October 10, 2004

The Arena and The Team

When I listen to political arguments between Democrats and Republicans I am struck by how they talk past each other. Each is having a discusion, but only with themselves, not with the other. I believe the misunderstanding of the motives of the other is based on a core concept of the role of government.

Republicans (and Libertarians) think that the government provides the arena, the rules and the officials. The people bring the team. The game is on the field and the government's role is to provide all the structure that makes the game possible. But not the game. The people bring the game.

Democrats (and Socialists) think that the government is the game. All those other activities are just services that provide infrastructure, like concessions and the seats.

In simplest form:

Republican: Government brings the arena, the people play the game.
Democrat: The people provide the arena, the government plays the game.

Posted by creagb at 02:40 PM

October 09, 2004

Who can best manage wealth?

I thought of this listening to John Kerry promoting higher taxes on those making over $200,000 per year. The question is:

Who can best manage Teresa Heinz Kerry's fortune? Teresa Heinz Kerry or the Department of Education? If the answer is Teresa Heinz Kerry, then why is that true for her and not for others?

Or, perhaps it is that people who already have money have demonstrated their ability to manage it wisely. Not so those who are in the process of acquiring wealth. That wealth is better managed by the Department of Education.

Posted by creagb at 04:33 AM

October 06, 2004

Wealth Eliminates Poverty

The fastest way to reduce the number of poor people is to create more rich people. This reduces poverty in two ways:

1. Rich people invest in people. Ambitious people. If a poor person is ambitious, they will be an investment opportunity. They will begin their own journey to wealth.
2. Rich people spend money to acquire products and services. Those products and services have to be produced and delivered. Jobs are created to deliver new products and new services.

Wealth also drives generosity. The ability to care for those who cannot care for themselves increases with wealth.

Thus policies that increase wealth will reduce poverty. Policies that reduce wealth in an attempt to use that reduction in wealth to reduce poverty will find that poverty actually increases.

Posted by creagb at 07:12 AM

October 04, 2004

Layoffs Create Wealth

The fastest way to generate wealth is large productivity driven layoffs. Producing the same value for less effort. Telling skilled and ambitious people that they are no longer needed because what they were doing no longer has value.

There are two immediate consequences of the layoff:
1. Bitter complaints at how unfair the world is. A needed expression of "poor me."
2. The availabilty of a talented and ambitions person to generate new value where no value existed before.

Productivity driven layoffs are the single biggest contributor to the generation of wealth. This process began tens of thousands of years ago when someone figured out that using a stick to plant seeds freed up the time of someone else to make arrows. The arrow maker freed up the time of someone else to make pots. The person no longer pushing seeds into the ground with her thumb was laid off. Unemployed. Seeking a new position. Until either she figured out that she could now make arrows or someone said, "Here, make arrows and I will give you every fifth animal." The journey to wealth began.

This journey proceeded slowly until about four hundred years ago. Then the value of innovation emerged as a primary driver of growth. The cycle is straight-forward. Have a job. Lose a job. Find something else to do or starve. Old skills are no longer valued. Identify a new skill. Figure out a way to deliver value using that skill. This is the core of innovation.

If this were not true, then today we would have millions of unemployed lining the dirt roads of rural America and no one working at Blockbuster.

So, the next time someone bemoans productivity driven layoffs, remember, new wealth was just created. All that is required is a bit of innovation to identify the new value that can be created by all the newly available talent.

Long ago someone realized that a seed could be planted faster and easier with a stick than with a thumb. Today, that same process delivers TiVo and GPS watches.

Posted by creagb at 05:38 AM

October 03, 2004

Where does the money go?

When a person gets money, they can do four things with it:

1. Purchase products and services.
2. Save it so that others can invest it, or invest directly.
3. Donate it.
4. Burn it or bury it.

The first three produce jobs. Not only do they produce jobs, they produce jobs that deliver desired value. Value as a product of service, a return on savings and investment or a social, religious, political or community goal.

The rhetoric of the campaign implies that the expectation is that the money earned will be burned or buried so that it had better be quickly taxed so that it can be better invested by the government.

The best way to get out of debt is to grow income as rapidly as possible while holding spending down. That is what happened at the end of the 1990's. Growth that exceeded government spending growth generated taxes that drove the deficit down. That process can be repeated by continuing to drive economic growth up while holding the growth of government down.

This is a simple concept demonstrated to be quickly effective. It is beginning to work now. But it is not being explained nor defended. All the explanations concentrate on benefits for the wealthy and how bad that is. Not much at all on the demonstrable fact that wealth generates more wealth for more people, thus driving up employment, standards of living and ultimately, tax revenue.

The wealthy should be treated like a herd of dairy cows. Keep them happy, healthy and well fed and milk them often. Don't slaughter the herd.

Posted by creagb at 08:20 AM