Inflationomics

How to Make America Great Again

One of the most basic principles of economics is that the more capital there is invested in a job, the more productive that jobholder can be.  Consider how much more productive someone can be with a backhoe than with a shovel, or how much more productive a computer makes someone compared to a typewriter.  It’s clear.

Now let’s jump to the economy in general.  Once again, the more capital employed in a country/economy, the more productive its people can become.  Since the 1970s, China has been attracting capital investment on an increasing level, raising the standards of living for its people and simultaneously making China the manufacturing hub of the developed world.  The United States, on the other hand, has been consuming its capital, for the most part.  Employment opportunities have been declining at the same time.

To turn this situation around, America would have to attract more capital into its economy.  This could be done by:

  1. Lowering taxes on productive people; i.e., people who work at profit-making ventures.  If you’re not earning a profit, you’re consuming capital.  Give productive people a greater incentive to be productive.
  2. Employing fewer unproductive people; i.e., government and non-profit organizations.  Give fewer people an incentive to be unproductive.  This would also give the U.S. government the opportunity to reduce its debts.
  3. Reducing government handouts, which the government can’t afford anyway.  This would reduce the incentive for foreigners (and locals) to come to the U.S. to collect unemployment and Social Security benefits, etc.  Only those seeking an opportunity to get ahead through hard/smart work would be attracted.  It would also decrease corruption.
  4. Changing the tax laws to allow U.S. corporations to repatriate their foreign-earned funds to invest in the U.S.  Of course, the flip side to this course of action is that this could depress foreign investment, thus causing a decline in the health and wealth of non-U.S. countries, who have borrowed U.S. dollars and may not be able to repay them, causing a domino default in loans.
  5. Raising interest rates to a market rate.  How do we know what that is?  Eliminate the Fed and give people the freedom to choose the currency they want to use.  Allow private organizations into the money business…chaotic at first, but better in the long run.  There would be an automatic decline in markets if this policy were instituted because of all the bad-mouthing the press would do, and after the policy was instituted, people would start to see the advantages of such a policy and they would adapt.

While the historically low interest rates have been punishing savers, borrowers have taken complete advantage of the situation and continue to borrow at ever larger levels, making the financial system unstable.  They are even borrowing money that is created out of thin air.  How long can that last?  In the short run, abolishing the Fed and opening up the money business to private enterprise (consider crypto-currencies, for example) could cause a recession, perhaps even a depression, but in the long run, it would encourage saving a more stable money that could be used to build capital.

These five steps would go a long way toward making America great again.  I’m sure that after these steps have been instituted, I could find five more…so stay tuned, just in case….

Robert F. Sennholz

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