Simple Economics
In this welfare state, the simple economics of the flow of money is not plainly explained. The consequence of this is a level of ignorance for the motives of our political/governmental leaders and their initiatives. I do believe that a substantial portion of our nation’s citizens do grasp the basic tenets of the system, but as I listen to the debate over the $87B allotted for Iraqi reconstruction, I’m increasingly less encouraged. So let me see if I can boil this solution down to the basic elements.
There are a couple notable populations I feel we need to recognize for the context of this discussion. First are the average citizens who work in the private sector. These are taxpayers who work for companies/corporations who aren’t directly contracted by any branch of the federal/state/local government to perform work. Their income levels vary from the highest to the lowest. Next are the people who work for government contractors. Often referred to as “welfare for the middle-class”, employees of these companies provide products and services directly to government agencies through contracts. Finally, there are the “civil servants”, people employed directly by government agencies. For everyone’s edification, military members fall into this category.
The impact the government has on the economy should start to become apparent. Conceptually, at least at this point, it represents half of the economy’s contribution. Government contractors typically sustain their longevity with commercial contracts, as well. The fickle nature of politics and government funding makes the formation of companies who rely solely on government contracts a risky endeavor.
Now that we’ve identified the players, let’s talk about the game. The interesting thing about this next step is that it’s fairly universal. The objective is simple really; circulate the cash. That’s all we do, from an economic standpoint. We circulate cash. To make this easier to understand, though, we’ll start with a private sector scenario. The consumer (from any one of the aforementioned groups) buys a product or service. That cash is taken by the seller, divided and redistributed. It is mostly divided between the employees of the company and the government. Of course, the employees divide that between the government and another variety of sellers…and the cycle begins again.
In the last example, the government had their hand in everybody’s pocket. Since they represent half of the economic equation, it shouldn’t be too surprising. This is how the government “earns” money to pay for its employees (whom they also tax) and purchase its goods and services through private contractors (or directly). For every transaction, the government continues to take its cut. Effectively, any product or service that the government purchases, it gets a discount at a rate equivalent to the prevailing tax rates. Should it be a surprise that government contractors hike up their prices on government contracts? The irony is that government employees, per se, are paid much less than their counterparts in the private sector.
Taxes, taxes, taxes. When a company sells a product to a consumer, the government collects a sales tax. When one company makes a profit from investing in another company, the government collects a capital gains tax (also applies to individual investments). Then there are less logical taxes, such as the death tax and the marriage penalty. Under closer scrutiny, one might conclude that the government collects the death tax to claim the last of a citizen’s contribution to the economy. Following that logic, you might conclude that population growth is key to sustaining the economy. More people translates to a higher demand for products and services, ergo, more potential tax revenues. This logic would further explain the “marriage penalty”. Essentially, married couples without children bear a higher income tax burden than those with children. Democrats would lead you to believe that it’s because families with children need that extra money that would otherwise be used for taxes. The Republicans might argue that the marriage penalty (as it is referred to) recognizes that couples without children aren’t contributing fully to the growth of the economy (by not adding to the demand for goods and services associated with rearing children). Therefore, the government will get their money through greater tax burdens.
As hard as many would like to make it, this isn’t rocket science (as a rocket scientist, I can vouch for this). Admittedly, there are a couple of complicating factors, but put in the context of the “circulating cash paradigm”, it’s really quite uncomplicated…
What is the impact of personal credit? It circulates more cash into the economic system…that is until the debt is repaid. Take a country who is deep in recession and I’ll bet you’ll find that the average debt burden per capita has been significantly reduced over recent years.
The national debt, however, is a little more complicated. Less tax revenue or over-spending can both contribute to the national debt. Budget deficits, however, circulate more money into the private sector, increasing personal incomes, establishing new levels of living, and thereby, creating the potential for more personal debt.
Until recently, I was not a proponent for foreign aid as a government policy. What I’ve come to realize, however, is that foreign aid begins the cash circulation paradigm with other countries. Give Israel, for example, $54 million dollars in loans to spend on U.S. military contracts. The after-effect is the need to sustain a new demand (e.g. spare parts, upgrades, follow-on orders, etc.), thereby decreasing the international trade deficit and infusing other countries’ monies into our own. Supply African countries on the cusp of modern technology with computers, and they’ll eventually reach the same stage all of us have…constant sustainment of equipment, software, and upgrades. The most effective business model that was adopted from the government by the private sector was to freely distribute its product, get the consumer hooked (thereby establishing a demand), and then charge for the upgrades and accessory products. It’s how Microsoft, Netscape, AOL, and many others became the corporate giants they are today. (They, of course, sustain their success by regularly introducing innovation into the market.)
The capitalistic nature of this country has inspired me to have some more controversial ideas about how our government operates. Opponents to euthanasia, I contend, might actually be more concerned about the impacts to the economy than the moral ramifications. I’d apply the same to capital punishment and laws against suicide. Your life is not your own, it belongs to the economy. Of course, that’s an extremely unqualified generalization, but I can’t help but feel that there’s a grain of truth out there. Cynics have asserted for years that many of the world’s major diseases are far to profitable to cure. A diabetic without health insurance can easily spend $400 per month in supplies needed to manage his or her disease. Multiply that by the millions of diabetics worldwide…
As insane as it may sound, there is balance in the world. Think about the real tumult a world at peace would foster. As Iraqis would be quick to point out, with a 65% unemployment rate, to which they greatly attribute the dissolution of the military, “peace” has brought violence, corruption, and real danger. …I know…that’s a dramatic oversimplification, but look for the grain of truth in it.
Posts
