Friday, April 5, 2013

“E” is for Economy (my occasional rant)

global-economic-growthOn July 27, 2011 Paolo von Schirach stated that “America is running now the serious risk of being pitied or laughed at by friends and foes alike. The once mighty Superpower cannot extricate itself from an economic and fiscal crisis that, however serious, is hardly terminal.” This was on the occasion when the US Congress was unwilling or unable (depending on the point of view) to pass a simple bill that would enable the Country to pay past obligations. They fidgeted, they fussed, they delayed and in the end, passed the bill. But in the interim, the United States’ credit rating was down-graded by two different agencies. It was a deliberate political move, intended to undermine presidential policy.

What I’m wondering about is: did those politicians realize that they weren’t just ruining the American economy, but also the economy of the entire world? It doesn’t really require the brain of a genius to realize that the economy of any country is dependent on the economy of other countries. To paraphrase John Donne, “No nation is an island unto itself.” The economy of each country is so intertwined with that of other countries that the decline of one country’s economy will inevitably result in the decline of the economy of each country that has any type of financial exchange with it.

Let me explain. Country A owes country B a certain amount of money; it’s not worried, because Countries C, D and E owe it a much larger sum, so it should have no problem paying off its debt to Country B. Country B also owes money to Country F, which in its turn owes money to Country G, and so on. Clear as mud, right? In a nutshell, everyone owes everyone else money. If one country is suddenly unable to meet its obligations with another country, this causes difficulties for that country to meet its financial obligations; in the end we have something that resembles a dominoes effect from one country to another.

Most countries are also lined through commercial trade. What happens if Country A’s credit rating has been downgraded, as happened to the US in 2011? Other countries are going to be a little less eager to accept the request of said country to buy merchandise on credit. They will want cash up-front; without this, Country A will be unable to obtain the desired merchandise, and at the same time, the other countries will also be out of luck, because they really need the sale so that they can buy other products that they need but can’t produce on their own.

And what is really bad is the effect in Country A’s own backyard. Country A needs new roads, new bridges, new hospitals, etc. They contracted the year before to have this work done, providing jobs, which produces a better economy. Unfortunately, there isn’t enough money in the till to pay for the work that has already been done, so what do you do?

The way I see it, there are three choices: raise taxes on EVERYONE, take money out of other coffers (which calls for austerity measures) or raise the debt ceiling. Raising the debt ceiling should be a temporary measure at best; it alleviates the immediate pressure but in the end simply adds on to the internal debt. Taking money from the coffers of other programs is a little like stealing from Peter to pay Paul. It puts a terrible pressure on the recipients of the funds that were taken, and leads to an increase in austerity; the experiences of countries such as Greece and Italy should teach us that austerity measures don’t work – they simply create resentment and unrest.

I my opinion, the best way is to exact taxes on everyone. It should be a reasonable tax that allows all of the people to enjoy enough the fruit of their work, not just a lucky few who actually enjoy the fruits of other people’s work. If people have more money in their pocket, they will spend it, which will increase the economy. People who don’t have money to spend on extras, won’t. It’s as simple as that. It seems to me that in a country that is supposed to be built on equality, there should be equality in all things, including taxation. And if everyone pays their fair share – some paying a heavy share with little gain and others paying a lighter share with a lot of gain is not quite fair – then the country’s economy will necessarily be improved. 35% of 20,000 (7,000) +15% of 3 million (450,000) =457,000 is much less than 20% of 20,000 (4,000) + 20% of 3 million (6,000,000)=6,004,000.

Okay, rant over. Thank you for “listening”. But I do think it’s fair that everyone that everyone pay their fair share to help in the economy of their country, whatever country it may be.