America Must Stop Confusing Financial Services with Productivity
What is happening to America? Since World War II we used to lead the world in economic production, productivity, innovation, and most importantly the will to succeed. We reached for the moon as proof that our boundaries in achievement were limitless. Yet today the keyword for our society may well be that it has limits if we give in to a new prevailing mantra sweeping the country.
In college freshman economics class you learn that the economy of a nation is driven not by finance or infrastructure although these are a necessary foundation but by production of wealth. The economies of India and China will soon overtake that of the United States. Even though global warming and energy conservation may be useful charities they will not provide for a robust economic growth. Western Europe is utilizing nuclear power plants and wind power and yet they have a growing dependence on Russian petroleum because realistically battery technology for automobiles is not yet safe or economical. We cannot regain our economic power by doing only green industries. Despite the best of intentions we cannot will the progress of technology to go any faster than what is is now.
If we let our economic power and industrial capacity shrink we will have to shrink as well in our advocacy for what is right in the world.There are those that think we can negotiate with the rising powers of China, Russia, and others for fairness as we see it just by being cordial. They have abandoned the most common dictum of human history that nations will always act in their most selfish interest at the most disadvantage to others.
Our first and most immediate priority is to rebuild the wealth of this great nation. The first source of any nation’s wealth is the efficient use of her natural resources. A massive program to build equipment for petroleum and other energy sources will give real jobs and produce wealth. In addition to the energy industry, we have to identify other strategic industries where we can produce high quality competitively priced goods to drive up our economy. Certainly where ever infrastructure needs to be improved than that should be a part of this strategic development but a blanket approach to all infrastructure blindly will not give us the growth rates we need. Measures to improve quality of life such as housing construction are not in themselves going to improve upon our overall economic competitiveness. Just giving jobs for jobs sake without an overall plan to improve our national economic vitality will not move us forward. Imagine what would have happened if all that mortgage money had been spent building offshore oil rigs, nuclear power plants, technical schools, or other things that would have increased our productivity.
The Wall Street debacle occurred because of the false promise that production of wealth could be done by passing on credit. Financial services should be the framework that builds production but not an end to itself. We can never again focus the majority our precious financial reserves into residential real estate because it is a false indicator of national wealth. For years venture capitalists, bridge loaners, IPO agents, and the security industry just to name a few have been ardently endeavored in quick turn around scams based on speculative false assurances of future capital appreciation in not only real estate but in the medical, defense, automotive, and many other industries. Some how financial experts became technical experts on what was hot and was not?
Most new start-up companies follow the pattern of very short term venture capitalists funding initial concerns with extreme control and return on investments warranties followed by round after round of secondary investors all of whom are concerned with making a quick profit when the fledgling company is acquired rather than for any long term gain. Often times this hampers the necessary refinement of product development so that what is often offered for acquisition turns out be a shadow rather than a tangible asset.We have to look at industrial production as the center of our economy not Wall Street.
This strategic industrial buildup must take priority over additional burdensome social program growth. Because without this industrial growth there will no funding for any type of social programs. The recent incursion of Russia into Georgia shows us that the North American Treaty Organization is basically dying. Realistically now that Europe is dependent on Russian oil it is unlikely that any European nation will do anything to stop Russian expansion into the old Soviet territories. It is great to try to seek alliances and give diplomacy its due but the reality is that the United States is going to become increasing alone in the future. No other country really believes the United States will go to war to protect another country under the likely future Democratic President. This explains why Israel is now making major political moves to the right in its government and most Israel leaders when asked in private do not believe the United States will really do much for them if they are attacked by Iran or others by the likely new Democratic President.
We must really understand what it means to be economically competitive. Paying our workers higher wages must be consistent with them being more educated, more productive, and more adaptive than those in foreign industry. The penalties for earnings by dividend need to be removed and private corporate stock valuations for dividends need to return as a major interest in investment rather than just relatively short term appreciation. The corporate model of economic productivity remains the most viable instrument for production of wealth but we need to place checks, balances, and transparency on its governance.
The CATO Institute believes the Wall Street bailout plan in its final form as created by Speaker Nancy Pelosi and Senator Harry Reid will lead to even further foreign consumption of American credits and assets. The increases in capital gains taxes and generally unfavorable business environment will they believe lead to even greater development of industry outside of the United States rather than domestically. The new Democratic administration has sucked the wind out of industrial development by rewarding poor choices of greedy executives and unqualified poorly motivated homeowners who make up 5 to 10% percent of all mortgages with a bailout by 90% of responsible taxpayers. In fact, Speaker Pelosi has indicated that she wants to expand upon provisos of the Community Reinvestment Act of 1977 putting perhaps up 20% of any profitable proceeds should in the unlikely event that there are any from this bailout to once again funding otherwise unqualified buyers so the process of under capitalized mortgages will likely be repeated.
American financial resources must be directed efficaciously primarily to her economic productivity or the bail out will be a failure. Consumer life-style credit and mortgage debt should never again be the major part of our financial investments. The best “economists” in our society, the small business owners, rarely have more debt in their house, car, and personal credit cards than they invest in their business.