Monday, December 1, 2008

DOW SHEDS 679 : More Tired Thinking For a Tired Economy

Disappointing reports of tight fisted holiday shoppers sparked the Dow Jones average to tumble almost seven hundred points. Much of our economy is driven by consumer spending. Any bad news impacts negatively on the investor behavior. A shrinking tax base offers us limited options for government intervention. Other solutions are clearly needed.

The cornerstone of any recovery should be private investors pumping life into the economy. The role of government should be to reward rather than punish private investors staying committed to economic participation.

There are two remedies that private investors could have in strengthening our economy. One is to invest in troubled firms , using clout as stockholders to demand needed reforms. To do this, formation of mutual funds devoted to national recovery would be essential. The government could sweeten the deal by monitoring such mutual funds and allowing generous, flexible tax writeoffs for losses. The motive for investing in such enterprises would be a mix of altruism and self interest. There should be a lot of advertising for such mutual funds, promoting the patriotism of supporting their goals and activities. There are millions of people who are not now investors. They constitute a powerful potential wellspring of economic resillience that is now being ignored.

Mutual funds devoted to national recovery could target troubled industries whose failure would have catastrophic economic repercussions. They could also target strategic independence. Steel, petroleum and motor vehicles are a few of many commodities for which we should not be dependent upon foreign powers. The fall of Iran to Islamic fundamentalists and the fall of the Philippines and Malaya at the beginning of World War Two provide vivid examples of the perils of dependency on other nations. Saudi Arabia has smoldering tensions with its Shiite minority that underscore the importance of strategic independence.
Promoting America’s strategic and energy independence also improves our balance of payments. It is not healthy for adversaries to have large amounts of American dollars in their banks. It weakens and renders our currency to foreign manipulation that is not in our interests. We should recognise the promotion of strategic independence as an economic necessity.

Workers are also taxpayers, both as wage earners and property owners. It is in our national interest to promote high wages, to not depress the earnings of America’s work force. Americans who invest abroad should be seeking to increase market saturation of motor vehicles, electric appliances and entertainment. In practical terms this means expanding and manufacturing for new consumer markets with different needs and taste than found in the west. It means paying wages to local workers that can be spent on more than mere subsistance. Like in America each focal point of investment can and should create emanating ripples of prosperity like pebbles being tossed into a still pool of water. Investment now pits American workers against those abroad. The model of economic growth that has unskilled work overseas presupposes that certain skills are concentrated in the population of developed world and other skills are found in developing countries. There are very educated and capable people in the developing world. They are simply paid less. There is no other intrinsic quality to their labour that makes them irreplaceable in our economy. Instead of outsourcing American jobs, we must widen the circle of consumerism in the developing world, which should be complementing our work force rather than competing with it.

There is talk of the burden of paying bloated pensions to retirees in the auto industry. They should be offered a supplement to their pensions to work in building a new industry revolving around energy efficient cars and other projects which could modernise our auto industry.
Retirement should be a right but not an obligation. There should be incentives for workers who have retired who wish to continue working. A significant percentage of retirees want to continue working. This does not subtract from a static number of jobs. To the contrary, it offers the potential of creating more wealth and more jobs. Experimental projects like cars that run on water and new food sources could be magnets for part time workers whose wages are subsidised by retirement pensions.

The government has a role in alleviating and ending economic stress. But it should be a facilitator and a regulator rather than being the main line of defense. In looking to government for solutions rather than ourselves, we are overlooking a vast reservoir of untapped resources. There is a potential to emerge stronger from the current crisis. It is up to us. Sphere: Related Content

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