Tuesday, June 12, 2012

How to Fix the Economic Suck

I won't bore you with the details of how sucky the economy really is.  What I will discuss is one solution for fixing it, by pointing at one of the biggest suckers of all; the public sector.  But briefly; what is the economy and why do we care? Well, in order  to not quote the all powerful Wikipedia, I will simply describe the economy as everything that you do to interact with others in a specific area.  This is a broad definition, because both everything you do; consume, re-purpose, or create, can be included as long as its an interaction. And the area can be a geographic one or even a diplomatic or artificial one; say the internet economy as an example.  Furthermore, we often add some sort of financial or monetary attribute to our definition of the economy, and economics is the study of the distribution of wealth, typically in the form of money; but can be the allocations of goods, resources, or other commodities as well.   One report suggests that Americans are 40% poorer than they were 4 years ago.
But before we point fingers at the current administration (that certainly has done nothing to fix it) we should remember that the last administration did nothing to prevent it either.  (So lets see, our choice is between did nothing or do nothing ... as usual)  We care about the economy because it describes our fundamental human social interactions.  Some bright economists of the past have suggested that we can predict changes in the economy using logic and reason.  This is probably true, but it is also logical and reasonable to assume that humans will not use logic and reason to make their economic decisions.  They will make their decisions based on biological wants and desires.  I evoke one of my favorite quotes by the American self-help guru Dale Carnegie who said, "When dealing with people, let us remember we are not dealing with creatures of logic.  We are dealing with creatures of emotion, creatures bursting with prejudices and motivated by pride and vanity."  If we were simple machines it would be logical and reasonable to assume that a specific decision would be made every time an interaction came up, and any errors in decision making would be systematic.  We are not simple machines but biological machines, which makes predicting changes in the economy complicated.  However, we can make things simple by defining the economy as follows.  For our purposes, the economy is the financial activities of society, and human society is fundamentally a series of human interactions. This is why algorithms  that define social dynamics (devised some time in the future, right between the flying car and the legislation that allows us to use them) will be vital in producing the first real 'scientific' economic theory.

Why the economy sucks

Simply put; individuals and organizations spend more money than they produce.  I say individuals and organizations, because we all carry debt; from your credit card to your student loans.  However,this debt can mostly be put on the back of government, not only because they control the bulk of the currency (no matter where you live), but also because they spend predominantly more than they make, and because they have taken on the obligation of safeguarding society from just such problems (and in that regard they are woefully negligent).   You might want to suggest that it is far more complicated than this, but it isn't.  Here is the basic math. If I invest X amount of dollars, I want to get a return of >X amount of dollars just to stay afloat.  If I make <X amount of dollars that loss must be accounted for elsewhere.  In societies such as the one we all live in, the debts of others are absorbed by the profits we make.  As non profitable entities grow, the burden on each profitable entity increases; making it harder to stay afloat.  Meaning that even very efficient systems will be broken by the weight of the inefficient systems that they must support.    Government is huge and not profitable.  (As an aside; One set of organizations does make a profit from our debt.  These are banks, which makes their association with government rather insidious if you ask me.  I mean they push debt to make money.)  But taking responsibility is also something that people don't like to do.  Lets look at a strange case.  The occupy wall street movement has been infiltrated by the so-called "99%," whose claim is that we should tax the rich more, in order to fix the economy (or as they see it, to fix the fact that they are poor).  Let's get this straight.  In order to fix the economy, we will squeeze the wealthy class, who primarily got wealthy by being very efficient at making a profit (since they were already operating in a profit squeezing economy) and we will give it to the government (an organization that has a notorious track record of creating debt not wealth) and this will save the economy (and get you out of poverty).  That's a brilliant deduction my dear Watson.  No, the math is simple, as I said. It's human emotions that are not.  Pointing the finger in the wrong direction (away from the debt creators) will get us nowhere (but increasingly poorer).  So the next question is how to fix it.
As the collective bargaining debacle in Wisconsin and the EU austerity measures suggest; a major cost associated with debt producing entities are from labor.  As such, public employees have a lot to worry about.  Every time a European nation tries to enact some sort of austerity measure (as they like to call them) there is a riot in the streets.  Duh, people don't like rationing their food or having their wages cut.  They also seem to think its not their fault that there is an economic suckiness.  However, as the era of big government comes to an end, something has to give.  Which means that a whole lot of public employees who signed on for what they thought was a dependable job; may find themselves out of work; one way or another.  And while they don't seem to like having their bargaining chips removed, reality is setting in.   If you are not part of the economic solution, then you are part of the problem; whether you were aware of it or not.  Employees that work for a non profitable government agency are part of the suck; and they are indeed the predominate cost associated with the suck.  The barbarian in me says, well lets throw them to the streets and wipe our hands of the mess.  ( Now I hear Arnold in his iconic barbarian role, “Crush your enemies, see them driven before you, and hear the lamentation of their women.” )  The arm-chair economist in me knows that this will actually lead to more problems than it solves; and it’s just plain mean to boot.  We can't just drop half the population out of the work force to fix the economy.  After all they are actually half the economy.  Instead, I propose the solution.  We privatize public employees (Since, shipping them to Canada as a source of cheap labor is obviously out). 
Turning the Public sector Private:
There are multiple examples that have shown public sector jobs being converted to private industry in order to do it better.  The US space agency has decided to outsource the design and construction of future spaceships to companies such as SpaceX, while still having some control over missions and research activities  (since the shuttle was the kind of a really heavy good intention that comes of government compromise). The US military was about to be downsized before the last administration declared war, so that was revoked.  (War, by the way, is no longer very profitable, since we don't get to plunder and take the resources of the defeated nations as easily anymore; however, if we started a war against the bugs of Klandathu and then exploited their home world for its mineral deposits we might have a win.)  In another example, the US postal service has seen a dramatic decrease in business due to organizations such as UPS and hotmail and repeated calls for its downsizing have been attempted.  Yet, several attempts to scale back public operations have been met with resistance, primarily from public employee unions.  We're humans, which means we don't think logically or rationally, we think with our stomach, pocketbook, and intergalactic survival in mind.  Tragically the answer to reducing costs and reducing debt at the governmental level is reducing government jobs.  In the last 50 years politicians from all stripes have touted their jobs numbers as a badge of honor, often creating jobs out of thin air in order to employ the masses.  That era is over, or will be soon, due to increasing pressure to put right what once went wrong (but without the Quantum Leap).   I wish I could show you how much money a public employee sucks from the economy per unit, but sadly the government doesn't keep such statistics.  Private employees, however, are profitable; or else they would no longer be employees.  (Since the primary motive of business is to make a profit.)  Below I have suggested a couple of ways we can attempt to privatize the public labor force.

1.        We can market specific government agencies to businesses.  Buying the agency would mean buying the employees as well.  This could be scary to public employees, since working for a private entity means meeting deadlines and proving your functional worth ( I know, lots of pressure), as any newly acquired business will go through radical change once it is under new management.  But it reduces the government’s debt burden two fold; the agency is no longer controlled and accountable to government, except perhaps  through contracts and other regulation, and perhaps there is an upfront payment associated with the transition of ownership. 

2.       We can train public employees for analogous jobs in the private sector.  While this will actually have an upfront cost associated with it.  The transitioning of these employees into private sector jobs could be accomplished directly from positions within their old one, and the reduced labor cost would ultimately trump any upfront costs.  Let me advise that we should not create another government entity to perform this training; as many training organizations already exist that can be contracted to facilitate this transition process. 

I won’t belabor other ways to reduce the national debt or to speed up our sewer sucking economy.  But the major premise to get across is that the economy is everybody's problem.  The solution is to reduce debt causing entities while increasing profitable ones.  If we keep this simple idea in mind when making decisions, then we can stop the suck.

And my apologies (for all the jabs) to anyone who knows or is a public employee (which is everyone).

I think our next president should have the motto, "The suck stops here."

Oh, and I am the 99%.  (sorry... but I am)

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