Economics 101: Common SenseWritten by Ben Treece | | email@example.com
Recent polls show the economy is the top issue for the 2012 election. With unemployment at roughly 9% and gas prices near historical highs, it’s no shock that voters are looking for a candidate that can help get the U.S. economy back on the path to growth and prosperity.
Throughout history markets have cycled up and down, that’s just the nature of the beast. Unfortunately our current situation is not due to economic cycles, but to greed, crony capitalism and horrendous policies coming out of Capitol Hill from both sides of the aisle.
It is more than clear that the policies being pursued are not working, and history has shown us that they will never work. Call it amnesia, call it arrogance, call it what you will, but this state of mind needs to be corrected in order to see real growth in the private sector. If only politicians and economists in Washington knew just how simple and easy it would be to correct the economy. The course of action is simplistic, but the impact to their back room deals and special interests would be devastating.
In any Capitalist society, consumers drive the economy. That’s not a thought or personal belief — it’s a fact of life. The consumer must have money in their pocket in order to spark demand for a given product or service. An excess supply of goods will not force consumers to buy and a heightened demand with no supply to match doesn’t help anyone either. The $14 Trillion question now is how do we spark demand? Simply put, we need to put more money back in the pockets of Americans … ALL Americans. Lower class, middle class, upper class, high class and no class, give consumers and businesses more money to spend. This will result not only in a push to buy consumer goods but business owners will likely reinvest profits into their inventories and maybe even job hiring. Increased demand from the consumer side will result in a need for increased supply which will be met by businesses hiring more laborers.
A counter-argument often heard is that this is not the case, the Bush stimulus being a prime example which did no good for the economy in the long run (remember, you got a check in the mail). The Bush stimulus can best be equated to a caffeine buzz. For a brief moment in time the economy saw an influx of cash and goods were being bought and all was well. However once the cash was spent and the buzz wore off, there was no more money in the pockets of the consumer to substantiate an increased supply.
Now that the problem has been identified we have to ask, how do we put more money back in Americans’ wallets? Again it is a very simple answer with potentially drastic consequences: we cut taxes across the board and lower government spending substantially.
Spending must be cut first so that less tax revenue will not contribute to increasing the budget deficit. Cap the corporate tax rate down to 25% max (35% is currently one of the highest in the world), allow corporations to repatriate funds without tax liabilities (i.e. GE’s money from Ireland coming back onshore), cut capital gains taxes, lower property taxes, and most importantly drop income tax by 5% per each bracket. This allows for corporations to have more cash to hire individuals and gives individuals more money to spend on goods and services.
As for government spending, funding for certain special interests and programs should be cut or removed altogether, but that is why these groups need to start looking to the private sector for donations instead of holding their hands out to the government. Charities are fantastic and need our help (keyword our, not the government’s), but when tax dollars are forcibly taken and distributed to certain causes, that no longer is charity, it is wealth redistribution. Besides, with all the extra cash put back in to the pockets of US consumers they will have plenty of money to donate to whatever causes they see fit instead of seeing their tax dollars go to hundreds of causes they find silly or insignificant.
Furthermore, I think our politicians in D.C. deserve a pay cut due to the mess they have gotten us in. Each member of the House of Representatives currently earns $174,000 a year, with Speaker, Majority and Minority leaders earning $223,500 a year and $193,400 for Party Leaders (legistorm.com, usgovinfo.about.com). That’s almost $77,000,000 a year just in salaries JUST for the US House of Representatives (excluding health benefits and retirement packages).
These policies that have been outlined are not extreme, radical or out of line; it is pure common sense and deductive reasoning. Everyone makes the economy out to be a fragile machine that could collapse at any moment, which is not the case whatsoever. If we truly want to boost the economy, see unemployment drop and GDP growth reach the 5%+ range, we must allow the consumer to keep more of their hard earned money, spend (or save) it as they see fit, and stop the federal government from frivolously spending your hard earned dollars.
Ben Treece is a 2009 Graduate from the University of Miami (FL), BBA International Finance and Marketing. He is a discretionary money manager with Treece Investment Advisory Corp (http://www.TreeceInvestments.com) and a stockbroker licensed with FINRA, working for Treece Financial Services Corp. The above information is the express opinion of Ben Treece and should not be construed as investment advice or used without outside verification.