In the Swamp with the Budget

Budget Morass
We have met the enemy and he is us.
Walt Kelly

These days everyone is an economics expert.  Everyone thinks that he or she can take personal experiences and translate them into macroeconomics.  It just does not work that way.  Now, I won’t try to tell you that deficits don’t matter like Dick Cheney did.  Nor will I try to convince you that we can live forever running trillion dollar deficits in a stagnant economy.  What I will tell you is that if we are getting our talking points from Keith Olberman or Glenn Beck we are probably not anyplace near where we need to be.

I am the operator of a small business with emphasis on “small.”  Even at that there are some business principles that I have learned the hard way.  One is that you have to stay relevant or your competition will run off and leave you in the dust.  Another is that you have to keep up enough inventory to be able to respond to demand.  One that took me a while to learn was that if you deplete operating capital you are effectively out of business.

A business, any business, can’t stay in business long if it does not attend to the future possibilities.  In my business it is important that I stay current on technological changes and regulatory changes.  If I don’t do this then I will lose market share to my competition.  Revenue and standard of living will suffer.  Government is a bit different in that revenues are not determined strictly by competitive factors but by taxation.  In turn taxation depends on the health of the overall economy and its ability to compete in the markets in which it is involved.

It is in this light that we must consider just what the role of government is in relation to a free market economy.  We must consider what kind of services we expect government to render and what the cost of those services might be.  If government is to render services then it must have sufficient revenue to do so and to do so it must consider what the future may look like.  Government will not participate directly in generating revenue but it can foster a climate conducive to a free market doing so.  As a matter of fact, only government has the resources to be able to tackle a problem of this size.

Consider this.  Federal government largely pays for and maintains the highway system and especially so at the interstate level.  Already our highways are crowded and our transportation infrastructure is crumbling.  Do we wait for our economy to be detrimentally impacted to compensate or do we try to get out in front of the problem?  Can we envision our interstate system growing infinitely or should we begin to consider alternative forms of mass transportation?  If we can envision alternative forms of transportation then should we wait for consumers to create demand to answer the call or should we try to create an incentive for business to prepare?  If we can see a future that will demand a more advanced work force and a better educated populace should we wait for traditional supply and demand to cause business to create a better worker or should we try to get out ahead of it?

A fact of business is that businesses have a financial obligation to their shareholders.  Businesses will not incur expenses if they do not promise revenues to recover the investment.  For now major corporations are able to deal with this by moving operations overseas to compensate for production costs and to locate a suitable workforce.  As a matter of fact, the major corporations have hired 1.4 million people in the last year.  All overseas.  But what about the operations that will necessarily be domestic such as transportation?  Will we allow foreign companies to perform the work since we will not have the technological capability to do so?  If we expect to maintain our standard of living then what will we do to foster that?  It is cheaper for companies to move to the workforce than it is to spend twenty years educating people to fill their needs.  Who can fill the need to create a better educated workforce?  Government, of course.

So, here we are and it is time for the budget debate again.  On the one hand you have those who would just stop spending money until the budget balances no matter the cost.  On the other hand you have the President’s budget that manages to make small cuts this year but maintains options that will prepare us for future opportunities such as energy production and high speed rail. Already China has overtaken Germany as the leading producer of wind turbines.  China is proposing to spend six times the amount that the United States is on high speed rail.  Our innovation and invention are two of the things that keeps the United States ahead but other countries are investing more in education in sciences and mathematics. If we do not keep up our commitment to the future the downside will be immense and dramatic.

Yes, there are many decisions to be made going forward but we must not destroy the things that will sustain us in the future nor do we need to.

My take on preparing for a future economy.