code lookups, etc.).
If you were born after 1989, these things probably seem natural. However, for those of us who are older, the Internet revolutionized access to libraries of information as well as primary and secondary research tools. Imagine: before the 1990's, people actually had to travel (by automobile or by foot) to a library to access a wide body of research materials if they weren’t fortunate enough to own them themselves. Furthermore, if their research requirements were extensive, they often had to travel to multiple locations to complete their research!
Research tools and materials are vital necessities for individuals with an entrepreneurial mindset: people who wish to invest time and energy in determining their own futures. Nearly every entrepreneur and investor will tell you that if you want to gain advantages over your competition, you need to excel in school and continuously strive for personal growth. In other words, you spend a great deal of time in library facilities.
Any way you look at it, a public library is about education, growth. and learning. It’s a core extension of our public education system. As Campbell Brown of Facebook notes, “It comes down to what your priorities are, and if public education is about children and learning. It’s a core extension of the public education system. As kids, then every decision we make should be focused on the question of 'Is this good for a child?' And that should be the driving focus and the priority when we decide what our policies should be and what our laws should be.”
(Keep in mind that we are all considered children in eyes of our Creator to a certain degree regardless of our age...)
Currently, we have libraries in our public school systems for our children from grades K-12; and reference materials are of course vital to those systems. Ask any teacher, and they’ll definitively tell you that high-caliber tools facilitate quality education. So then, why aren't the tools in our "pocket library" considered an extension of our public education system, if public libraries in fact are?
It boils down to this: some of the tools within our aggregate pocket library must be integrated into the ED in order to effectively manage public education in the United States today. Otherwise, we may put the American way of life at risk as things currently stand.
A CASE FOR NATIONALIZING OUR POCKET LIBRARY
Is it in our best interests to have all our digital research tools developed, managed and updated by private corporations and select non-profits? The answer is unequivocally NO!
Of course, Innovation, entrepreneurship and creativity are the driving factors behind the success of the corporations that maintain our "pocket library" (Google and Microsoft as well as the Wikimedia Foundation and others). For example, Google launched in 1996 as a research project by PhD students at Stanford University. Two years later, the company received a $100,000 angel investment; and away it went!
Nevertheless, Google has received a great deal of scrutiny and criticism recently from conservative & libertarian political pundits and conservative economists; as well as from radical leftist ideologues like Senator Bernie Sanders (I-VT) and Congresswoman Alexandria Ocasio-Cortez (D-NY).
on the right side of the political spectrum, Conservative and Libertarian political pundits accuse the tech monolith of down-ranking sites and pages that don’t align with corporate’s political positions, thereby suppressing free speech. The concerns of the conservative economists are largely geopolitical in nature. For example, Google has agreed to build a censored version of their search engine for communist China. Both sets of concerns suggest that Google deliberately stifles competition and suppresses the very principles that led to the company’s founding: entrepreneurship and innovation!
On the other hand, far-left zealots have seized upon these factors to push forth visions of an impossible socialist utopia. For example, Sanders (a self-proclaimed "Democratic Socialist” demagogue) contends: “You go to your public library, or you call your fire department or police department, what do you think you are calling? These are socialist institutions.”
To be blunt, Senator Sanders full of crap. The police, the fire department and the public library ARE NOT socialist institutions. Rather, they’re public resources; and there’s are HUGE differences between the two!
BERNIE SANDERS MAY BE MISGUIDED... BUT HE DOES HAVE A POINT
Several of the tools we've listed (i.e. search engines, dictionaries and encyclopedias) and are in-fact primary and secondary research staples used in libraries the world over. However, unlike brick and mortar libraries, the information available within our "Pocket Library" is decentralized, poorly curated and loosely maintained at the present time.
For example, a dictionary reference tool now often appears in Google's search results when you include the word “definition” with a search term. That said, the word inclusion criteria (and definitions) appear to be determined by Google itself!
This should concern anyone who believes in the American Dream. If you look under the surface, you'll find that terms like Fascism were completely omitted from Google's dictionary tool last year after the Daily Caller questioned the definition that Google supplied.
Perhaps even more disturbing, Google has now integrated a feedback tool to report “wrong and offensive” definitions; quite possibly modifying or altering definitions on a day-to-day basis in most extreme cases.
Google currently dominates the search industry. Coupling search with a dictionary and thesaurus in effect makes Google (and the semi-anonymous voting body that supplies feedback on word acceptance) the principle arbiters of English, Spanish and a multitude of other human languages!
We must question whether it’s reasonable and prudent to allow companies like Google and non-profits like Wikimedia such enormous sway over the literacy and education of the American public! It seems to us that leverage these monoliths have over our society could in-fact fuel Fascism; very word Google omitted from their dictionary back in 2017!
THIS IS A NO-BRAINER
Clearly, the "Pocket Library" we’ve discussed here is vital to our national interests. In-fact, you could say that it’s a national treasure of sorts: Young and old men and women of varying backgrounds and ethnic persuasions scour their "Pocket Libraries" daily seeking to educate themselves, better their lives and expand their horizons.
When it comes to the tools and resources in our "Pocket Library" we need to ensure there's a level playing field. We must ensure the accuracy and integrity of the information available to the public, preserve our national heritage and cultivate advancements that strengthen our society.
So, why not:
For the reasons we've described, both these ideas make clear sense to us.
Bernie Sanders and Alexandria Ocasio-Cortez's socialist ideals are in-fact Utopian fantasies. They're a means to an apocalyptic end for American free enterprise, free speech and free expression. We’re not proposing an end to the free market in the case we've presented. Instead, we’re talking about centralizing a core set of vital public services; just like the United States postal service does for mail and package delivery. Not the whole enchilada mind you; just the meaty part of it.
We also argue that setting up such a service will lead to a much fairer competitive environment and open the door for a wide array of entrepreneurial business ventures within the affected industry categories. You only need look at the success of shipping companies like Federal Express, UPS and DHL to realize that opportunity will eventually open up in this space if the federal government steps in and asserts a degree of authority.
Jesus, I hope more Americans soon realize the strategic importance of the research tools that comprise our aggregate "Pocket Library" and demand immediate action from our lawmakers. Otherwise, we’re headed toward a world where George Orwell’s "Doublespeak" becomes a real possibility.
Author: Erik Gagnon - Managing Partner, Chi Rho Consulting
Thoughts On The Kavanaugh Hearings, Due Process, The Court Of Public Opinion, and What It All Means For America
"Those who do not remember the past are condemned to repeat it."
---George Santayana (American Philosopher 1906)
So far, 2018 has been a very busy and productive year for our consulting firm. So much so, that we decided to put our blog articles on hiatus while we focused our attention on our clientele's priorities. We’ve also gone dark on our social media pages for much the same reason.
However, this past Saturday a client of ours posted a statement on his personal Facebook page which I happened to catch. His statement related to the allegations of sexual assault made against Supreme Court Justice Brett during his confirmation hearings. Frankly, the sentiments our client chose to share disturbed me greatly. So much so, that I felt they warranted a response.
Sadly, much of social media has become a thought ghetto in recent years. Rational debates and logical discussions have largely been silenced and replaced with emotional outbursts by angry mobs. Their comments are largely rooted in animus and in fear; and are oftentimes agenda driven. Consequently, I decided to write a personal letter to him expressing my concerns instead of posting my thoughts to his feed or sending him an instant message.
As I said, our client’s statements on this matter were deeply disconcerting on many levels. The responses he received troubled me even more. As a result, I've chosen to share my response letter publicly. His original comment is included near the opening of my very lengthy response which follows below:
OUR LETTER IN RESPONSE TO THE KAVANAUGH CONFIRMATION HEARINGS AND THE QUESTION OF DUE PROCESS
THE INEVITABLY DIRE CONSEQUENCES IF WE DEMOCRATICALLY FORGO OUR CONSTITUTIONAL RIGHTS
I have yet to receive a response to my letter from our client. That said, I am hopeful that he will take the time to reflect on my arguments, recognize the extreme nature of his original statement and recant his position. That said, we are witnessing a rapid spread of absolutist rhetoric within our society today. It is a very real danger to anyone who disagrees with agenda-driven propaganda based on subjective truths and partial facts. That's why I felt compelled to come forward and speak out on this matter.
Radical leftist ideologues repeatedly ignore objective truths in order to push forward agendas premised on "equality of outcome". They fail to grasp the fundamentals of Natural Law. Additionally, they willfully or blissfully ignore the repeated failures of Marxist and Socialist ideology all throughout history. The fact of the matter is that "equality of outcome" is an impossible Utopian ideal. Humans are inherently flawed; and there are individuals among us who crave absolute and unlimited power over others. There always have been and always will be such individuals. All throughout history, they have risen within socialist regimes to impose authoritarian or totalitarian forms of rule.
Based on the circus we have witnessed on Capitol Hill in recent days, my hope is that more and more Americans are waking up to the fact that leftist rhetoric is becoming increasingly radical in our society. It's no wonder this is occurring when you take into account that authoritarian extremists permeate our educational institutions and our media outlets. In fact, journalistic standards have been all but been abandoned by a majority of prominent American media outlets that lean left of center.
To loosely paraphrase the Santayana quote I cited above: we will one day find ourselves in shackles if we forget the aggregate lessons world history teaches. Make no mistake, sowing distrust in our judicial system and chipping away at our Constitutional protections are but a means to an end. Evil in fact exists. There are individuals walking the planet today who would like nothing more than than to see an erosion of America's founding principles and the complete destruction of our Constitutional Republic. Doing so would open the gates for tyranny, injustice and oppression around the world.
the shadows of ignorance if more Americans who believe in MLK's Dream don't soon wake up to the fact that we are forgetting a fundamental chapter of world history. Indeed, we are starting to repeat mistakes that led to the the death of countless millions during the political upheavals of the 20th century. May God help us all.
For anyone interested:
Author: Erik Gagnon - Managing Partner, Chi Rho Consulting
"It is business that generates the jobs, income and taxes that keep a country going."
---Mark Skousen (American economist)
If you keep up with current events, I'm sure you're aware that the Republican-controlled Congress passed a sweeping tax reform bill last week. We’re not going to address the full minutia of the 2017 Tax Cuts and Jobs Act in this article. However, here are a few of the salient highlights for American businesses:
The substantial cut in U.S. corporate tax rates is undoubtedly the single greatest change in our federal tax laws in the last 30 years. It also seems to be the most controversial portion of the new legislation. Indeed, left-wing politicians and left-leaning media outlets have been quick to condemn the new Tax Act as a gift to the wealthy at the expense of the middle-class.
Before and after the House and Senate votes were taken last week, the pollical hyperbole was in full effect. According to Senate minority leader Chuck Schumer (D, NY), the tax bill seemed to “stuff even more money into the pockets of the wealthy and the biggest corporations while raising taxes on millions in the middle class.” House Minority leader Nancy Pelosi (D, CA) went even further stating, “This GOP tax scam is simply theft, monumental, brazen theft from the American middle class and from every person who aspires to reach it. The GOP tax scam is not a vote for an investment in growth or jobs.”
It’s interesting to note that the final votes in both the House and Senate fell squarely along partisan lines. While a handful of Republicans opposed the bill in the House, not one single Democrat representative voted in favor of the legislation. The same was true in the Senate where all but one Republican (Bob Corker (R, TN)) voted yea and the entire Democrat Senate voted nay.
The apocalyptic reactions to the bill's passing from Democrat leadership and the left-wing media are deeply disturbing, particularly when you take into account that most nonpartisan economic think tanks project sizable economic gains under the new tax plan. For example, the Tax Foundation (a non-partisan Washington D.C.-based think tank) conservatively estimated in their preliminary analysis that the new Tax Act will generate:
Keep in mind that the Tax Foundation used very conservative assumptions for their forecast model and did not take into account any real compounding effects. In contrast, several other noted economists are predicting far, far greater returns over the long run. For example, Forbes contributor Bill Conerly recently remarked, “The biggest impact will be the gradual improvement in economic growth year after year. A small increment added to our recent growth rates would be inconsequential in any one year, but the increments will cumulate and even compound. Twenty years from now, the difference will be significant.” In other words, it's very feasible that the new Tax Act will create economic boon conditions and actually increase tax revenues over the long run.
While the true long-term economic impact of the new tax legislation remains open for debate, a sizable number of high-profile American corporations are already beginning to return immediate dividends to their workers. Several companies (including Boeing Comcast, Fifth Third Bankcorp and Wells Fargo) announced new investments, minimum wage hikes and employee bonuses the day after the tax reform bill was passed by Congress. More major companies are expected to quickly follow suit, thereby negating much of the original hyperbole surrounding the bill.
advantage of many of the loopholes and special deductions that major corporations could. Additionally, the draconian 35% corporate tax structure discouraged venture capitalists from taking sizable risks on startups in the U.S. market for years.
Smaller businesses are the backbone of the American economy. In 2017, over 60% of American private sector jobs are with companies with less than 1000 workers. For a good number of these companies, the new Tax Act dramatically changes their scalability dynamics. Although not every small to medium size business owner wants to grow the size of their enterprise, a good number in fact do. It doesn’t take a rocket scientist to realize that the newly enacted tax legislation frees up financial capital for growth, research and expansion that was previously earmarked for the coffers of the federal government.
In parallel, it’s very likely that Venture Capitalists will begin to invest more and more in startup opportunities in relatively dormant American industries. Again, we're not going to get into Tax Act's minutia in this article (i.e. tax implications for VC investments). However, a basic understanding of economics leads to a realization that a sizable reduction in corporate tax rates makes American investments more attractive to VCs. Therefore, the likely influx of investment capital will undoubtedly lead to greater innovation. These investments will also increase demand for skilled American labor in a number of industrial sectors as competition increases. Consequently, real sustainable wage growth for American workers appears within reach for the first time in nearly two decades.
We'd be remiss if we didn't mention that an estimated 40-45% of all Americans pay no federal income taxes whatsoever today. There are many factors behind this astounding figure. However, an economic stimulus package of this magnitude will most certainly reduce welfare and unemployment figures in the years to come. In addition, the average American worker who pays taxes is expected to realize a sizable tax reduction under the new plan.
More important to our nation's future, American industry will once again have competitive advantages in the global arena. The truth of the matter is that our nation benefits wholly when job creators have more capital available to create, execute and innovate. Unleash the financial handcuffs from the John Galts of American enterprise and the free market will flourish. The positive effects will certainly ripple though society much as Mr. Conerly stated in his recent Forbes column.
In closing, a sad truth was revealed in the final Tax Cuts and Jobs Act debates and voting tallies last week. The leadership of the Democrat Party, as a whole, has now moved as far to the left on the political spectrum as the self-proclaimed “Democratic Socialist” Bernie Sanders (I, VT). They seem to have completely abandoned the virtuous, free market principles that have guided our Constitutional Republic for the last 241 years. Their "progressive" label appears to be a thinly veiled euphemism for neo-Marxist ideology. If John F. Kennedy were alive today, I imagine that he'd be aghast at what's become of his Democrat party.
Author: Erik Gagnon - Managing Partner, Chi Rho Consulting