What Will Bring Economic Recovery?

Column for week of February 3, 2014             

     The economy has been in the dumpster for going on six
years.  The minimal economic growth reflected in the
government numbers barely exceeds the rate of population
growth.  A large percent of new jobs are part time jobs and
government jobs that don't add much to production. 
Government's promises to borrow and spend our way to
prosperity fell flat on their faces.

     Before considering how to bring expanding production
and prosperity we must first know what it takes to build and
sustain a healthy, robust economy.  The economy is more
complex than a 10,000-piece jigsaw puzzle.  Putting the puzzle
together requires all the pieces, and all in the right places.

     Consumers guide the economy.  The only reason for
producing is to consume.  Businesses buy resources and use
them to make products.  When consumers find the products to
be worth more than the resources used to produce them, the
consumers will pay more for the products than the cost of
production.  The surplus is the reward the business earns by
providing consumers something they want.

     If the consumers won't pay the business more than its
cost of production, the business loses.  The business must change
and please the consumers, or soon go out of business.

     Creating jobs that don't contribute to consumer
satisfaction wastes resources rather than producing additional
value.  Government can't come close to knowing which jobs will
do the best job of pleasing consumers.  Thus, government
subsidies and mandates invariably create wasteful jobs that must
be eliminated before there can be real economic recovery.

     Businesses create jobs by investing to add new
production.  Businesses are highly motivated to produce the
products consumers want and to do it in the least costly way.  
When a business makes a wrong call, it loses money.  Keep
making those mistakes and the business is soon gone. 
Businesses literally bet their lives when they choose how to
invest in producing products.

     Among other things, businesses must anticipate consumer
demand for their products, cost of production, and what the
competition will produce.  There are enough unavoidable,
uncertain variables to keep most people awake all night.  That is
part of why most people don't start businesses.

     No one can focus on the entire economic puzzle. 
Everyone can focus on his own little part.  Employees focus on
their part by developing the skills that promise the greatest
rewards.  A large part of that rewards is spelled w-a-g-e-s. 
When employees seek higher paying jobs, they are seeking more
productive jobs.  Those self serving employees do more to fine
tune the economy than do all the politicians and bureaucrats
lumped together.  Ummmm, what a tempting thought.

     When everyone takes care of his little piece of the
economic puzzle, the picture comes together and we prosper. 
When government manipulates the economy with subsides,
prohibitions, mandates, artificial interest rates, regulations, etc. it
can make it impossible for the real actors in the economy to fine
tune the millions of interactions essential to a vibrant, prosperous
economy.

     The result is wrong education, wrong investment, and
wrong products.  The bad investments must be liquidated and
redirected to bring prosperity.  Bailing out and propping up the
bad investments only compounds the problem.

     The worst comes when government adds so much
uncertainty that businesses are afraid to invest.  Without
investment there can be no new production and no new
productive jobs.  This is why the depression of the 1930s and
1940s lasted so long.  Government made the future so uncertain
that businesses were afraid to invest.  Misdirected government
spending is no substitute for sound business investments.

     We are in the same trap again.  The only way out is for
government to back off and clear the air so that businesses can
see the future clearly enough to return to investing.  Bribing and
tricking businesses to make more bad investments isn't the
answer.  That is how we got where we are now.

aldmccallum@gmail.com
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Copyright 2014
Albert D. McCallum