Farid A. Khavari (Ph.D., Economist)
As the economic woes around the world keep growing, politicians and economists fall back on measures that could only be temporary and give them breathing space, until the next round of compounded escalated and accelerated problems kick in.
The existing economic problems, compounded through rising unemployment rates, soaring food and housing costs, foreclosures, runaway healthcare costs, ruinous education debt and other issues, cannot be offset for long or resolved through conventional economic-political measures.
Such non-working measures include stimulus packages, handouts, subsidies, rising wages, grants and reduced tariffs on imported goods. When politicians decide to balance the budget or cut the budget, those economic-political measures will be economically detrimental. Using these contractive measures only compounds the problems even more, making a bad economic situation even worse! Here are a few examples:
According to The Economist (March 12, 2011, Page 32):
“To buy off economic discontent, the Arab governments are introducing new handouts. The commonest is the old-fashioned wage rise. Saudi Arabia is boosting public-sector pay by 15% as part of a $36 billion spending splurge. Egypt, Jordan, Libya, Oman and Syria are all raising wages and benefits for public employees, though whether the 150% pay rise for Libyan civil servants will actually be paid is another matter.”
“Fuel subsidies are bigger. In 2009 they amounted to roughly $150 billion in the Middle East and North Africa. Oil then cost over $60 a barrel. It is now almost double that, so if prices were to stay at the same level regional fuel subsidies would rise to almost $300 billion this year. That is 7.5% of the area’s GDP, a vast amount. The only way to prevent such a jump would be to increase domestic fuel prices. But no countries have been brave enough to risk that except Qatar and Iran.”
Of course, this may buy the beleaguered rulers of these countries some time, but it cannot be a lasting answer, to the economic problems from which the people of those nations suffer. Similarly, the United States suffers from the same inept, shallow and shortsighted economic policies when ineffective and costly stimulus packages or the economically fatal and destructive measures of balancing budgets or arbitrary budget cuts are implemented.
Balancing budgets or budget cutting is only attractive and can only be considered viable when the economy enjoys full- or over-employment. In this case, extra employees are removed from the governmental agencies through increased productivity, and these labor forces are then integrated into the private sector. It would be an unlimited act of stupidity and ineptness to reduce governmental employees in order to cut the budget or to balance the budget in an economy that is suffering from high record unemployment rates. The government would then be creating additional unemployment costs, as well as adding to growing criminal and social costs of all types, while also adding to the economic misery of that economy as a whole.
WHAT ARE THE SOUND AND LASTING ANSWERS?
Despite the grave economic problems, a solid and sound economic plan would be to include these three goals:
1) To create income for all Americans with the creation of new jobs in the private sectors of the economy;
2) To reduce the cost of living of all Americans;
3) To help Americans accumulate and protect true wealth for retirement.
It must be noted that in an economy based on these three goals, decreasing the cost of living has the same effect that increased salaries or wages do. Even when wages remain the same, purchasing power increases, when the cost of living goes down and when the living cost falls below wages, there is money remaining for savings.
This is the foundation of the Concept of a Zero-Cost Economy. For more details, please visit www.zerocosteconomy.com.
HOW TO ACHIEVE THESE GOALS?
In order to create jobs, we must realize that in a saturated economy like the one we have in the United States, we must stimulate demand in those manufacturing sectors whose products would help in reduce the cost of living. There are endless products of these types. Decentralized solar and wind energy systems belong to this category.
Further, we must create a public-friendly financial system, providing low-cost loans and mortgages to private households and small businesses. A financial system that is built to benefit the people and small businesses, within the communities.
Last, but not least, we must cut the cost of healthcare insurance by increasing the productivity in the healthcare delivery system along with rigorously cutting recurring cost and eliminating fraud.