Adam Smith would not be that surprised. It appears the US economy is beginning to slow down…again. And that’s the reality that almost 9.2% of the American public is struggling with. The figures are staggering. At the current job generation rate it would take over a decade to reach 4% unemployment. Our economy does not need a shot in the arm in the form of more stimulus. So what does it need?
Jobs! Much easier said than done! But, Smith pointed out in his book ‘The Wealth of Nations’ that economies that excel in manufacturing have well functioning economies. After World War II we had it all. Nine out of every ten items manufactured in the world were manufactured in the US just after the war. Now, that figure is one out of every ten. Remember all that talk in the mid 2000’s about shipping jobs overseas. Now we pay the price. So, how could we create a job?
Well, a hiring tax credit would be nice. Incentivize large corporations to build plants for the consumptive items we keep buying from China. However, while this is a good idea it is not a fix all. The cost of labor in the US is among the highest in the world. Perhaps lowering payroll taxes for lower income earners and raising it for higher earners. So how could we pay for that?
Perhaps removing the cap on Social Security taxes now somewhere around 95k a year would be a good idea. Raising capital gains taxes is a good idea. Currently, we have a de facto regressive tax rate. What sense does it make for Warren Buffet to pay 17.7% net tax while his secretary is at 55%? To be sure, the last 30 years of political shifts in favoritism to the wealth will have to come to an end.
We could also do away with large standing armies. Don’t believe what they say! Defense Spending is the single largest expense to the Federal Government. It has been a huge ATM for our elected officials for almost 60 years. Pundits point to ‘entitlement spending’ as a huge source of ‘waste.’ But once you cut out Social Security, defense spending becomes much larger. Social Security is supposed to be paid for by Social Security Taxes. Social Security is ours. I don’t care for it to be spent on a bunch of reckless wars so fancy pants on capitol hill can line his pockets. A small standing army is sufficient with current technology to defend our borders.
Second, we need to divorce ourselves from our addiction to short term lending. American constantly needs to refund itself. Several times a week Billions of dollars of borrowing occurs when the US Treasuries auctions its securities. What happens when investors are no longer willing to lend to US? It would be awful. The world economy would collapse. Billions would starve. Our species would survive but the systems as it is now would implode in on itself. Perhaps the government should borrow on a thirty year mortgage basis, or even longer. That way we pay down the dept slowly over time. We would not have the threat of refunding risk.
Next, Benjamin Graham was asked to imagine an economy after World War II in his lesser known ‘World Currencies and World Commodities.’ He was tasked with envisioning an economy free from the boom bust cycle. His answer defies brief description. In a word, he suggested a currency backed not by gold, but a basket of commodities. That seems like a good idea with gas prices spiraling into heaven.
Last, let’s get smaller. Oh, how we love the large multinational corporation! Bigger is always better! Well, not really. Large businesses are better able to control markets, inflate demand, and horde cash. The small business is less able to do this.
Additionally, small business is better able to adjust supply to demand. Oh, and small business hire more people! Let’s exempt all business with less than 1 million in revenue from income taxes for two years. However, it seems that all we’ll get from Washington about small business are empty slogans.
Last, let’s buy books not bullets. A bullet is a consumptive item. It is fired and gone. Worthless! But a book can be used over and over again to teach people lots of things like how to write more books expanding social capital as well as real capital.
Now, to sum up, I am as greedy as they come. Write me a check and I’ll show you. However, we need to organize ourselves around a new self interest, an enlightened self interest. If we could make the hard choices collectively our economy would follow.