By David Schussler

 

Although simplistic at best, my read on the new federal budget proposal is that it would be difficult to impossible to achieve. Let’s take the budget amount 2.9 trillion and round it off to 3 trillion for the purposes of simplifying the math. First of all, these days it is not impossible to understand what a million dollars could buy. After all many homes cost more than that, some yachts, and many small businesses, but it is tough for the average person to understand the value and power of ten million, much less a billion, and it is really difficult to conceive of one trillion dollars. So, for most of us a three trillion dollar budget is like a Chinese character. We know it means something or many things, but we don’t know exactly what and it can mean different things to different people. Unlike a dollar or ten dollars, the purchase power of this much money is seemingly almost limitless.

Where does this money come from? Well, we know for sure that it comes out of our paychecks, it comes from corporate profits, inheritances, sales of goods and services, import and export, permits, licenses, fees, and many other subtly taxed areas of our lives, but for the most part it comes from the individual and collective efforts of we, the people. According to the national census, as of today, the United States population is approximately 300 million people. If you simply divide the budget by the number of people you get a cost of about ten thousand dollars per person, man woman and child. The average household in the US as of 2003 is approximately 2.5 persons per. The average income per household is $46,000 (let’s round that off to $50,000 for the sake of simple math). The cost of the budget per household in the US becomes $25,000, or about half of the average household income.

Now then, this is very simplistic, but also very realistic. We all know that there is no such thing as average. Income per capita varies from negative for some, to billions for others but the simple fact is that if we were all equal in earning status, we would each owe ten thousand dollars to cover the budget.

The best method of determining how well we are doing as a nation is reflected in a summation called “Gross Domestic Product” (GDP). GDP represents the total market value of all final goods and services produced in a country in a given year. It includes consumption, government purchases, investments, and the trade balance (exports minus imports). It is the broadest indicator of the economic output and growth, and probably the most important indicator of the economic well-being of a country. Although it is the best indicator, GDP fails to account for many forms of production that improve a person’s well being. For example, if you make a meal at home, the labor is not included. However, if you were to go out to a restaurant and consume that same meal, the labor is included in GDP. Unpaid work at home or for a friend and volunteer work is not included and thus GDP does not reflect production of all we produce. When individuals grow their own food, build their own houses and sew their own clothes, they are not producing goods and services to be sold in a marketplace and therefore GDP does not change. As a result, many countries such as South America and Africa have a low GDP per capita that underestimates their well-being. This is why, when we were in our infancy as an agricultural nation, we could have had a low GDP but a healthy people and economy.

As of 2005, the United States had a population of about 293,700,000 people, a national GDP of 12.5 trillion dollars, and a per capita GDP of $42,512 http://www.imf.org/. So, you see, every individual person as of this 2005 report contributed $42,512 toward our national wealth.

A major factor in the long-term growth in the American economy is continued improvement in productivity. With productivity increases, businesses are able to gain more output from the same number of workers. But businesses also need more workers. If real GDP grows faster than the increase in productivity, more workers are needed to produce the real GDP and employment will rise. Economic growth is a function of the technological innovation and the amount and quality of labor and capital in the economy. The Federal Reserve has stated that productivity growth is a key component in the continued growth in the American economy. Businesses are able to expand production more rapidly than the growth in employment and thus, the most important consequence, real GDP per capita can increase. If the growth in productivity continues to slow significantly, increases in real GDP per capita will also slow.Consider the table below. While the mainland part of China has a GDP of $2.225 trillion, its GDP per capita is only $1,716. Hong Kong has a much smaller GDP of $178 billion. However, its GDP per capita is much higher at $25,757. Other nations, such as France and Germany , may have quite different GDPs, but GDPs per capita that are very close. Notice also that France and Germany have GDP’s not too different from China ‘s, yet have vastly different GDP’s per capita from China’s GDP.

 

Country

Population

GDP (Billions)

Per Capita GDP

China (Mainland)

1,296,200,000

$ 2,225

$ 1,716

China (Hong Kong)

6,900,000

$ 178

$ 25,757

France

60,400,000

$ 2,106

$ 34,865

Germany

82,500,000

$ 2,797

$ 33,907

United States

293,700,000

$ 12,486

$ 42,512

 

Sources: Population numbers, year 2004, www.worldbank.org,

“Increased labor force participation increases output. Expanded, improved education creates more productive workers. Business and government spending on research and development enhance our abilities to produce and allow each worker to become more productive, increasing incomes for all. Finally, to achieve a higher level of GDP in the future, consumers need to limit consumption spending and increase savings today, permitting businesses to invest more in capital goods. If resources are invested into building an economy now, future generations will enjoy a higher level of economic growth; our businesses will produce more goods and consumers can purchase more goods.So what does it all mean? It means we as a people have done a great job creating not only a great, morally competent republic that is a bastion of freedom and liberty, but a nation of prosperity that cares for its people and the people of the world, but …. we are spending too much of our wealth (i.e. blood, sweat, and tears). Our government has grown invasive and too large, it costs too much to run, and, does not respect the right of its people to keep, save, and invest the money we earn. There is too much money spent on “undeserved entitlements”. The tax code is unfair and way too complicated. If you have ever watched a congressional budget hearing you would see the lack of common sense and division among our elected officials. More often than not those who have real practical solutions and ideas are muted by slick speaking, side-stepping perpetuators of congressional pork who have kept their fat butts on seats that would be better sat by non-corruptible common folk. Yep!, the new budget does not compute any more than the old one and it tends to coerce people to work multiple jobs as they disrupt their family lives and child rearing and seek every tax loophole and means to earn non-taxable income possible. Any fool knows “you can’t squeeze blood from a stone” and, unless something is done soon to make the budget make some common sense and compute, the natural forces at play will implode.

Expanded, improved education creates more productive workers. Business and government spending on research and development enhance our abilities to produce and allow each worker to become more productive, increasing incomes for all. Finally, to achieve a higher level of GDP in the future, consumers need to limit consumption spending and increase savings today, permitting businesses to invest more in capital goods. If resources are invested into building an economy now, future generations will enjoy a higher level of economic growth; our businesses will produce more goods and consumers can purchase more goods.So what does it all mean? It means we as a people have done a great job creating not only a great, morally competent republic that is a bastion of freedom and liberty, but a nation of prosperity that cares for its people and the people of the world, but …. we are spending too much of our wealth (i.e. blood, sweat, and tears). There is too much money spent on “undeserved entitlements”. The tax code is unfair and way too complicated. If you have ever watched a congressional budget hearing you would see the lack of common sense and division among our elected officials. Yep!, the new budget does not compute any more than the old one and it tends to coerce people to work multiple jobs as they disrupt their family lives and child rearing and seek every tax loophole and means to earn non-taxable income possible. Any fool knows and, unless something is done soon to make the budget make some common sense and compute, the natural forces at play will implode.

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