Every economist will tell you any time you ask that the Federal Government is a closed system. Whenever it gives out money to someone it has to take that money from somewhere else. This includes higher taxes, fewer programs or mortgaging the future through higher deficits. There is no free money.
Politically, the Bush administration and the Obama administration and both Congresses are hell-bent on a bail-out and stimulus package. So as long as this is going to happen anyway, we should look at how it should be structured and what should go along with it.
The basic theory is that if you give people money, they will spend it. They will buy things they would not otherwise buy, which in turn helps the businesses that make those things and they are able to keep more of their employees (even if those employees are in China). When people are hurting for cash, do they buy the higher price items made in the US or the lower price items sold at Walmart and made overseas? In theory it does not matter because the Chinese guy buys something and eventually the money raises everyone. Do Chinese assembly line workers buy American made goods?
But this begs the question, why should the US government and US taxpayers provide money to help employ the Chinese? There is certainly no way to stop it. Once I got my $600 last Spring, I bought stuff. I have no idea where it was made. Did last Spring’s stimulus package help the economy? Are you better off for it? China grew at 13% last year. Where did the $600 go? Where did the $350 billion go?
The goal of spending US cash should be to build the US economy. At its core, what is wrong with the US economy?
We don’t make things anymore. The only way to build an economy is to make things that people want to buy. So, if we are going to spend this money anyway, what should we do to make sure it helps the US economy?
1. Dramatically increase SBA guaranteed lending to entrepreneurs and small business. Virtually all of the current unemployment is being experienced by Baby Boomers over the age of 45 years old. They represent a highly paid glut of humans in our population. In our current situation, they can never be re-employed at high rates. These people have experiences, talents, training and ideas. Help them start new businesses using those capabilities and they will hire others.
Plus a loan is not a net drain. The vast majority of SBA backed loans are re-paid. Even a 5% default rate, which is extraordinarily high, is cheaper than giving away all this money. Plus these are guarantees. Banks lend the money. So there is no actual cash out the door and banks start lending and making money again. The best of all worlds.
That is the politically doable part, but don’t disregard it because you do not like or understand this next part. It is really important though.
2. Eliminate the minimum wage. It is not paid by businesses. It is paid by hard working middle class Americans who get less so the company can allocate some of their hard-earned wages to the dredges at the bottom who, by definition, are not worth even minimum wage. These dredges recently got a raise for being the worst workers in the company. Eliminating that will make US manufacturers more competitive, which simply has to happen.
3. Allow all immigrants into this country. We need low-paid workers to do the stuff at the bottom of the manufacturing pyramid. We will GAIN jobs, because we will hire Americans to supervise, manage and oversee these low level workers. Those are all the HIGH-PAYING jobs that are lost when we move manufacturing overseas and they are perfect for the unemployed Baby-Boomers.
4. Pass my health insurance plan – see prior post. Get corporations out of the insurance business. Get the States out of the regulation business and make healthcare a national issue which will reduce costs. Allow anyone to band together to negotiate great group rates or create huge self-insurance plans where wellness drives cost reduction. The government should provide catastrophic coverage which will reduce rates to most because the coverage costs are capped.
5. Create a flat corporate tax on revenues over $1,000,000. Eliminate the payroll tax, which is a disincentive to hiring and paying workers. Roll all income and payroll corporate taxes into one simple flat tax. This will dramatically reduce compliance costs for American companies and avoid complex schemes to create a tax loss and avoid paying any taxes. If a company has revenues over $1,000,000, they pay a set percentage of those revenues in taxes, even if they are losing money.
Congress uses taxes for social engineering. I think that is wrong, but it is a fact of life. A flat tax actually makes this easier and more powerful. Every company pays it so they will ALL have the intended incentive if a credit is provided. Not just those showing a taxable net profit.
Small businesses (under $1,000,000 in gross revenues) pay no taxes, so all the complicated corporate, LLC, partnership and Sub S schemes to avoid “double-taxation” that they pay attorneys and accountants for is eliminated. These are families trying to make a living and hire people.
So if we do this, what happens?
Businesses are relieved of a significant amount of unnecessary overhead in trying to do things outside their core competencies – taxes and benefits. The government gets the same amount in taxes and more control over corporations.
There are low-paid workers able to fill the bottom of the manufacturing pyramid and this employs supervisors and management for the Baby-Boom generation that is currently suffering most. These positions are now lost to China. This helps grow the US manufacturing base which grows the economy.
There are plenty of important regulations regarding working conditions, the environment and the like which must remain. When we make things, we do it in a much better, safer and cleaner manner than anyone else in the world. Our unions will make sure that fair wages are paid if that gets out of line. We have a great system. Let it work.
If we help fund small creative entrepreneurial businesses, the true greatness of our economy, we will put the brilliant minds to work on reaching the dreams they never pursued because they had jobs. Small companies built on great ideas build nations. But they too need easier tax burdens, fewer non-core responsibilities and workers who make what they are worth all the way through their organizations.
Finally, workers who are paid only what they are worth, the definition of the minimum wage, will work harder, get to work on time, reduce drug and alcohol use so that it lessens the impact on their performance and will try harder to be better so they can make more. Immigrants will come and go as job availability dictates. Without a minimum wage they may be able to find better employment in their own countries and go back. Problem solved.
Simple but difficult solutions that would work and no giving away money. We shall see.
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