The commentary: Let's start with the big stuff. $16 trillion in accumulated debt plus another $117 trillion in unfunded liabilities means we owe a grand total of $133,000,000,000,000.00, or $427,653 for every man, woman and child in the nation. And the number keeps growing every second.
The big conclusion I draw from this is pretty straighforward: For this number to have gotten this big with the majority of the public being largely unaware and not understanding what it means to them is a crystal clear indicator that we have hired the wrong people to run our business (of every party and persuation) for very long time. This needs to change, and as soon as the people get engaged it will - I hope that happens soon.
Where to go from here: As with most things in the human experience, when we find ourselves in an unacceptable circumstance the only thing that really matters is what we decide to do about it. The "why's" of what got us there are only valuable as a guide for illuminating things to avoid in the future. In looking at solutions to our debt problem the school of thinking that seems to get the most attention simply promotes a basic, binary approach - higher taxes, lower spending, or a combination of the two. If we accept that binary premise as fact, then we that's all we have, and all we'll ever have. Fortunately as humans we excel are being creative - and that is exactly what is required here.
Here are three things just to consider (and the first two are old news):
Stop spending! The old adage applies - "When you hit rock bottom, stop digging!" To put it simply - run the government like a business by incentivizing performance that reduces budget size, spending levels, duplication of effort (do we really need dozens of departments with the ability to arrest our citizens?) and improves efficiency. Above all, we can't afford to add any more weight to the cart, and any politician who is unable to work towards that goal needs to be voted out of office at the first opportunity.
Cut taxes! - This is counter to the general media conversation and not very (currently) populist AND here's the deal: Every time since the 1940's (which is when permanent taxation began in the US) that marginal tax rates have been lowered, actual tax receipts have risen.
How can this be? We lower rates, but then we actually end up with more money flowing into the Treasury?? It's true. Please understand that there are no politics here - only empirical, numerical fact, and the facts are incontrovertible. Don't believe it? Go investigate at the CBO website.
The fact that when we lower tax rates actual tax receipts increase indicates something incredibly important (that I've talked about here before), which is that there is in all probability an Equilibrium Tax Rate - the phenomenon is called The Laffer Curve. Equilibrium points are very common in economic theory, and Tax Rate Equilibrium is simply the rate that yields the highest actual tax receipts. When rates go down and receipts go up it is telling us that rates are too high, and my guess is that they are far too high.
Quick Note: As with any politically-charged issue there are lots of folks who dispute the numbers for lots of reasons (there's a pretty good one here). The main problem with all of them (besides being mostly politically motivated), is that they look at the US economy as a closed system, when in reality our place in the global economy and as the global reserve currency are advantages that no other economy can replicate, and we need to use those advantages.
And finally: Rev the Engine! - This item gets almost no attention out there, even though it is one of the most critical solutions we can go after. "Rev the Engine" is about increasing the velocity of money through the system (not increasing the amount of money in the system). The velocity of money is, in my opinion, one of the key triggers of the Laffer Curve phenomenon (lower tax rates equals higher actual tax dollars collected). Semantically I use the engine reference for a reason: Engine speed is measured in RPM's. By the same token, monetary velocity (at least in terms of this discussion) is measured by how many times a dollar can go around the system.
Example: Let's make a point of taxation the start / finish line in this race. If conditions exist to make it possible for a dollar to make it to the taxation point two times in a year, instead of one, then that dollar has 100% more taxation revenue value.
So what does it take to increase economic velocity of money through our economy? Think of it this way: What makes people and companies not want to send their money through the system in the first place? At the end of the day I believe that it is simply Risk. In this view Risk equals friction, and friction slows down the money - Risk in making or taking a loan, risk in starting a business, risk in hiring an employee, risk in expanding a business, risk in taxation itself - the simple risk that they will not get that dollar back again.
From a business perspective what are the places where government can change the perception of risk in the economy? Here are a few:
- Unemployment costs
- Regulation costs
- Uncertain government policy
- Unfair international competition
- Unfair currency translations
- Unfair or even uncertain taxation - as an example if by sending that dollar on its journey through the system you will only get $.25 cents of value (so assuming a 75% tax rate, which we have actually had in the US in the past)
From a policy perspective, the job of the government should be to remove impediments and friction (risk) on the cyclical flow of money through the economy to the highest extent possible.
Conclusions: The three items here, pursued simultaneously, in my opinion would put economic growth over 8% within 24 months for a period of between 5 and 10 years. The resulting tax revenue would be enough to eliminate the outstanding debt within 15 years, and have the unfunded liabilities in check (as long as we don't allow the politicians to go and fritter away our wealth yet again!).
All that by simply hiring the right people in Washington, unchaining both the economy and, most importantly, We the People!
