At the crossroads

It is obvious that we are standing at a major crossroads in the economic life of this country, and it is equally obvious that a major reassessment is needed about the way things are done, both in America and elsewhere. It has been my feeling for a long time that a major overhaul is needed of the systems that govern economic activity.

In a video featured on NQ before the election (“An Alien’s Message to America“) I assessed the country’s economic strengths and its fundamental prospects for the future. I would like to offer some further thoughts on this, but first allow me to reprise some of the main points from that video, because I think they cannot be stressed enough.

QUOTE:

One of the most fundamental economic realities about America is that it has many strengths, the five most important of which are its people, its infrastructure, its natural resources, its real estate, and its free enterprise system.

America has the hardest working people of any country anywhere in the world. They are also the most resilient. Americans might not have the undisputed lead they used to in industry, education, science and technology, but they are still close to the top and have a workforce capable of anything.

America’s social infrastructure is the greatest in the world in terms of its workforce, its mobility and its transportation systems. Just as importantly, Americans network socially and professionally more than any other nation, as can be judged from internet traffic alone. This is particularly important, because it is networking and communications that form the hub of economic activity.

Added to this, you have a country with a vast wealth of natural resources, and the finest real estate of any country, from the cornfields of Kansas to the vineyards of California and all kinds of agriculture in between.

Along with social freedom and democracy, it adds up to vast basic collateral and the richest country in the world, no matter how much the country may be in debt. It has a far greater ability to mobilise people and resources than any other nation. All of which, in my view, makes any economic woes a short term thing. American wealth is real wealth, not something built on sand.

UNQUOTE.

However, such intrinsic or natural wealth does not in itself contribute to a healthy economy that promotes productivity and the general welfare of its citizens. While America may have better resources and skills than most other countries to feed, clothe and house its citizens and defend the country from its enemies, what is needed at the fundamental level is a system that rewards hard work and any efforts that contribute to meaningful productivity and the general welfare of society.

Capitalism has served that purpose well in the past, making America the richest and most productive country in the world, but I have come increasingly to the conclusion that the system of checks and balances in the country’s economic life needs radical reform.

At the basic level, I think it is inarguable that this is what virtually everyone wants: a system that makes the country a better place to live in, as well as rewarding effort and skill. And such a system in turn depends on the accounting systems you use to measure productivity and assign values to it. The problem is that the kind of accounting systems that tend to be used in many areas of economic activity for measuring efficiency, for example, promote and reward the wrong kind of productivity or no productivity at all. And the wrong values are being given to the wrong things.

I’ll give you a simple example of this. In Britain (and I believe in America too), police have been increasingly subjected to performance and “efficiency” tests that concentrate largely on the number of cases they handle, or the amount of revenue they generate through fines and other forms of financial penalties imposed by the courts. The result is that the police have concentrated increasingly on cases that are quick and easy to deal with, targeting motorists in particular to fulfill their quota of cases and revenues collected. Meanwhile, more serious cases – cases that threaten the welfare of the community much more than errant motorists – are neglected. I have had British police officers (including my son’s girlfriend) admitting to me that this is exactly what is happening.

So in effect the role of the police officer has become increasingly that of a revenue collector, rather than someone who contributes to the welfare of the community through reducing more serious crime. Meanwhile, the resulting fines are taking more money out of people’s pockets and thus reducing their discretionary income. It’s a form of indirect taxation.

(Now I am not arguing that motorists should be left to run rampant without police intervention. I am simply pointing out how systems of accounting can become skewed and put undue emphasis on the wrong things).

One can see something similar happening in many areas of financial activity. For example, the values of the shares on the stock exchange often have little to do with intrinsic value or productivity. Buying and selling is governed largely by psychology and gambling fever. To have what is in effect a lottery or crap shoot on such a large scale seems to me a very dangerous way to regulate economic activity or to finance growth and productivity, as we have seen many times over the years and most painfully in recent months. Some of the people who have been most highly rewarded have been the least productive people of al, like the CEOs who took millions while running their companies into the ground.

While I am a fiscal conservative, I morally supported Hillary Clinton’s plans for reforming the health care system. As I mentioned in my video, the health care system in America needs radical reform because it is soaking up too much of people’s discretionary income and thus having a negative effect on economic activity, which is anti-productive. With medical bills accounting for a huge proportion of bankruptcies in this country, something is obviously terribly wrong. As a result some people have accused me of trying to promote socialized medical care, rather than a more efficient and less costly system. However, as long as the situation continues, the more it is going to affect discretionary income and stunt economic growth. Something needs to be done.

I have no doubt that the vast majority of people want to contribute to society, although there will always be a loud minority who prefer to complain about everything and do little or nothing else to improve things. However, society would offer a much more congenial environment if there were more opportunities and incentives for people to contribute to the welfare and productivity of their communities and the nation as a whole.

There is a lot of productivity in America, both hidden and unhidden, that goes unaccounted for. By hidden, I don’t mean a black economy where things are produced and traded be below the IRS radar, although that happens too. (In some of the poorer areas like the remote parts of West Virginia, it helps to keep communities economically active and alive).

When I refer to hidden productivity, I’m talking about the contributions so many people make to the welfare of their communities without being recognized or rewarded for it. For example, I don’t know of any country in the world that has the kind of “Adopt A Highway” scheme where groups of people volunteer to clean sections of road with no thought of reward other than the satisfaction of making their communities a better place to live in. It seems to me there should be a system of reward or award – some kind of social credits, perhaps – to encourage and recognize such activity.

But what is most important is for people to continue to exchange goods and services at the highest level possible, and this means having the money to facilitate and oil such transactions. What matters is keeping the money going around, rather than redistributing it through direct government action.

America has been living on credit for many years now, and in some ways the country has benefited from this because it kept the economy moving. But it also led to the economic squeeze we are seeing now. Redistribution of wealth is not the answer, as has been continuously proved where it has been tried. But what can help are Government programs that create opportunities for people to be productive rather than living off social welfare, while giving them the money to help keep things afloat and the economy moving.

The value of large scale Government projects has been proven in the past. Kennedy’s man on the moon and Reagan’s Star Wars projects generated more value in technological progress and product innovation than it cost to finance them. The resulting technological progress helped, among other things, to make it possible to develop new energy sources such as deep sea oil and gas, which in turn led to new submarine technology that opened up other frontiers (and led to the discovery and salvaging of the Titanic, among other things). These projects also gave the world a vast range of better products from the nonstick frying pan to better and more efficient household appliances, computers, to medical diagnostic equipment like the sonar body scanners.

There are numerous challenges that offer the opportunity for similar productivity and technological progress and innovation through large scale government projects – energy, the environment, and improving the country’s physical infrastructure are just three areas that could benefit from government stimulus and create more jobs for more people.

Another area that could provide new stimulus for further technological advances would be a defense project like the Star Wars initiative that seeks a more efficient way of tracking and dealing with terrorists – a better “eye in the sky”, perhaps, that could more effectively help to find someone like Bin Laden – and weapons that can be deployed more selectively and with greater accuracy, helping to save lives and cut the running costs of dealing with the country’s enemies.

The Great Depression of the 1930s led in America to the creation of bodies such as the Works Progress Administration and the Civilian Conservation Corps, which helped put money in people’s pockets while giving them the dignity and self-respect of doing something productive. Maybe it is time for a similar initiative that will give people meaningful work, keeping them productive and making a positive contribution to the welfare of society,

I have expressed my deep reservations about Obama, the personality cult surrounding him, his manipulation of people, his lack of government experience, his vacillation on issues, and an apparent lack of firm convictions. But it may be to his and our advantage that Obama comes to the job with little government experience, while the fewer preconceptions and the less ideological weight he carries, the better for the job of totally rethinking economic strategy and the way we measure and reward economic activity.

His actions since his election have suggested that he is a pragmatist as well as an opportunist, doing and saying whatever he thinks necessary to keep things moving along, and again this might not necessarily be a bad thing in terms of what the country needs. He might also now be able to put his persuasive powers to better use than simply getting himself into power.

I hope Hillary Clinton is given the opportunity to continue her campaign for reforms of the country’s health care system. I also hope that more women will be allowed to use their experience of day to day economic realities in having more influence on economic matters, offering a more practical approach to “good housekeeping” on a national scale.

Obama has said he has called for new economic thinking from the ground up, which I believe is exactly what this country needs. I hope he can carry through with it.

We can only hope.