|
Some Thoughts on Creating Wealth |
|
This is not about creating wealth for individuals, but for the nation and the world as a whole. Two previous articles dealt with basic economic principles and the root causes of our current economic problems. As stated in the article on basic economic principles, economics – like the weather – is extremely difficult to predict. One cannot lay out a precise prescription that if followed guarantees recovery. [1] Alternatively, this article lays out some general directions.
1.
The nation needs to modify the tax cuts of the Bush administration
and raise taxes on the wealthy.
[2]
The economy is structurally
[3]
out of kilter with the federal government continuously
borrowing with no end in site.
[4]
The use of the social security taxes and the
under reporting of the federal deficit is appalling.
[5]
The issue is less one of a balanced budget than
the structural nature
[6]
of the deficit and the spending.
[7]
The longer the
2.
The nation needs to develop new
[9]
energy sources and new industry / government
covenants
[10]
for managing energy. Every product that is produced
and every service that is delivered uses energy.
[11]
Increases in the price of energy have a multiplicative
inflationary effect on the economy. Use of fossil fuel energy is
also thought to be an important factor in global warming.
[12]
The longer the 3. The nation needs to revisit our social programs and build new more comprehensive collection of social programs. Social Security is under attack from budget deficits. [13] Health care is too expensive, [14] and furthermore frequently unavailable to those who need the care the most. Education initiatives are going unfunded. [15] State colleges are raising tuition rates. We need to reconsider the way health care is structured, adequately fund our pension programs and revitalize education. 4. The nation needs to jump start our economy. This is most effectively done by pump priming [16] investment by the federal government. Energy, education and health care are obvious places for investment. Other areas include transportation, water, ecology, anti-terrorism, pure & applied research, and small businesses. Pump priming in these types of investments will create wealth from which all [17] will benefit. The good news is that republicans and democrats agree that the broad direction the nation should follow is wealth creation. The argument is over what is the best way. These broad directions [18] will not solve all our economic problems, but they will create more wealth. [19] This additional wealth will go a long way to putting the nation on a rapid course for recovery and long term economic health. Other articles will investigate each of these topics in more detail as well as present other important areas that we need to consider for our economic health. [20] [1] The economist John Kenneth Galbraith once said that if economists had this power, then they would be wealthy.
[2]
The cry of tax cuts is immensely popular. As
Vice President Mondale can attest, the idea of raising taxes is
politically a loser. Not even President Clinton ran on a platform
of raising taxes. The Bush tax cuts are clever in that they created
a sweet spot for a small
portion of the middle class. Paul Krugman
in the New York Times op-ed article The Sweet Spot on
[3]
Paul Krugman in the New York
Times op-ed article Don't
Look Down on
[4]
One argument of republican politicians is that
taxing the rich prevents the rich from investing in the economy
and creating jobs. Republican politicians frequently point to
the JFK tax cuts that stimulated the economy as proof. The truth
is much more complex. When interest rates are low and company
profits are high the statement is true. However, there is a current
concern that the
[5]
Howell E. Jackson in the New
York Times op-ed article It's
Even Worse Than You Think on
[6]
This is well described by Joseph Stiglitz
in his article First Japan, Now China is the Culprit: In Reality,
the US Has Only Itself to Blame for its Swelling Trade Deficit
first published in the Guardian
Unlimited on October 15, 2003 and republished in Common
Dreams on October 16, 2004. Joseph Stiglitz , professor of economics at [7] The problem is not with spending that ends, like building a new road, but with spending that never ends and grows such as maintaining a road. Borrowing to build a road is great. Borrowing to make interest payments and maintain the road stinks. The exception is arms spending. One should not borrow to build new munitions. Of course one could argue that it is for maintenance and not new weapons systems. [8] The Great Depression adversely affected the whole world. The depression that is coming could again lead to war, and even greater hardship. The problem is that we are more highly specialized and interconnected now than then. When the connections break the problems will be that much worse. [9] Energy is a critical resource for our modern economy. The economic malaise that overtook the country during the 1970’s was in large part due to an oil embargo by the OPEC countries. Today, decisions by OPEC ripple through the economy.
[10]
The regulations are changing. The impact of
these changes has been felt from the California Energy crisis,
to the collapse of a
[11]
Some argue that the war in [12] Global warming in turn leads to more extreme weather conditions (hurricanes, tornados, snow storms, droughts, floods, . . .). While difficult to quantify, this also has a strong negative impact on the economy.
[13]
See footnote 4 Howell E.
[14]
The high cost of drugs has lead to criminal
activity where even reputable drug companies unwittingly purchase
illegal drugs. See the article Lax System Allows Criminals To Invade the Supply Chain in the Washington Post on [15] Bush’s Leave no Child Behind is notoriously under funded. Head Start and other programs are under the budget axe. The states are desperate for income. [16] The unfortunate economic situation we are in is that people seem to believe that simply running a large deficit is enough to stimulate economic activity. Yes – a large deficit may help, but the real question is does the deficit create wealth for the country. The current deficits, based largely on defense spending and reallocating money to those who do not need to create wealth, does little or nothing for wealth creation. [17] There seem to be two competing pie philosophies. One is the fixed size pie, where if some get large slices then others must by necessity get smaller slices. The fixed size pie is sometimes referred to as trickle down. Trickle down economics reminds me of a bathroom analogy – the rich urinating and the poor being expected to benefit from the trickle down. The other is the growing pie philosophy where all can get bigger slices from the creation of wealth. The issue here is the need to create wealth. When those who have wealth have an internal need then tax cuts will work. When those who have wealth do not have such an internal need then tax cuts fail. Unfortunately too many rich do not have such a driving need to create wealth. [18] If you don’t like these directions, then I challenge you to find better ones and articulate them. If you like them, then I challenge you to improve upon them. [19] The proverbial larger pie. [20] These suggestions focus on things the country can do for itself. The long term economic health of the country is intertwined with the economic health of the world. Only if the whole world is made economically healthy, will the long term economic health of the nation be assured.
|
|
Home |