Monday, November 15, 2010

Militant Ginger Balances America's Budget - Part Five

Militant Ginger Balances America's Budget
Part Five

On Wednesday, I launched an ambitious project in which I attempt solve America's financial crisis.

In my introduction, I outlined the fact that America's federal spending has reached crisis point - with the government splashing out $1.5 trillion dollars a year more than it brings in from tax revenue.

Just three facets of the federal government alone account for more than $2.13 trillion in spending - the Military, Social Security and Medicare. Combined, that’s $36 billion more than the government brings in.

On Thursday, I explored Social Security and Medicare - and concluded that the state of these beleaguered systems would effectively drive them both out of existence with a decade or two.

On Sunday, I wrote about America's other big financial drain: The military – and concluded that the US Military budget should be halved.

Yesterday, I addressed the rest of the federal budget – and while I identified some quite shocking examples of waste and improper spending, I also identified that paring down the budget still didn’t offer a ‘magic bullet’ for fixing the deficit.

In short, America’s saddled with a deficit in the hundreds of billions of dollars, regardless of how frugally we attempt to run Washington.

So presented with this scenario, what’s the solution?

The answer seems surprisingly simple. If we can’t cut spending to match the money, we need to raise the money to match the spending.

Making America Wealthy

Let’s talk about how we can make America rich again!

The last time the United States was running at a surplus was under the government of Bill Clinton. Clinton was a fantastic economist – read It’s Still the Economy, Stupid if you want proof of that.

He ran the federal government with a budget of slightly under $2 trillion dollars – if we could match that today, Washington would be in the black, instead of $13 trillion in the hole.

But while a lot of credit can be given to Clinton’s administration, at least as much must be given to the fact that the economy was booming at the time – which meant tax revenue for the federal government was at its fattest and demand for welfare was at its leanest.

Looking at where our economy is now and where it was then, the most obvious solution to our current woes it to get America wealthy again – to boost employment, up wages and get people spending.

Many Republicans believe that this can be achieved with tax cuts – and to a certain extent they’re right. It’s a proven fact that tax cuts generally boost the economy – but in the short term they also increase the deficit.

In addition, tax cuts only work to a certain point. It’s a Reagan-era fantasy that eliminating taxation would somehow boost federal revenue – in truth there’s a balance between the two and we’re pretty much on the cusp of that now (compared to Europe, we pay an average of 10% less tax per person.)

No, the real way to boost the economy is to generate more income – not by printing money (the way the Obama administration dealt with the housing crisis) but by creating and nurturing new sources of revenue.

In Clinton’s day, it was the ‘dot com’ boom. The flush years of Bush’s administration were padded with the artificially-created ‘housing’ boom. We need to create a new ‘booming’ industry to really deal with America’s woes – but make sure it’s not an artificial bubble like the ones that went before it.

And people may scoff, but I honestly believe this boom lies in alternative energy. America has the opportunity right now to lead the world in finding new, cheap, clean sources of energy and if we manage to seize this opportunity, we can all get rich from it.

Imagine the possibilities…

Already Chevy has produced a dealer-ship ready electrical car that can handle 75% of Americans' commute. In a generation, we could end our addiction to petrol - and sell millions of these cars overseas.

Chevy Volt - hitting the dealerships this month. Plug it in at home, never buy a gallon of gas again.

Just imagine if America shifted from importing 60% of it’s gasoline to running electrical cars instead - and exporting millions of dollars of home-produced oil instead. We can do it - right now!

It’s the opportunity to reverse America’s greatest weakness (our thirst for oil) and make the country richer and cleaner as a result.

In addition: Let’s see how this nation’s enemies do when they’re no longer subsidized by oil-rich nations like Iran and Saudi Arabia. Adopt electric cars and Al Qaeda will be throwing rocks, not hand grenades.

And how about other sources of clean energy?

There’s no reason why we can’t fit every home in America with solar panels to reduce our water heating bills. We can develop new technology to make our homes more efficient and cheaper to keep warm in winter and cool in summer. What’s more, if we can develop this technology at home, we can export it worldwide – just as we did with television sets, automobiles and airplanes back in the 1950s.

In Europe, there are plans to solve the energy crisis by laying hundreds of thousands of solar panels across the Sahara to power the continent - for roughly $100 billion (the amount of the federal budget that coolly got 'improperly spent' last year.)

Why can’t we do that in the Nevada and Arizona deserts? The technology exists now – and instead we still subsidize coal and nuclear power which still fails to do the job (California is perpetually plagued with ‘brown outs’ during the summer.)

Energy crisis solved. I'll get onto curing cancer after lunch.

It will take vast government investment (private industry is only interested in short term profit) but even accepting that, there's nothing stopping this great nation from embracing its future and making more money than we could possibly have imagined. Yes, government spending is bad - but there's a difference between spending and investing - funding this new future will pay for itself, whereas simply spending never will.

But will it ever happen? Instead of looking forward, both the right and the left wing have adopted a pessimistic way of thinking in which we imagine this country’s GDP and our personal wealth to be finite.

The right wing rail against Obama ‘redistributing’ wealth – as if this country’s wealth is a pie, with only so many slices to go around. In reality, if we have the guts and the brains and the application to do it, we can help balance the gap between rich and poor by generating new wealth, and letting everybody keep what they have already.

Once upon a time, America led the world, but right now, we’re cowering at the thought of losing our number one spot. If we do, we've nobody to blame but ourselves. We need to realize that we can’t rest on past achievements any longer. If we want to keep leading the world’s economy, we have to do exactly that – lead.

The time is now – and the only people stopping us are ourselves.

This is what our world should look like.

2 comments:

Unknown said...

The key resource to alternative energy concepts is the use of Rare Earth Elements, essential to virtually every 'clean' energy initiative. China has a market share at present of between 90-95% of those materials. There are large deposits (though nothing gigantic) not just in America and Canada but Australia as well together with the infrastructure, knowhow and manpower. We are however unable to start recovering them because of the prohibitative cost of ensuring safe processing (given the litigious nature of you Americans and the rest of the western world). Thorium, which is only one of almost two dozen of these elements is radioactive and there are countless hoops that we have to (and should) jump through in order to extract them safely.
The market will provide enough investment eventually to reopen these mines and make a go of it but it still comes down to a stranglehold on a finite resource with all the Military-Political implications involved in that. In Australia they are simply waiting for the price to rise enough to make mining a viable investment, in the meantime China have bought up huge swathes of Vietnam and Indonesia - where there are also large deposits ready to plunder. You are right it is the future, but maybe not yours or mine and the money will be made by someone else at the cost of safe extraction.

Mycroft,
Oxford

Unknown said...

Good thoughts on the economy, very sensible and positive.

Check out this link
http://www.youtube.com/watch?v=DbW4kIAJnUo