Business & Investments

Article by Bruno Korschek

Given the recent spate of poor economic news and statistics, there is now no doubt that the American political class has failed miserably more than the past couple of years when it comes to operating a wholesome, growing economy. All of the recent political class economic programs have been ineffective relative to their objectives which includes Money For Clunkers, Initial Time Residence Buyers Rebate Program, mortgage salvation programs such as HAMP, and worse of all, the economic stimulus program. All these economic failures did was to add to the skyrocketing national debt with out offering any long lasting economic benefit.

The economic stimulus program was the worst culprit, if only since it wasted the most amount of taxpayer dollars, billion, according to the latest Congressional Spending budget Workplace estimates. The economic models employed to predict what would occur with increased government spending were disasters from a prediction perspective. They had been fatally flawed in the assumption that 1 dollar in government spending would miraculously several numerous times more than to produce a cascade of economic growth. This did not happen. In reality, some academic economic specialists have estimated for each spent in the economic stimulus program, far less than one dollar in benefit was received.

How then do you aid the economy grow? Contemplate some of the following actual life scenarios where much less government spending intervention in the economy in fact spurred economic growth. The first two examples have in fact happened in genuine life, giving them the advantage more than economic theory which we now know failed horribly in real life. The third example is an analogy employing the concept of water in a swimming pool and also makes use of no economic theory, just common sense.

At the end of Globe War II, the United States necessary to do a enormous retooling and refocusing of the domestic economy, going from a wartime based economy to a peace time based economy quite swiftly. Why? There was no longer a require to create military goods and there had been millions and millions of service men and girls coming property to look for a job. Today’s political class would have introduced a huge economic stimulus spending program, with the corresponding improve in government taxes and spending budget, to “produce jobs.”

Luckily, the political class in 1945 did the precise opposite:

- From 1945 to 1948, the government in fact decreased its size and spending by about 68%, going from a Federal spending budget in 1945 of .7 billion to a much smaller size of below billion by 1948.

- In the course of that 3 year time frame, the economy grew by over 6% a year, going from a GDP of three billion in 1945 to more than 9 billion by 1948.

- Despite millions of ex-military folks flooding the job marketplace, unemployment never went above four% in the course of the identical time period, a level of unemployment that today’s politicians would kill for.

Let’s evaluation: 1940s government spending is slashed, economic growth skyrockets, and unemployment is kept under an unheard of four% in spite of the enormous influx of new workers. This is the precise opposite method of the economic stimulus program. The government expanded in size (as did the national debt) but economic growth has been anemic, unemployment has been stubbornly high, and there was no enormous influx of new workers.

If you read the history of this time period from an economic perspective, there actually had been economists of the time that never ever believed this non-interventionist government method would work. They advised that the government continue to fund the war time factories and continue to create unneeded wartime munitions and weapons in order to develop function for individuals. Never ever mind, that the output of their effort would never ever be utilized in the economy, it would just burn by way of taxpayer resources to develop function.

This is eerily similar to the the recent economic stimulus package which also created work but not long lasting, economy developing, permanent jobs. Thankfully, the politicians of the 1940s ignored the suggestions of these economic wizards and let the economy sort itself out, which it did magnificently. High growth, minimal government taxes, expenditures and debt, and low unemployment. It was that easy.

Let’s jump ahead 65 years to present day reality and evaluation what is going on down in Puerto Rico.The following example is based on an interview completed in the June, 2011 issue of Reason magazine. The topic of the interview was Luis Fortuno who is the existing governor of Puerto Rico. Highlights of the interview article consist of the following:

- When he became governor in 2008, he located a fiscal scenario that was far worse than he imagined.

- As soon as he came into workplace he identified that the government did not have enough money to make payroll, necessitating the want to get a loan for the fundamental function of paying government staff.

- The bond rating agencies had been about to classify Puerto Rico bonds as junk status.

- Within two years, he had decreased government spending by 20%, had started to lower taxes across the board, and had averted the junk status rating for the bonds of Puerto Rico.

- He did all of this despite the fact that Puerto Rico’s spending budget was worse than the budget shortfall of any state in the union, coming up 44% short of the income needed to cover current costs at the time.

- In addition, unemployment in Puerto Rico was 17%.

- He set a cost cutting example by cutting his own salary by 10%, the salaries of his cabinet secretaries and the size of government contracts by 15%.

- Inside two years he had reduced government employee headcount by 17,000 people on a total base of 140,000 or about 12%.

- He lately decreased government employee headcount by an additional 4,000.

- He achieved the reduction by encouraging retirement or delivering workers incentives to start their own businesses and leave government employment.

- Unemployment is nonetheless high at 14.five% but is down from a high of 17% (a 15% reduction) and is still trending downward.

- For the first time in 5 years, Puerto Rico is lastly seeing positive economic growth indicators.

- He also slashed each corporate and individual income tax rates but nonetheless expects to have a balanced spending budget by 2013.

- The beauty of his tax reduction method is that if the spending budget is not balanced by 2013, some of the future tax reductions will not occur. This encourages all taxpayers to remain on best of their politicians to to get spending under manage. Otherwise, taxes go up, a tremendously clever leveraging approach.

- When he took workplace, Puerto Rico was dead last relating to the relative size of the budget deficit in comparison to the fifty states. Right now, it has improved all the way up to 20th, enhancing its spending budget circumstance more than 31 other states.

What a fantastic story. A bold leader cuts taxes, reduces government spending, reduces the number of government employees, absorbs the slings and arrows of doubters and what happens: unemployment goes down, taxes go down and the government’s fiscal circumstance gets drastically healthier. This is not economic theory, this is the economic reality of today when a intelligent and courageous leader follows the tenets of freedom and makes government smaller and the individuals it is supposed to be serving, freer.

And everyone wins. Households get to maintain far more of their tough earned dollars, corporations have more funds to expand and pay for much more workers, and government is smaller and much more effective as it narrows its focus onto only crucial priorities.

Two quotes from the post truly fly in the face of the attitudes we get from our politicians in Washington:

“There are some that have a philosophy that the government can manage our dollars much greater than we can. I completely disagree. I believe that, actually, folks are working tough, sometimes with two or three jobs, to earn that funds. They ought to keep it. And they know much greater than any government how to handle it, beginning with their own.”

“Surely the minority in our state legislature (have been sources of opposition). The unions have been trying to block us as well. But at the finish of the day, there’s nothing much more powerful than individual freedom to start to grow and do greater for oneself and your loved ones. And that’s far more effective than any union, any government, any party, and I’m convinced that that is why this (economy improvement) will be permanent.”

A freedom lover, a guy who understands reality and human behavior, and whose ego is not so large that he thinks the world revolves around him. Totally contrary to those currently sitting in the White House and in Congress. And most importantly, he has a productive economic track record, they have a record of failure and futility.

Two examples from two distinct time periods with the very same effective results. Freedom of option, low taxation, and minimal government interference wins out. Seems funny that the New York Times never reviewed these two economic good results stories, still stuck in the old failed theories that government knows very best.

The third example is not based on actual economic success stories, just common sense. The analogy likens the economy to the water in a huge swimming pool. The political class has this brilliant concept that it wants to grow the economy. How does it do it?

Simple, it takes water out of the left side of the pool and carries it over and pours it into the appropriate side of the pool. Even though the pouring procedure may have elevated the water on that appropriate side of the pool, the effects are limited and minimal because the water ultimately equalizes out, with no net gain of water or economic activity and growth.

The dilemma is that government spending does not develop wealth, it does not create water. It just takes wealth out of the economy (the left side of the pool), repackages it as economic stimulus (the correct side of the pool) and absolutely nothing is gained.

In fact, you could make the case that water is lost (i.e. economic vitality is lost) as the politicians splash water onto the pavement in the process of moving it. This would be equivalent of spending stimulus money on such inane economic stimulus projects as insect investigation in Africa and replacing windows in a government developing that was not in use and will most likely by no means be in use.

The wealth and funds they took out of the economy on the left side of the pool would have been a lot greater spent and spent much more efficiently if it had been left in the hands of people, families, and organizations. They would have had sufficient ingenuity to locate a water hose and really increased the amount of water in the pool. The political class could not even uncover the tax cheaters that got awarded stimulus dollars, never mind obtaining a water hose and employing it.

The stimulus program is a bust, it turns out to be absolutely nothing a lot more than moving water form the left side of the pool to the correct side of the pool, losing water int he transfer method. It has not decreased unemployment, it has not led to substantial economic growth, and it is negative impact on the national debt will last for decades to come. Truman in World War II and Fortuno nowadays have shown the way to economic growth, a way that works and nobody, not even the New York Times, can argue with success.

About the Author

Walter “Bruno” Korschek is the author of the book, “Really like My Country, Loathe My Government – Fifty 1st Steps To Restoring Our Freedom and Destroying The American Poltiical Class,” which is available at http://www.loathemygovernment.com and on the web at Amazon and Barnes &amp Noble. Our everyday dialog on freedom in American can be joined at http://www.loathemygovernment.blogspot.com