New Rules: Economics For Politicians

Updated: 1/10/2017

Economics for politicians explains and shows in easy to understand terms and pictures why sufficient tax revenues are not available to support current city, state and national government activities. The presentation is non-verbose and easy to understand. It's a little like a UPS commercial . . . short and to the point. More elaborate explanations would be just that . . . more elaborate . . . and arrive at the same conclusion.

Citizens can earn their own . . . health care . . . social security . . . retirement and additional benefits if businesses and government analyze, and plan correctly. Of course follow-through is important.

Support for education should not be a problem. However, sometimes what you have learned and been told is not correct . . . surprise . . . surprise. Higher education and business believe global trade is a good thing. They are correct, however, incomplete. The failure is to consider balanced trade.

Solving the current problem of a major shortfall in tax revenue is a non-partisan issue; and, until that is recognized, there will be no solution.

Solving the current problem is NOT a union issue . . . although Skinnerian conditioning would have everyone believing it is. It is not the concept of unions, but the failure of unions to support the proper objectives. The subject of unions is a candidate for a separate posting. The only question to be asked and answered is, "where will the money come from?" When the response to the question is another tax, government must remove roadblocks to business success.

Business must be able to generate additional profits to pay new taxes . . . which may mean lowering taxes. This should not include turning on the printing press . . . what it means is moving to expansion in some way that is not inflationary. Until business in conjunction with government can design the solution . . . NO taxes should be levied. In a normal domestic market where goods and services are produced and nearly full employment is realized, the following picture represents the process where incomes are good and tax revenues and fees are sufficient to provide for the needs of citizens and government.

The full domestic production sequence shown below ensures there is a balanced use of resources and the desired/required availability of income and tax revenue to support a prosperous national economy.

Full Domestic Production

Planners have clearly failed to analyze the global situation correctly. During the past several years, this failure has resulted in the loss (conservative) of  twenty-two trillion dollars in GDP and eleven trillion dollars in tax revenues (end of 2014). Where is the trade imbalance centered? Mostly in Asia and China.

How many jobs have been lost in the U.S. by not maintaining balanced trade? For every manufacturing job lost . . . four additional support jobs in logistics, industrial marketing, service and the community tied to that job are also lost. The argument is frequently advanced that imports are cheaper . . . that is not correct. After the wealth has been transferred to exporting countries there is nothing left for government services except to turn on the printing press. Once again “government didn’t see it coming!”

Although some will advance the proposition that the U.S. can increase exports to balance trade . . . this also is not correct. Frequently the statement is made that exports have increased . . . yes, this is true, but exports have not and will not, make a dent in the 22 trillion dollars of GDP lost to the trade imbalance. U.S. retail stores are a lot like your local hamburger palace. You just drive in and pick up what arrived at the import dock in Los Angeles or some other major port . . . no home cooking!

The huge trade deficit accumulated over the years was caused by unbalanced trade agreements. In short, government is creating the problem . . . sound familiar . . . same for banking . . . Wall Street, Fannie and Freddie.

Unbalanced Global Trade

As the U.S. transitioned from sole reliance on an agricultural economy to an expanding manufacturing based economy,  rapid growth in factories, cities, roads,  railroads, airports, bridges, communications, retail, healthcare, recreation and additional areas occurred to support the effort. This activity created wealth and a higher quality of life and an expanding middle-class. Education and experience in all fields of employment, professional and skilled trades expanded during the 20th century.

As reliance on global trade grew, the need to produce domestically diminished as import activity increased. The result has been vacated factories, reduction in the need for skilled professionals and trades, high unemployment rates, loss of tax revenue and fees, degrading of infrastructure as it stood idle and not producing tax revenue or fees. Diminished quality of life was accompanied by lost opportunities and increased crime.  Countries exporting to the U.S. have benefited greatly at domestic expense.

Balancing trade will improve outcomes for citizens, however, looking forward, new technologies and methods present additional challenges . . .  more can be done with less . . . and new professional and skilled trades will need to be created . . . or evolve. Evaluation of what constitutes valuable work or enterprise must be considered worth reward. It’s simple, if there is no income, there is no expenditure, and there is no economy. Deficit borrowing to reward the unemployed is a diminishing solution as national debts increase. What constitutes work will and must be reevaluated.

Posted in New Rules.