Government action?

The one thing that needs to happen to get the economy moving is to create jobs. We just had a massive Government stimulus program that when all is said and done, did not create enough jobs to overcome the down tick in the economy. We also can see that companies used the recession to get rid of marginal jobs and many of these jobs will never be filled again as technology or outsourcing replace them due to the high cost of full time employees.

So faced with a lack of job creation is it better for the Government to take action, or conversely better for the Government to simply let the marketplace resolve the issue. If we decide it is to be the marketplace, we need to understand what that means. A large number of people in this country will remain unemployed until the cost of their labor drops enough to make hiring them preferable to other alternatives. Of course, that level is yet to be determined and it may represent a fairly dramatic drop in the American lifestyle. Now, certain people will do quite well in this scenario but are we willing as a society to see a reduction in our standard of living?

To some extent we probably have to but maybe not. The current issue has two significant aspects that need to be resolved. Ultimately, the individual lifestyle of a nation's inhabitants cannot exceed the total amount of wealth in that nation divided by the number of people sharing that wealth. Now, we don't distribute wealth equally and I'm not suggesting that we should, but if the annual wealth created and retained by the nation does not exceed the population growth we will see a reduction in amount of wealth available to each person. The formula is essentially the same for an individual, as it is for a nation and if we are consuming more than we are creating, we are ultimately getting poorer. The second issue is that partly as a result of our success and rapid expansion, we as a nation generally have a higher standard of living than most people in other countries. This makes our labor expensive and in a worldwide economy, jobs move to where the cheap labor is. Now when items are consumed here but produced elsewhere by foreign labor, we exacerbate the first issue, the exporting of wealth. Economic forces, left to their own devices will level the playing field, meaning that jobs will migrate until the costs equalize. This is good for much of the world as their standard of living improves, but as we revert to the average, not so good for us.

Now, before I go further, the more Americans can reduce consumption voluntarily, i.e. by being more energy efficient, we can maintain the same standard of living by effectively being more efficient. There is a lot of opportunity in this area and it is probably vital that we consume less by being more efficient.

However, if the Government sits back and allows the free market to act, the result will be that it will be replaced. Americans are not willing to put up with high unemployment and loss of wealth over a prolonged period of time. Further, some of the current conditions exist because the Government has encouraged them and we have not had a truly free market for most of our history. Certainly, in many cases, Government intervention protects those who otherwise would be left vulnerable. For example, we have can be confident that money put into a Government sanctioned bank is safe and that the bank won't simply close their doors and leave town with our money.

Further, under a free market response to the current economic conditions, we will see a prolonged period where tax revenues are insufficient to pay for Government. We are currently experiencing that problem and the response has been to borrow money with the hope of repaying it in the future. However, if we don't fix the wealth equation, we will have less wealth to tax and the Government will either have to take a larger share or shrink. Now it is very difficult for the Government to shrink when we have so many people needed assistance. To expect that is simply unrealistic. Further, for the next few years at least we are going to continue to spend a significant amount on foreign adventures. One could argue whether the amount of money spent first on destroying Iraq infrastructure and then on rebuilding it was worth it in the long run, but it did represent a significant consumption of wealth.

If you are not willing to accept the draconian result of Government inaction, what action should the Government take? Some argue that if the Government were to reduce business taxes, it would encourage business growth, create more jobs and consumption and ultimately lead to more Government revenue. The fundamental idea here is that it would stimulate wealth creation and more wealth would provide more for everybody, including the Government. However, this is by no means certain considering that the efficient use of the Government tax breaks could easily be to hire more foreign workers or import more foreign technology. Since any such tax breaks would have to be financed by borrowing and that would be an obligation for ALL the American people, they have the right to demand a decent guaranteed return on any such investment. It is not internationally a good idea to restrict trade and it would be difficult to see that return in any general sort of tax reduction.

It is important to consider the objectives of any Government action. I would argue that these objectives need to be the increase in the wealth of the nation. The areas that are costing us the most wealth is our use of foreign energy and our importation of more goods than we export. We have many examples from history where attempts to tax imports have led to a reaction that decreased overall global activity. Also, if you consider the "buy American" campaigns we have seen over the last 20 years, it is fairly clear that people are going to buy the most economical product.

Ultimately, the objective can be summarized as more production and less consumption. Now, the one area where we can accomplish this easiest would be for the Government to stimulate the domestic and renewable energy fields. This is starting to happen and will create jobs and preserve wealth.

Another area is to revise taxes to one based on consumption, and not production. Instead of taxing profitability and to some extent allowing marginal companies to prolong their existence by getting tax breaks, we should instead tax everything consumed in this country, regardless of its country of origin.

The Government also needs to make business and individuals pay the real cost of their actions. If you drive a car that pollutes more than the average or run an inefficient factory that spews pollution, you should pay for the cost of cleaning up your mess. The alternative is of course that everyone else pays for you.

Finally, some things, such as retirement and health care should be recognized as Government responsibilities and financed via taxes. Our current system is both unfair and a burden to many industries.