It is good to see that the President has bipartisan support for the budget proposal to give tax incentives to small companies in this country.

Over half of the workforce in this country is employed by small companies and most of the job creation comes from small and new companies. Tax relief such as recommended in the bill, will help in spurring private sector growth and pulling the economy out of the recession.

However, if simultaneously, the Government turns around and raises income taxes on individuals or corporations, the overall economic benefit will be non-existent.

The Federal Government cannot endlessly pour money into the economy to create new jobs. Sooner or later it must let the private sector take over. As the Federal support is withdrawn, the private sector needs to be given incentives to take risks and make investments. Raising income taxes will have exactly the opposite effect.

During the late 1990s, when the Federal Budget went from deficit to surplus, it was after President Clinton had cut the capital gains tax. What ensued was a strong wave of capital investment and corporate profits growth both of which generated huge incremental tax revenues – both income and capital gains – for the Federal Government.

Admittedly, the deficit turned surplus of the 1990s was augmented by the sharp cut in defense spending by the Federal Government, not an option on the table today. However, despite the vocal concerns of many pundits, primarily on the far right, the level of the U. S. Government debt and even the very high current budget deficits, should not necessarily doom us to third world status.

What we need in this country is private sector growth, not Federal Government loans injected into the economy. The Federal Government should do all that it can to augment and support the private sector, so that it can remove itself as the agent of stimulus. Only then will hiring commence and personal income start to grow.

One day shy of his first year as President, Barack Obama faces the biggest threat to his incumbency and possibly to his power.

The voters in Massachusetts will determine today whether the Democrats’ filibuster-proof hold on the U.S. Senate is broken or maintained.

It appears that the expected ‘easy win’ by a Democrat in Massachusetts was a serious miscalculation. With the moniker for the Commonwealth of “The People’s Republic of Massachusetts” tossed so freely about, the misguided assumption by many was that the state was a shoe-in for a Democrat candidate for the U.S. Senate.

But what seems to have been forgotten was the first rule of politics that the Massachusetts Congressman and Speaker of the House, Thomas “Tip” O’Neill so often reiterated. “All politics is local.” In Massachusetts as in any state a loved politician may be the only secure seat. Senator Ted Kennedy was overwhelmingly loved by the people of Massachusetts, from 1962 till his death in 2009. He brought home the bacon and he was there for his constituents. And when he stomped for Democrat Presidents, the people voted for “Ted Kennedy’s” president.

But now the beloved Senator is gone and the hard facts are on the table. As of the 2006 census, there were 4,098,634 registered voters in Massachusetts, of whom 37% were Democrats, 13% were Republicans and a whopping 50% declared themselves as Independents. Fifty percent of the voters in Massachusetts declare that they are unaffiliated with a party. WOW!!

Massachusetts has a long history of electing a Republican as Governor. In fact, in recent history (defined as my lifespan for this piece, i.e. since the middle of the last century) there have been nine Republican and six Democrat governors, and that is counting Michael Dukakis twice (as a Democrat, of course).

Admittedly, the last time a Republican was elected to the Senate was in 1967. That was Senator Ed Brooke, who lasted two terms. In fact, I voted for him, in my very first time at the polls. To be fair, though, with the seat occupied by Senator Kennedy hardly ever in doubt, there hasn’t been much of a Senatorial race for over half a century.

Now it is a different story. The Independents in Massachusetts are free to vote with their heads not their hearts. Massachusetts is actually a hotbed for independent thinking and acting. Remember they created the first tea party.

Polls can be misleading and deceiving as we have seen on too many occasions to count. But a statistic that is worth noting is that the absentee ballots cast for this Senate race are running far higher than is usual. That means there are voters with passion.

It will be fascinating to watch the news this evening. I am making no predictions, but regardless of the outcome of today’s election, a message is being sent to President Obama. If Scott Brown should win big, a big message will have been sent.

The productivity gains that the U.S. economy has achieved over the last twelve months have been nothing short of impressive. Through a combination of increased output and reduced hours worked, unit labor costs have been declining. In the tough world of economics, this is the way the system works.

In a capitalist system, productivity gains are essential for long term success, for the ability to raise real wages and to increase standards of living. During periods of economic growth, it can be relatively easy to grow profits. Productivity often appears to be a bit of a luxury. Holding on to hard-to-find labor carries a higher priority than the marginal profit produced. Capital investment rises along with labor costs – a bit of a guns and butter approach, as profits are easy to achieve.

But when the economy is in a recession, as it is today, the business of finding ways to reduce costs and squeeze profits out of diminishing revenues becomes a necessity. Management cuts the workforce, knowing that labor is cheap and easy to find. And lo and behold, marginal profit starts to increase.

UPS is a case in point. The headline in this weekend’s Wall Street Journal read: “UPS Raises Profit Expectation”. The subtitle was: “Shipper Plans to Eliminate 1,800 Jobs…” That workforce reduction was in addition to the 13,000 jobs it cut in 2009. Despite a significant increase in its fourth quarter volume, as retailers panicked and decided to fill their shelves for the Christmas selling season, the company rationalized its new workforce reduction by pointing out the productivity it has been able to achieve through technology.

The dilemma occurs when the economy bottoms out and starts to improve, a condition that appears to be emerging today in this country, and in many other countries around the world. Wary of the strength of the emerging economic resurgence, managements are loathe to hire laid off employees. So they push production harder and achieve even greater productivity. It looks like a virtuous cycle for capital. What is lacking is the benefit to sidelined human capital. The labor force is the last element to participate in the economic rebound.

There is no reason to believe that this economic cycle will be any different. In fact, given the depth and breadth of the current recession, I believe that employment gains will be slower to emerge as the economy improves. This will be evident in a continued high level of unemployment even as profits continue to grow and revenues rebound during this year and next.

The 10% official rate of current unemployment in the U.S. understates the true level, which includes all those workers who have been discouraged from seeking employment after months of endlessly searching. As the economy improves and those job seekers re-emerge, they will once again be counted in the statistics of the unemployed, further depressing the official Government rate of unemployment. The decline in a number of Federal Government stimulus programs will only exacerbate the situation.

Expect the unemployment rate in the U.S. to stay high throughout this year. I will venture to say it will not likely go below 9%. I hope I am wrong.

The week after Christmas is always my favorite time to go to the movies. Shopped out, and with no more appetite for food, the indulgence of sitting (popcorn free) for two hours in the cinema is sublime. I choose my movies carefully. I am not a “special affects” person; blood and guts disgust me. So my list of possible movies to attend is always far shorter than most people’s.

This past week, I saw four movies and did not regret going to one. In case that sounds a bit like damning with faint praise, I should clarify by saying that of the four, one movie stood out from all the rest. It was Invictus. The combination of brilliant acting by Morgan Freeman and Matt Damon as well as the deep message was a moving experience. At times I actually forgot that Morgan Freeman was on the screen – I thought I was looking at Nelson Mandela.

The movie seemed so perfectly timed, so relevant and so needed right now. It depicted national leadership at its best – the ability of a man, despised by so many, to rally his country together against all odds and to find the best in each other. It actually brought tears to my eyes on several occasions.

The economic and social problems of South Africa in the mid-1990s were far graver than those we face here in the U.S. today. The political divisions among its citizens were far deeper than those existing in our country now. But as elected President, Nelson Mandela led his country and his countrymen and women by his own example. He did more than just cross the aisle, to use American parlance. He forced people who hated each other to come together, to work together and to achieve greatness through that bonding.

In this country today, we have serious issues that need to be resolved – health care, national security and recession are but the largest. Unfortunately, partisanship appears to be of greater importance to our Congressional representatives than reaching mutual agreement on solutions. What we need now is a Nelson Mandela, a leader who can bring together the warring factions within the Government and make Government work for, not against, the common interests of all of us. Let’s hope President Obama can wear that mantle in the second year of his presidency.

Oh, by the way, the three other movies I saw and enjoyed – in varying degrees of enjoyment – were An Education, It’s Complicated, and Up in the Air. Meryl Streep (It’s Complicated) is simply the finest actress today.

It is good news that the Senate Banking Committee yesterday approved Ben Bernanke’s nomination for a second term as Chairman of the Federal Reserve. But it is disappointing that the 16 – 7 vote did not include a single Republican. For once, I am happy that Republicans are in the minority in the Senate, which will now require a full 60 votes to confirm Mr. Bernanke. Let’s hope there are at least a few Republican Senators who see the wisdom of keeping Mr. Bernanke.

It is disconcerting to observe how yesterday’s hero can morph into today’s villain. A year ago at this time, Ben Bernanke was truly engaged in saving the world from financial collapse. His comprehensive understanding of the financial markets and his knowledge of the causes and catastrophic decisions leading up to the Depression served the U.S. and the world well.

Because last year’s financial crisis did not culminate in a global financial catastrophe, (thank goodness) the world has forgotten how close we came to the brink of disaster. It is ironic that both Houses of Congress can find no cause to blame themselves for any of the events that led to the financial crisis and the ensuing recession. All they can do is heap blame on Wall Street and the Fed Chairman. Ironically the most outspoken critics of Wall Street and Mr. Bernanke, Senator Christopher Dodd and Congressman Barney Frank, were the most aggressive proponents of the Government policies that led directly to the crisis. It seems a bit like a case of “The lady doth protest too much, methinks.”

Unlike Congress, Mr. Bernanke has admitted to errors. But to be fair, most of the issues that led to the crisis were in place well before he became chairman.

The Federal Reserve has a dual role. It is charged with safeguarding the purchasing power of the dollar, i.e. managing inflation, and promoting full employment. However, it cannot singlehandedly guarantee these two objectives. What the U. S. economy has needed throughout this financial crisis is liquidity and the Fed has and continues to provide that. Today deflation is a far greater risk than inflation. With the economy in a recession, the velocity of money had declined putting little upward pressure on prices. The time will come for rates to rise and money policy to tighten, but now is not the time when unemployment is high and asset prices are low.

If the Senate has the best interests of the U.S. at heart, it will vote to retain Mr. Bernanke for a second term as Chairman of the Federal Reserve.

I woke up in Milwaukee this morning to see Maria Bartiromo on Morning Joe challenging Michael Moore on the subject of capitalism. Go Maria!!

I had to laugh out loud listening to Mr. Moore freaking out about the top 1% of the population owning 99% of the wealth in the country. It’s not that I support a vast skewing in the distribution of wealth in a capitalist society. Rather it was absurdity of the messenger who seemed oblivious to where he fit into the pyramid he decried. As no one else was in my room, I could only talk back to the television, “Well, count yourself in that group, Mr. Moore.”

Then Mr. Moore went on to compare the Dow Jones reaching 10,000 to the tragedy of the current 10% unemployment rate in the country. Maria challenged him, pointing out that the pension and 401K plans of millions of Americans have benefitted from the stock market over the years. He pooh-poohed her intelligent and totally correct response.

Next he lambasted the big banks, begging people to take all their money out of the big banks and to put it into the small, local banks in their communities. What he seemed to fail to understand was that the big banks are the ones that employ all the people at the bottom of the pyramid, so if people follow his absurd advice, the unemployment rate will rise, not fall.

Mr. Moore is a mogul in the entertainment industry. He is a successful capitalist who has benefitted from the deep pockets of capitalism. That is fine and it is a good example of how capitalism works and how it allows people to make big money.

Mr. Moore’s hypocrisy is in neglecting to tell his audiences that he himself is included in the class of people he deplores.