This Economic Downturn Can Be Corrected
We are in the sixth year of an economic downturn, and so far the federal government has followed the same procedures that have always failed. Congress must ignore banks and the finance sector and stop stimulus activities with the states; the problem doesn’t exist there. An overall problem has hit the private business sector, and its businesses, in aggregate, have faced a reduction in incoming work. That is what needs the stimulus.
The nation has faced this problem before and what needs to be done is known -- and implementation won’t cost taxpayers a dime, or the government any lost tax revenue.
The Nation’s Sole Source of Income
It is fundamental that all recognize: Essentially, the sole economic source of wealth for the United States and its people is the private business sector. We have approximately 29 million firms in the United States, all working for their share and more of their market, and their individual activities create our business environment. Their fortunes, collectively, determine whether our nation is prospering or otherwise. From small neighborhood restaurants, laundries, service stations, barber shops, beauty shops, to local machine shops, mining and construction firms, product manufacturers, to great national, international ones such as General Electric, Boeing Company, etc. All of them have their own capabilities, products, or services to sell, rent, lease, etc., and each of their managers and employees have their own unique expertise.
Each of those 29 million firms, unique capabilities well in hand, charts its own course and aims its people in a selected unique direction.
Banks and Financial Markets Do Not Contribute to the Wealth of the Nation
From the attention government and economists are giving banking and finances, it would appear that the financial sector is an important contributor to the financial health of the nation and its economy. But that is wrong.
Banking and financial institutions are where the nation goes with money earned from the private sector -- that which is left over after living expenses have been paid (savings). Banks and finance can contribute to an individual’s or a group’s wealth, but not to the nation’s -- unless money from foreign sources is attracted by financial activities.
When money is deposited in a bank, it earns interest. And that is why, in times past, banks were used for savings. Banks used deposited money to invest in other financial activities that would earn them income, from which they could pay depositors a portion for the use of their money (interest). However, the bank’s income from those other financial activities was funded by other people’s savings, which had been obtained from their earnings from private businesses. Bank and financial employees are actually paid with money the bank obtains from the private sector.
If the private sector only paid its employees enough to cover the employees’ immediate expenses, with nothing left over, banks and financial institutions could not exist.
The downturn problem we have rests solely with the private business sector; it is this sector -- and only this sector – that should be the focus of our attention.
The People and Money Know
Nobody, including those in the business community, ever sees a downturn coming. Individual firms will see incoming orders begin to taper off, and at meetings with others that becomes a topic for conversation. That is the beginning. If enough other firms begin to see orders taper off, however, and that continues for a time, the nation soon becomes aware: Business quarterly reports, in aggregate, make it evident that overall business is down, and at that point the media let us know that a possible business downturn or recession exists.
But always, among the 29 million firms that comprise our marketplace, some businesses will be doing well. We know how to find them, fund them, and begin the healing process; it comes naturally with the free market, and it doesn’t cost the government or the taxpayers a dime.
The private sector has 132 million citizens who satisfy household needs with products from all 29 million businesses. They spend money to buy an infinite variety of products or services that they need or desire from those businesses every day, and that money, secondarily, is finding all of the firms peculiarly poised for growth and is feeding them.
Nobody Else Knows
Nobody knows who those firms or business sectors, in aggregate, are -- regardless of degrees held and the number of computer studies made. Nobody can determine the businesses in the private sector on which government money should be effectively spent to stimulate the economy.
In addition, the government has no money; the money it spends has to come from private business. So to stimulate the economy, government is taking from one part of business in an effort to stimulate all businesses. It has been evident since 2007, for example, that government is taking from the wrong business sector -- oil and gas energy, that we know is poised to grow, to stimulate another -- sun and wind energy, which is definitely not ready.
Businesses Began Recovery Efforts Immediately
Businesses have already started work on recovery. All of those firms who noted the tapering off of orders or backlogs for a period, had immediately begun to review internal business practices more closely, looking for ways to reduce costs and to improve efficiency, and to dismiss less productive workers. And as it continues, more of those managers whose firms make up our economy will begin to look for ways to stimulate sales or develop new opportunities for their businesses – price reductions, freebies, letters, radio, TV, Internet advertising, whatever. This is all the private sector can do. The next step – a most important one – has to be taken by government.
Government has responded with spending in states on construction, etc., and we have been told: The economy has improved, but not as well as we expected. The improvement had nothing to do with the state stimulus efforts. The efforts described that had been taken by businesses and the spending by consumers made the corrections and will, with time, finalize the healing and make the market grow.
Government Can Help
To help the efforts, and not cost a dime, the government should review business regulations, those from which income springs, and eliminate those which retard growth (i.e. permit oil and gas exploration to grow, back away from auto mpg regulations, etc.).
But government can shorten the period of distress further. To make the nation’s period of economic distress the absolute shortest, the government has to do this: Give all private sector businesses more money (lower tax rates with no time limit), and give the private citizens more money to spend (lower tax rates with no time limit). Then stand back.
If government does its job and reduces taxes as indicated, consumers will do their share to help. They will spend available dollars, seeking businesses poised for growth. Private citizens, using new money they now have because of tax reductions, will cautiously listen to business messages, look around, take advantage of some of those freebies and spend a little of the money for products at reduced prices. Cautiously, those who need houses, automobiles, and other major items will begin to look around. When their need becomes too great to ignore, a few will begin to take the risk to purchase needed houses, or automobiles for transportation. With time, when these customers’ purchases have increased sufficiently, the view into the future looks clearer, new orders are brisk, and the backlog is growing--farmers, manufacturers, and services begin procedures to increase output. First, managers keep up by working their people overtime; then, if the backlog keeps growing and they can’t handle it with their workers, they start hiring part-time people. Finally, if the backlog of orders continues to grow, they begin to hire new, full time workers.
At this point, if enough individual businesses, collectively, are seeing this, the recession is over, unemployment rates have dropped, business growth and government receipts are healthy, and some companies begin to invest in plant expansion and new production equipment.
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If you would like additional information, please call Tom Shipley at 248/514-1050, or refer to Why Government Can Never Fix a Down Economy, by Tom Shipley, Outskirts Press, 2012.
2694 Dorchester Road, Birmingham, Michigan 48009 • 248/514-1050
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