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Author: Steve Turner –
I am hearing comments reflecting expectations that the Super Committee is not going to be able to come up with a budget solution in the week that it has left to accomplish the task. And to think that all they have to do is come up with a reduction in the budget of $1.2 trillion over 10 years. That is an average of $120 billion per year on a current 2011 budget of $3.69 trillion. That makes the debt reduction target equal to 3.25 cents on the dollar, or even worse, .8 cents on the dollar of the almost $15 trillion of debt the USA is now carrying. We are projecting to run over a $1 trillion per year shortfall for the next 10 years at our current pace. So, Congress cannot come up with anything that would reduce the $1 trillion annual debt increase all the way down to….$900 billion per year. This is why you do not want the government managing your money. Right now, the government is managing a debt of over $48,000 per man, woman and child in this country. They are also managing an annual budget of almost $12,000 per man, woman and child in this country. That means the total debt is equal to 4 years of income. What would happen to you if you were carrying that amount of debt, assuming that you did not have an asset base to leverage it?
Our gross domestic product is $14.5 trillion dollars. That means our budget is over 25% of our GDP. That means that 25% of our economy is in the hands of the government, which understandably by design is set up to run on a mentality of break even. Whatever they get, they can spend, without trying to make a profit. Profit is what provides for future investment. Money that is in one door and out the other does not leave anything behind for creating more efficient production methods or investing in new products. More efficient production methods, in increase in productivity, are what have increased our standard of living over the decades. Let’s use a simple example. An employee earns $1000, then takes it home and spends $1000 on housing, food and clothing. The following year, there is a change in production methods so that the cost of the housing, food and clothing now only costs $950. With the left over $50, the employee can add cable TV. He now has more than he had before with the same income. That is an increase in the standard of living. Let’s look at it from the employer’s side. Let’s say that it takes $300 to produce a product that the employer sells for $320. Part of the cost is the labor paid to the employees to make the product. During the following year, the employer invests the profits from the previous year and increases production efficiency so that now, the product costs $280 to produce. The employer has $20 more to work with. He chooses to give $15 worth of payroll increases to his employees and invests an additional $5. Now, the employees have $15 more than they had before, yet the employer does not have to increase the price of his product to pay for it. This is an increase in productivity, allowing the employer to give payroll increases without a corresponding increase in prices. When this happens throughout the economy, there is an overall increase in the standard of living. That only comes about when there is an incentive to improve production methods and an incentive to develop new products. That only comes in an entrepreneurial atmosphere. It does not come in a government controlled economic system.
In reality, what I described above only comes with improvements in productivity. If we had not produced more output with a lower increase in input over the years, there would have never been a car in any garage in America, not to mention a second one. There would not be any money to buy the new products that have come on the market. There would not have been any internet friendly devices or wireless phones. Increases in productivity and the development of new products and services have been characteristics of mankind since the garden. Why did that happen? Generally speaking, it happened because there was the ability and the desire to do something newer and better. The ability came from previously successful risks that returned a profit and the desire to invest that profit came from the opportunity for the same thing to happen again. The more combinations of ability and desire there are, the more the cycle repeats itself and more we experience the fruit of that activity.
There have been “experiments” throughout the years of economic systems that instead of focusing on the creativity of the many, focuses on the restrictions by the few. I call the result a restriction because the result restricts the creativity that has been previously flowing. There is some reasoning out there that says that the result is a more evenly distributed economy, thus everyone benefits. I find that a bit hard to swallow, since the result is that there is less to distribute, because few are working with the incentive, the opportunity or the desire to create something newer and better. You only have to look at Eastern Europe from the 80’s to now to see the benefit of moving from the previous controlled economies to the current free enterprise business environments.
Let’s come back to the USA. We cannot afford to continue on the path we are on, which is starting to look very similar to the controlled economies that Eastern Europe left about 20 years ago. I am focusing on the path here. We have a long way to go before we hit those extremes, but I can also say, it is a lot easier to shift now than to wait until we are further down that path. Look at how much of our economy is in the hands of the economically uninspired, in the hands of those with a break even mentality vs. a make a profit mentality with the resources at their disposal to conduct business. I do not fault government employees. They are working in a system that has no other alternative than to function in a break even mentality. The government agencies are given a budget to work with. If they are successful with the taxpayers’ money and can get the job done with less, they will naturally not get as many resources the following year, everything else being equal. There is naturally no incentive to do more with less. If the natural incentive to do more with less is missing, we will get less with more. We have to stop handing so much of our economy over to that environment. There is no alternative. This needs to stop.
When we go to the polls in the next election, we need to know who is going to keep more of our hard earned money in the hands of the creative minds that have made America great for so long and will continue to do so. We, the voters, need to put that person in public office. We need to start this process in the primaries, because there are too many incumbents that fail the test. We cannot wait for the political establishment to anoint their favorite candidates, usually incumbents, so that the status quo may continue, then expect us to chose from what they have chosen. We need to choose alternatives in the primaries! They are out there. In fact, I believe that we will see a wave of fresh air in this next election cycle. We will see it for two very main reasons. One, because God is going to cause a change in the political atmosphere by raising up new candidates that stand on what He created in the first place, which includes free enterprise, and two, because the voters in this country are going to make the responsible choice of returning the control of the riches of this country back into the hands of the creative minds that can do the best with it. Who are those minds? Take a look in the mirror. Everyone was created with a purpose, and contained in the purpose is the path to bring that purpose to fruition. The more of us that reach out to discover our purpose and work to bring it to fruition, the better we will all be. Now that is how to distribute an economy so that everyone benefits.
