Economic Growth – Balancing the Federal Budget without Spending Cuts – Part 2

The thesis of the last couple of posts is that we can balance the U. S. Federal budget without cutting spending if we can get our economic growth rate up to 4%.  This would not require the government to increase tax rates since the increase in tax revenue would come as a result of an improved economy.  In the book, The 4% Solution, 4% is projected to feasible given the “right” conditions and would be sufficient to balance the budget as the current level of spending commitments. The question addressed to the 21 authors of the essays in the book was, “What are the ‘right’ conditions?”  I have thought about this as well, and decided to post what I thought were the four most important factors that needed to be addressed.  In the previous post we reviewed the first two:  1) Reduce the amount of uncertainty in current government monetary and fiscal policy. (We need a return to “normalcy”.)  and 2)  Reduce the overhead time and cost of government regulations to the private sector.  Aside from the tax implications, government regulations impose a cost on the private sector which often is not needed to achieve the intent of the regulations, but also hurts our competitive position in what has become an international economy (an unseen cost).  In this post we’ll talk about the last two factors:  3)  Immigration and 4)  The need for what have been the “traditional values” in our culture.

3)  The Immigration Issue

The population demographics are working against us.  In the history of the world, countries declining in population have had difficulty keeping their economy on a growth path.  The reasons for this are the subject of much speculation and apparently many studies.  But the basic fact of this seems clear and the simple explanation is that it is because of some factors facing the U.S. today.  We have an aging population with the prospect of having  a much higher number of retirees compared to workers.  Everyone is no doubt aware that the retiring baby boom generation will drive the ratio up dramatically over the next 15 years or  so.  (The first baby boomers reached 65 in 2011.)  Today we have an estimated 10,000 people per day retiring.  But what many of us may not be aware of is that our overall fertility rate has not been at the 2.1 replacement rate for more than 30 years.  So we would have a declining population without the baby boom bulge.  Today our fertility rate is at 1.93 according to the Center for Disease Control and Prevention.  And the rate for white, college-educated women – a proxy for the middle class – is 1.6.

One thing seems certain, we won’t have any more 20 year olds in 10 years than we have 10 year olds now without immigration.  So our work force is shrinking.  It is interesting to note that in the 10-15 years before the great recession our employment rate was between 3 and 4%.  When I took macro-economics in the late 1960’s, anything lower than a 5% unemployment rate was considered to be full employment.  With an estimated 11-12 million illegal immigrants believed to be working here (I still don’t know how one counts them), they were obviously not taking jobs away from U.S. citizens.  So I believe that that is certainly an indication that we need them in the work force.  There has been a public agony lately over “outsourcing” jobs overseas.  But the choice may be to either import people or export jobs.  I would prefer to import people.  We don’t need “illegal” immigrants, but it is also important to remember that most of the “illegals” are not “undesirables”.

The first problem we need to address are the immigration laws.  From what I know about the laws they are way too complex and difficult to understand.  One writer recently said “It is not law enforcement but the law itself that is broken.”  We give priority to family relatives and have no consideration of economic needs.  And while giving relatives priority seems fair, I learned while doing some work with Catholic Charities, even that does not work well.  In the meantime, we are doing some things that seem economically downright “dumb”.  We give out student visas and when those people are educated, we make them leave rather than work for companies here that need their talent.  Many of these students are highly technically educated and so they are going home where they are improving industry in their home country.  (Meanwhile our own students are graduating at the rate of ten lawyers for every engineer – and we wonder why we are outsourcing?).  There are many companies here that are pushing to allow for highly technical educated workers, but I believe the evidence is that we need more workers at all levels if we are to continue with even our current growth rates.

4)  The need to reinforce the “traditional values’ and expectation that have made our country great.

The movie, The Undefeated, is based on a true story of a white, small company owner who became a volunteer football coach at a largely black high school in a poor area of North Memphis and built them into a team that went to the state playoffs.  He had a player on that team – a good kid and a smart kid – but who was not one of his star players.  But because of his character, a benefactor offered to pay his way to college.  When this kid found out what he was going to be able to do, the coach said to him, “If you do the ‘right things’, good things can happen in your life”.  It was an emotional moment.  In thinking about this later, I decided that the coach was right, if you do the right things, good things can happen – but there are no guarantees.  The certainty is, if you do not do the “right things”, good things won’t happen.

There are  a lot of us who believe that our country became the economically successful to the degree that we have because our people have believed that we are all responsible for ourselves.  We believed that doing the “right thing” meant having a good work ethic – working hard and not relying on others or the government to take care of our needs.  In addition we have believed in helping our neighbor when he or she needed it. Harvey Mackay recently published a column on achieving success.   Two of his primary factors were teamwork and hard work.  Another of his factors had to do with self-confidence.  I also learned recently that a historian writing about the beginning of our country in the 1770s said that it took two wings for the American eagle to fly.  The first was common sense and the second was personal faith.  If Philip Howard was right in 1994 when he wrote the book The Death of Common Sense, then we have some work to do there.  So we need to use common sense, be willing to work hard, help each other, and have faith and hope that if we do the right things that good things can happen.  I grew up believing that if we  do these things that we will have what we really need, even though we may not make the Forbes 400 richest Americans.   We can be responsible for, and provide for ourselves and our family.

I think we hear some messages that work against this today.   We hear a lot about how the rich are getting richer while the rest of us are just barely getting by.  There are people doing statistics to support this thesis.  There are at least two problems with this work – one is technical and the other is conceptual.  First, statistics is a difficult science – it can provide a lot on insight, but it’s tricky, and can feed some misleading conclusions.  The trend of income spread in the last few years is not nearly as dramatic as it may seem.  There are some upper income people who are making relatively more than they were 20 or 30 years ago.  These are mostly movie stars, pro ball players and some heads of corporations.  The fairness of this has been the subject of much debate, but their numbers are relatively small.   The difficulty, statistically, is that the income spread between where the government defines “rich” ($250,000 per year income) and the people listed in the Forbes 400 is enormous.  Much greater than the spread between the poverty level and $25000 per year.  (the difference between a factor of ten and a factor of one-thousand)  So including a few hundred people at the very top, can skew the  results significantly.  The other difficulty is that upward mobility is still alive and well.  The people listed in the Forbes 400 richest Americans today are almost totally different from those listed 20 or 30 years ago.  And we still have the fact that family wealth tends to be dissipated in 2 generations.  We don’t have an ongoing “rich class” in this country.  Upward mobility is still alive and well.  If you do the right things, you might be the next  Bill Gates of Steve Jobs.  Although there are no guarantees you will make the Forbes 400, your chances of being able to provide a comfortable living for you and  your family are good.  Especially if we can get the economy to grow at 4%.

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About tjc13

BE - Chem Engineering, Vanderbilt Univ, MBA, University of Tulsa - Worked for an energy and chemical company for many years and then started a management consulting business working for both for-profit and not-for-profit organizations.
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One Response to Economic Growth – Balancing the Federal Budget without Spending Cuts – Part 2

  1. Bob says:

    Well said!

    Bob

    Like

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