Now that we've had a chance to see the DC elephant bring
forth the proverbial, and very predictable, mouse along with its numerous
exceptions for special interests and its companion farm bill, it's time to
consider the larger picture, and no, I don't mean the debt ceiling.
We have an economy that is in unsustainable imbalance. We
have a large mismatch between the production of wealth (please recall that
wealth is that which can be set aside for the future acquisition of goods and
services) and the consumption of wealth. Further, we have committed to widening
the gap over the next few years while assuming that future politicians will
carry through our good intentions to make it all even out in the
end.
The imbalance:
We have high systemic unemployment even as the percentage of
our population participating in the work force is going down. If we seek to
address this problem in a way that will reduce the imbalance in our economy, our
options are limited to those that will result in more private sector investment.
Some combination of the following will help: Eliminate, or at least reduce
crony-capitalism*. Implement free trade, no exceptions for special interests.
Fund infrastructure that reduces the cost of doing business (the Erie Canal), no
pie-in-the-sky political favorites. Scrap our tax code and adopt the most
business-favorable code in the developed world (check out Ireland, Hong Kong,
Cyprus, Singapore and others). Set up a G I bill for worker retraining (Bill
Clinton's idea). Encourage immigration of skilled and educated foreigners.
Change our attitude toward business, businessmen, and entrepreneurs, most of
these people are far better, and more productive citizens than our elected
officials.
Our federal, state, and many local governments are outrunning
their supply lines. The concept of responsible spending in harmony with actual
income is totally missing, as is the idea that one might consider eliminating
some earlier spending plans in favor of the new 'oh so important' new one. What
family can get away with these attitudes for very long? If our objectives for a
better society in the future are good and worthy, shouldn't we have the
discipline to not destroy our chances by piling up debt to a degree that can
ruin it all?
We have to rebalance, become simple-minded about the need to
create more wealth-- taxes won't get us there. Every tax increase raises
government revenue but reduces private sector jobs and wealth production. If the
government continues to raise taxes, the private sector will shrink to the point
where government income declines below the starting point. This happened in
Canada about thirty years ago. Considering the delicate state of our economy,
this is a dangerous game. And raising taxes a little too high will exacerbate
the imbalance. Cutting government wealth consumption would help, but most of our
politicians seem to hale from Greece.
My advice? Prepare for a continuum of what we're seeing and
its consequences. Invest conservatively. While a big jump in interest rates
and inflation remain unlikely as long as Europe remains in recession and our
unemployment is high, watch out for the bond bubble (higher interest rates) and
be sure to have employable skills.
Lastly, please, no good ideas on how Congress should fix
itself, or those that presume a change in human nature.
* Includes teachers' and other public sector unions.
A BIRD NAMED
ENZA & WILL’S WAR are now available as e-books on all major sites including
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