This past weeks GDP number ought to scare the bejeezus out of you. GDP measures growth in the economic output of an economy. If we don’t make the economy larger, our standard of living decreases over time. Because of the economic crisis, and various events all over the world, our margin to absorb future economic shocks is razor thin.
This lack of GDP growth, combined with the debt ceiling debate caused me to ponder the similarity between losing weight, and making up federal deficits. Since February, I have been able to lose 30 pounds.
How did I do it? I took in less, and was smart in the way I worked out. Instead of brainlessly running or walking mile after mile, I lifted weights. It was accomplished working out only 30 minutes a week with really, really heavy weight. The pounds and inches melted off.
What did I do? Increasing my muscle mass burned more calories- they burn off even when you are just sitting around. I also decreased my intake of calories. My body made up its “fat deficit” by being more productive.
The federal deficit is no different than me losing fat.
Think about it this way; GDP is the muscle mass. It burns the calories. The federal deficit is the amount of fat we have. Calories are federal revenue.
There is one sure fire way to increase the country’s economic muscle mass. Increase the fire power of the private sector. The singular way to do that is decrease regulation and decrease taxes. For every 1% decrease in tax, we get a 3% bump in GDP. That’s called a multiplier and it works in the private sector.
Many will say, “Why not let government spend money?. It goes to business too.” The multiplier effect of government spending is 0. In order for government to get that money, it has to take it away from the private sector in the form of a fee or tax. The last two and half years prove that.
Now that we are building economic muscle, we need to decrease caloric intake. That’s government spending. The government has got to spend less money and that doesn’t mean simply spending only 3% more when they budgeted for 5% more. It means spending 3% less. True cuts will bring down the amount of money needed to operate the government.
The other action we could take is to sell off assets to the private sector. The private sector will turn them into mini economic engines. 46% of all the land mass in the states of Washington and Oregon are in the hands of government. Unemployment in many of those areas is 20%. A+B=C. If we look at other government holdings of land and other physical assets, we would see economic benefit by transferring those assets to the private sector.
Another fun fact that came out this week. Apple ($AAPL) has more cash on hand than the Treasury. Why? Apple has no economic incentive to distribute that cash to it’s rightful owners, it’s shareholders. Double taxation of dividends is one reason. Corporations could provide a huge economic boost to the economy simply by paying dividends and getting rid of excess cash if we decreased dividend taxes to 0%. This artificial government dam is blocking billions of dollars that are tied up on balance sheets.
If you want to lose weight, increase your muscle mass and keep track of what you eat. If we want our government to lose debt, we need to elect people that are serious about cutting taxes and spending and legislating for GDP growth.