Issues, Part 3: America's Economy

The US economy is currently little better than stagnating, with "growth" of approximately 3% or less per year, depending on which statistics one considers. Historically, in the 1890's the US economy became the world's largest economic entity except for colonial empires (the British empire was the largest economic entity until 1941). From 1941 to 2004, the US economy was the world's largest economic entity; in 2004, it was surpassed by the European Union, though the US economy is still much bigger than that of individual European countries.

In contrast to that, the People's Republic of China has been striving for 10% growth per year. Typically, the PRC falls short, but growth of 5% or more per year is common.

In other words, Communist China's economy is growing at least twice as fast as America's, and, at times, it is growing three or even four times as fast.

Growing faster, China's economy will surpass America's. It is possible this has already happened, and it is possible this is happening now; otherwise, it will happen in the future, more likely sooner than later.

This should be of grave concern to Americans, as economic power is the foundation of military and political power. When the US economy outgrew Great Britain's, and later that of the British Empire, America stepped out in front of Great Britain as a world power. In fact, within a decade of surpassing the economic power of the British Empire, the United States was one of two superpowers in the world and, as the Soviet Union collapsed, America was left as the only superpower.

The European Union is nowhere near as united as it could be, and, in any case, the United States is on generally friendly terms with most European Union member nations; in fact, we are in a military alliance with many of them. Consequently, the EU surpassing the US in economic power is not a matter for immediate, grave concern.

However, if China surpasses the US in economic power, this is a matter of very serious concern.

China has a very different view of government power and what rights people have than what America has traditionally had. For example, in an effort to control the growth of China's population, China has implemented a policy of one child per family. A family that has a second child finds the second child being killed by the government (via an injection of alcohol or iodine into the soft part of the baby's head) in order to comply with China's population growth policy. Such post-birth "abortion" is murder, and it is evil; there are no arguments one could make to redeem this policy, but rather, any attempt to do so would call into question the humanity and the sanity of the person trying.

For other examples of Communist China's attitude towards people, one merely has to consider the Tiannanmen Square Massacre of 1989, where Chinese tanks crushed peaceful protestors under their tracks, or China's ongoing oppression of all manner of peaceful dissidents, such the house arrest of Chen Guangcheng - this latter man had attention called to his plight by Batman star Christian Bale, who was roughed up by Chinese security men when he tried to visit Chen recently.

If China's heavy boot ever has the military power to come down on America, it is safe to bet that Chinese authorities will not be as pleasant to Americans as they are to their own people. Assuming China's economy is surpassing that of the United States right now, it will be, in my opinion, at least a decade before China will have the military power to challenge America beyond China and the immediate vicinity of its borders. However, on the trajectory we are now on, our children, who are in school now, will be middle-aged in a world where China controls our debt, dominates us economically, and has the military power to impose its will not only on America, but on a coalition of America plus several nations which are today our key allies.

Our lackluster economic performance presents a danger to our national security.

The danger to our national security goes far beyond our relative economic stagnation.

Our military industrial complex no longer feels that it can survive by selling state-of-the-art weapons to the United States, or even to the US and our closest allies. The MIC lobbies to sell weapons to countries which are frankly one coup or election away from being hostile to our interests. Often times, these countries don't have the money to buy our weapons, so we have to give them special deals so they buy from us, and not from Russia or China or someone else. These deals include financial support in the form of military aid. Often, this still does not sweeten the pot enough for them. So, another aspect of the deal is giving the foreign power the right to produce at least parts of the weapon in their own country. Often, the entire weapon system is produced in that country. These deals offset the cost of the weapon system, allowing the foreign power to "buy American".

After such offsets, though, the reality is that the foriegn power is using US taxpayer money to buy a license from a US corporation. The foreign power gets the technology and the industrial infrastructure to build the weapon system, and the foreign power's people get the jobs to make it. What the American people get is the bill.

In the wake of the attack on Pearl Harbor, the United States had the industrial infrastructure to make the tanks, planes, ships, trucks, and so on, needed to go across the oceans and defeat some really tough enemies. Today, however, we would either have to build the infrastructure, or fight our way overseas and seize it, not to mention the raw materials and other resources needed for the production of military hardware.

As alarming as all this is, we are really only scratching the surface of US vulnerability to foreign powers. At my blog, I have done posts on Communist Chinese espionage, and Beijing's activity stealing US computer technology. I have not addressed other Chinese espionage activity, wherein key US government and academic officials are on the payroll of China's People's Liberation Army intelligence services. The impact of this activity is far more alarming. The Clinton Administration sold critical US military technology to Communist China. In return, China illegally laundered money into the campaign chests of the Democrats during the 1996 election year. Furthermore, as of the late 1990's, Congressional investigations revealed that China had stolen classified information on every thermonuclear warhead design then in the US arsenal. China is known to share nuclear secrets with Pakistan, whose ISI has close ties to Al Qaeda. Nuclear weapons information from China has been found as far afield as Africa.

So, we have an economic situation here that is a clear and present danger to US national security, and, indeed, to the security of our friends and allies.

There are several factors touched on so far in this post, and some of them I will go into in more detail here at the blog. However, for now, let me refocus on factors that are more economic in nature.

We have been told that free trade is in our best interests. The theory is that if two countries each produce two different products, but with different degrees of efficiency for each product, then free trade would allow each country to focus on the one product it produces more efficiently, and trade this product for the other. In theory, both countries would become more wealthy, and have more goods at less cost.

The reality is that as we began to implement free trade policies, foreign products were cheaper, and initially Americans felt an increase in their buying power, as they were able to buy more goods at lower prices. However, this also resulted in jobs making these products going to places where production costs were cheaper. The low monetary price Americans paid for these products on a global market was quickly offset by the fact that the jobs went overseas, as well, leaving Americans increasingly moving from higher-paying manufacturing jobs to lower-paying service-oriented jobs.

American labor, with legal protections against hazardous working conditions (however imperfect those protections are), and with insurance against on-the-job injuries and against unemployment, and in a nation where environmental protection is factored into production costs, cannot compete with labor in many foreign countries, where the workers are essentially slaves and where the corporations and the government do not care about the environment.

Our tax laws hurt us much more. There is a general rule of thumb: what we tax, we tend to get less of, and what we subsidize, we tend to get more of. Currently, we tax work and subsidize unemployment. Politicians in the United States cynically manipulate America's economy for their own political gain. By fanning the flames of class warfare, they blame the rich and successful, and seek to tax them, using the money thereby derived as "walking around" money, giving it to less affluent voters. Those voters, in turn, vote for the politician that is giving them the money. The cynical politicians get exactly what they want.

This system is more sinister than it appears on the surface.

First, by taxing those who work and take risks, there is a disincentive for them to take further risks and work harder. The net result is that these businesspeople cannot hire as many workers as they otherwise would like to, nor can they pay the employees they have as much as they otherwise could. People who foolishly vote for the politician who is trying to buy their vote with government handouts do not realize that it is the fault of this politician that they do not have a job or that the job they do have is not more lucrative than it is.

Furthermore, these politicians write a tax law that is often hundreds of pages long. When implemented by the bureaucracies, the tax code is now thousands of pages long, and has the force of law. In all these pages, the politicians have loopholes that save plenty of money for their friends. If you are rich enough, you can buy access to a politician, and get loopholes put in for your business; or, you can afford to have accountants and lawyers find you existing loopholes.

But, the middle economic class can't afford all this, and so the middle class pays the full brunt of taxes directly, and pays for it indirectly through underemployment. The lower economic classes pay for this through underemployment and unemployment. The middle economic class blames the lower economic class for being leeches (and some of them are), but the reality is that both classes are being played off one against the other. The upper economic class has bought access to politicians on both sides of the aisle, as well as to professional help to navigate the tax laws.

The economy in our country is really quite a mess, the impact of this mess is severe on the typical American, and will become more severe as time goes on.

And, we haven't even gotten to the Federal Reserve system and to Wall Street bailouts!

Key aspects of this problem can be solved quite simply.

First and foremost, we need to implement a low, flat income tax. The personal income tax should be 10%, and the corporate income tax should be 15%.

This tax is on all gross income. This process makes it easy for businesses to project their income, know what percent will be taken off the top and given to the federal government, and to then know that with the rest, they must pay their expenses and have some profits left over. Businesses will be able to focus their attention on producing goods and services, and on making money, rather than on how to keep the money they have away from the federal government.

If you make the tax on net income, then the debate begins about what are legitimate business expenses, and now you need lawyers to argue the matter and accountants to keep track of it all. This stifles small business, and leads us back to where we are now.

The tax should be on all income, not just income over a certain amount. In theory, a bum on the street and a multi-billionaire will each pay ten percent of personal earnings to the federal government. In reality, the bum may be hard to find in order to audit, and, in any case, the tax derived from his income does not justify the effort to find him and audit him.

This would eliminate mandatory personal income tax returns. Most people have jobs, and their income tax is automatically deducted from their paycheck. They would typically have no need to file a return. An exception would be, for example, a person who makes money fixing cars or doing odd jobs on the side. Legally, this person would be required to file a tax return and pay ten percent of the gross earnings that had not otherwise been taxed. In reality, like the bum, below a certain income threshhold, the tax dollars to be gained would not justify the expense of an inquisition by the IRS to go audit the typical household.

Furthermore, in my opinion, tax rates that differ based on income are unfair, and, regardless of how courts may have ruled, are specifically a violation of the equal protection clause of the Fourteenth Amendment. Just because one person earns more money than another, it is in principle wrong to take a greater percentage of that money. Additionally, it is foolish to do so, because this becomes a disincentive to greater productivity, at a time when America needs to produce wealth; by not penalizing increased profits, people and businesses are not discouraged from growing the economy, which will result in more jobs and better-paying jobs for Americans.

By the way... as the economy grows, there will be more tax dollars available to government entities.

Politicians seem to think that raising taxes gets them more money. Only marginally so is this the case. Beyond a certain point, people who are taxed more produce less. Since they get to keep less of what they make, why should they keep working? Ronald Reagan understood this well. When he was an actor, the marginal tax code for income over a certain threshhold was greater than 90%.

(Source)

With such a confiscatory tax rate, why should someone be productive upon reaching that threshhold? The government did not get 90% of millions of dollars of income; instead, people worked up to that threshhold, and then took a vacation for the rest of the year. With the tax rate on all income low, more people will keep working and producing wealth, and tax dollars will keep flowing to the government. A lower tax rate of 10% or 15% results in more tax dollars in the long run.

In addition to a low, flat income tax, we need to revisit "free trade". It may make sense to have free trade with nations that have similar laws protecting workers and the environment, but "free trade" with nations that have no concern for their people or for the environment places Americans in an impossible situation. Tariffs on imports from such nations could help level the playing field.

Beyond that, we should consider the reality of our opportunity cost. Under ideal circumstances, people are fully employed producing goods and services that they produce more efficiently, and under these circumstances, the free trade theory makes sense. However, circumstances are far from ideal. Instead of full employment, we have significant unemployment, and we provide government subsidies funded by tax dollars for the unemployed. It may be cheaper to pay slave labor in a foreign country a dollar an hour to make shirts, rather than to pay an American ten dollars an hour to make them. But, is it cheaper to pay that same foreign worker a dollar an hour to make shirts, on top of paying the American ten dollars an hour as an unemployment subsidy? In the latter case, the real cost of the shirts produced to Americans is eleven dollars an hour, rather than one. This is only the case to Americans; other countries buying the same shirts may only be paying the dollar an hour for the shirts, not the eleven dollars an for the shirts plus the unemployment subsidy. Consequently, other countries see their standard of living rise relative to America's.

On top of this, we need to look hard at the impact of tax havens, and stop exporting our best high-tech, defense-related jobs (and our defense industry, for that matter). Technology matters in particular need to be addressed, and a significant part of the solution for this is investigating and prosecuting those officials in government and academia who commit treason by selling our intellectual property to the highest bidder.

We need to revisit government regulation in general, eliminating, for example, quotas based on race.

Also, the philosophy of "too big to fail" needs to be recognized for what it is: a cover story, allowing politicians to channel taxpayer dollars to their rich patrons, while oppressing the smaller businesses, which generate the most jobs, innovation, and often the most technological break-throughs. What "too big to fail" does is keep the biggest corporations on top by subsidizing them the moment they start to go under.

We are told stability is nice, but it really isn't for those who are on the bottom. Was stability a nice thing for the Pharoah's slaves who were building the pyramids? Was stability a nice thing for black slaves in the South two hundred years ago? Just as the instability of the Exodus resulted in Hebrew slaves establishing their own country in the Middle East long before anyone call that place "Palestine", and just as the instability of the Civil War resulted in slaves being freed, so would a little instability in the American business sector result in small, innovative businesses growing at the expense of businesses which have lost their competitive edge, and which have come to rely on government bailouts to stay afloat. The executives who run these businesses need to fail and be held accountable for their failure; they should not be getting a bonus to stash in an offshore bank account, funded by the very people whose economy they ruin. Some of them need to be investigated for financial crimes, because some of the "bad" decisions sure seem to go beyond stupidity.

When we implement this policy, America will have more than enough economic growth, as well as technological advancement, to stay competitive in the 21st century - a century otherwise projected to possibly be one where China eclipses America economically, politically and militarily.

Some aspects of this plan will be addressed in more detail or revisited in subsequent posts on issues related to those aspects. We will also consider this country's monetary system in a future post. ;)