You will hear a lot of debate in the coming weeks over the impending debt ceiling increase. It is a hot bed issue. The fiscally conservative side of the aisle will insist we need to limit spending and show constraint. The financially liberal spendthrifts, on the other hand, will insist they need to increase the debt limit to stimulate a sagging economy. Well, whatever side you lean towards, I have an entirely different way of looking at this situation. There is a way to solve poverty, rid unemployment, end government borrowing and create wealth while still rewarding innovation within a capitalistic framework. People need to spend profit. Let me explain.
Let’s start on a small scale. Imagine a closed system between two people. Assume person one, let’s call him Mitt, and person two, let’s call him Barry, both have needs. Both start with $10 and they both have a commodity or a service the other person needs (we will call this “being able-bodied”). Mitt sells that need to Barry for $10. Now Barry has $20 but he needs a service from Mitt, so now he pays Mitt $10 for the service he needs. Both people now have their needs met and they both once again have $10 each.
What happens when Barry needs that service again, but this time he does not SPEND as much, he chooses to save $2. Well, when it comes time for Mitt to buy back the service that he needs, he has $8 and not the $10 needed to meet the original demand. He’ll only be able to purchase 80% he needs. Uh oh. We are starting to fall out of equilibrium.
You might ask why Mitt would give Barry a discount. Well, Barry’s his only friend so he figures he’ll help him out. But then, Barry saves $2 again. Mitt now only has $6; again he must buy less. Meanwhile, as Mitt is struggling, Barry’s sitting on his pile of 40 bucks, aka his savings. If this cycle continues, then Barry will eventually end up with all the money and Mitt will not be able to meet any of his needs. This is what is happening in the world today. Spending money instead of saving money would end that inequity.
Let’s take the next step. Let’s apply this idea to the real world. We will limit it to the United States. We currently have 99.2% of the population earning under $250k per year (these are our Mitts); .8% earn more (our Barrys). As a very general idea we will say that the Mitts of the world may be able to meet their needs but will not have money to spare or save. Yet, the Barrys will have a potential profit that they can save. If this assumption is somewhat true this means that 992 people out of 1000 don’t save a nominal amount, and 8 do have the ability to save.
Now, let’s add another element to this national equation, major corporations. These companies profit millions and billions. This is a great thing, without them we would not have cures for cancer, or pro sports, or computers to type this op-ed. I would not want to punish them for innovation. So I have an idea on how to encourage this progress and still SPEND our way out of poverty. But first let’s take it one step further.
Let’s apply the idea on a global scale. There are many people in the world that want to work, yet there is no one to employ them. What would make them happy is working a job that they enjoy, providing for their family, and not needing to worry where the next paycheck is coming from. This type of ambition leads to the beautifully symbiotic relationship between entrepreneurs and workers; where people with great ideas and risk takers need help making their dreams come true and can employ people that want to work and allow the entrepreneurs to earn profit from them.
Everyone thinks the human experience is to have a job, but the real human experience is to give a job. Every time you spend money you are hiring someone. Most people don’t ever realize that. Even the lowest income person is a “job creator.” Every time we go to the grocery store or rent a movie or buy sneakers we are all employing people. If you spend money you are enabling people to make money and consequently spend money with someone else. Unfortunately, as people earn profit, they sometimes choose to save the extra money , taking dollars out of the system. This is the loss of equilibrium that we visited in our first example.
I have presented economic theory: capitalism, equilibrium, the effect of savings vs spending, and employment. Let’s now tie it all together. Let’s have capitalism work for us. It will create innovation and incentivize excellence. Once this is achieved the people who are the most motivated, skilled and perform the best will be rewarded by earning the most money. Probably will still be 8 out of 1000 people. But these people who create all the money will then announce their profit to the world at year end, and as of the next year end they will have to spend all the profit. They will make an effort to be socially responsible and employ people. Thus, those employees will now have money to spend. If the profiteers continue to innovate then clearly the employees that are now rewarded with the opportunity to work, will be happy to spend their money and support those profiteers. There will be no need for income tax. The government will exist off of sales tax and it will be limited to provide all the infrastructure to support the new commerce. The government will spend all of the tax. In this way they too will be pumping money into the system. There will be full employment. No need to borrow. No more debt ceiling debate. We can end poverty, all we need to do is stop saving and SPEND the money.
Let’s start on a small scale. Imagine a closed system between two people. Assume person one, let’s call him Mitt, and person two, let’s call him Barry, both have needs. Both start with $10 and they both have a commodity or a service the other person needs (we will call this “being able-bodied”). Mitt sells that need to Barry for $10. Now Barry has $20 but he needs a service from Mitt, so now he pays Mitt $10 for the service he needs. Both people now have their needs met and they both once again have $10 each.
What happens when Barry needs that service again, but this time he does not SPEND as much, he chooses to save $2. Well, when it comes time for Mitt to buy back the service that he needs, he has $8 and not the $10 needed to meet the original demand. He’ll only be able to purchase 80% he needs. Uh oh. We are starting to fall out of equilibrium.
You might ask why Mitt would give Barry a discount. Well, Barry’s his only friend so he figures he’ll help him out. But then, Barry saves $2 again. Mitt now only has $6; again he must buy less. Meanwhile, as Mitt is struggling, Barry’s sitting on his pile of 40 bucks, aka his savings. If this cycle continues, then Barry will eventually end up with all the money and Mitt will not be able to meet any of his needs. This is what is happening in the world today. Spending money instead of saving money would end that inequity.
Let’s take the next step. Let’s apply this idea to the real world. We will limit it to the United States. We currently have 99.2% of the population earning under $250k per year (these are our Mitts); .8% earn more (our Barrys). As a very general idea we will say that the Mitts of the world may be able to meet their needs but will not have money to spare or save. Yet, the Barrys will have a potential profit that they can save. If this assumption is somewhat true this means that 992 people out of 1000 don’t save a nominal amount, and 8 do have the ability to save.
Now, let’s add another element to this national equation, major corporations. These companies profit millions and billions. This is a great thing, without them we would not have cures for cancer, or pro sports, or computers to type this op-ed. I would not want to punish them for innovation. So I have an idea on how to encourage this progress and still SPEND our way out of poverty. But first let’s take it one step further.
Let’s apply the idea on a global scale. There are many people in the world that want to work, yet there is no one to employ them. What would make them happy is working a job that they enjoy, providing for their family, and not needing to worry where the next paycheck is coming from. This type of ambition leads to the beautifully symbiotic relationship between entrepreneurs and workers; where people with great ideas and risk takers need help making their dreams come true and can employ people that want to work and allow the entrepreneurs to earn profit from them.
Everyone thinks the human experience is to have a job, but the real human experience is to give a job. Every time you spend money you are hiring someone. Most people don’t ever realize that. Even the lowest income person is a “job creator.” Every time we go to the grocery store or rent a movie or buy sneakers we are all employing people. If you spend money you are enabling people to make money and consequently spend money with someone else. Unfortunately, as people earn profit, they sometimes choose to save the extra money , taking dollars out of the system. This is the loss of equilibrium that we visited in our first example.
I have presented economic theory: capitalism, equilibrium, the effect of savings vs spending, and employment. Let’s now tie it all together. Let’s have capitalism work for us. It will create innovation and incentivize excellence. Once this is achieved the people who are the most motivated, skilled and perform the best will be rewarded by earning the most money. Probably will still be 8 out of 1000 people. But these people who create all the money will then announce their profit to the world at year end, and as of the next year end they will have to spend all the profit. They will make an effort to be socially responsible and employ people. Thus, those employees will now have money to spend. If the profiteers continue to innovate then clearly the employees that are now rewarded with the opportunity to work, will be happy to spend their money and support those profiteers. There will be no need for income tax. The government will exist off of sales tax and it will be limited to provide all the infrastructure to support the new commerce. The government will spend all of the tax. In this way they too will be pumping money into the system. There will be full employment. No need to borrow. No more debt ceiling debate. We can end poverty, all we need to do is stop saving and SPEND the money.
