What if I told you that there is something that we can do as a nation that could help grow our economy, boost our GDP, and create jobs and wealth, bringing us to a level of prosperity yet unseen in our history? What if I told you that this same plan could help improve wages for those in the working class, and drive demand for more immigration into this country to fill countless numbers of empty job openings? What if I told you that this plan can allow taxation rates to become extremely low? This plan can do all that. Today, I’m not going to go into great detail into the nuances about this plan, but I’m going to give you a general understanding. Based on this general understanding, mathematicians and economists can come and determine the smaller details as to how this plan would work.
So, let’s get started.
Return on Investment (ROI)
If you ever get a chance to talk to the bankers that are responsible for giving out business loans, or venture capitalists who are responsible for funding start-ups, they’ll tell you that part of the process of approving a business loan is to look at its potential return on investment, ROI for short, and see how fast they can get that ROI. If they have a high ROI, that is, they can get their money back quickly, such as in three to six years, then that greatly increases their chances of getting approved for a business loan. (Of course, there are other factors, such as having a good business plan and good marketing strategy, etc.)
On the other hand, if the business plan reveals that the business model has a low ROI, that is, it takes longer than three to six years to get a return on investment, then banks tend to be much more likely to deny business loans to those applicants. And it’s not just banks; it’s investors and venture capitalists who also tend to refuse money to those applicants too. I completely understand why this is – banks, investors, and venture capitalists want to make money on their investments, and they want to make it in a reasonable amount of time. They want to make their money back, and with a profit no less, and fast enough to make it worth their while.
This is the whole essence of capitalism – use your money to make more of it. And the way businesses make money is by giving their customers, the people, what they want, and they try to do it as efficiently, with as high of quality and as low of cost as possible to please the customers, because if they don’t, they won’t make any money – that is what makes capitalism inherently people-oriented, and government-owned monopolies, such as what socialism calls for, inherently anti-people.
This whole set up, and the motivations it brings, has been great for bringing untold prosperity to billions of people, motivating innovators to create new products and technology that propels humanity forward, and creating massive amounts of wealth, all through the motivation to make themselves money.
But that brings us to a little problem. In my opinion, because we’re focusing entirely on business creation and growth in economic sectors and areas that only give a high level of ROI, we’re almost entirely missing the untapped potential of sectors and areas of the economy that have lower levels of ROI – that is, we’re missing entire economic sectors that could be developed because the return on investment for those sectors takes too long. So, what would happen if we decided to find a way to tap into that untapped portion of the economy?
By tapping into that unutilized portion of the economy, we could have economic growth of between 4% to 10% per year, or even more, rather than a measly 1-2% growth like we are experiencing now by just focusing in on areas of the economy that only have higher ROI levels.
Think about what would happen if we tapped into this hidden, undeveloped part of our economy. Right now, our tax revenues are based on the higher-ROI part of the economy. If we allow for economic growth in this untapped part of our GDP, we could expand the economic base from which we get our tax revenues, meaning a couple of things. First, since our tax revenues are coming from a wider economic base, it could mean that we are able to lower taxes for everyone, which would allow for even more economic growth.
By lowering taxes, some low-ROI sectors that are on the borderline would now be considered higher-ROI business sectors, meaning they would start to see more investment from banks, investors, and venture capitalists, which would grow the economy even more.
Many politicians and people who lean towards the political left have been responsible for increasing the size of government, and one of their reasons is to provide jobs/work/employment for people. The problem we now have, in my opinion, is that our government has gotten far too big, far too wasteful, and far too inefficient – one of the reasons we need that, according to the left, is to provide decent work for people who otherwise wouldn’t have found decent work. By tapping into the low-ROI sector of the economy, this would allow us to have a much bigger economy and GDP, meaning many more jobs in the private sector of the economy that does the wealth-creating, and reducing the necessity for having so many public sector jobs that are, in reality, a burden on the wealth-creating private sector. The many people working in the public sector could be absorbed into the private sector. This would mean that we could finally tackle the problem of oversized, wasteful, and inefficient government.
Remember what I said earlier – increasing the private sector would allow the cost of running the public/government sector to be spread out more, allowing everyone to have lower taxes. On top of this, there’s another taxation benefit – as we shrank the size of our public sector at the same time we grew the size of our private sector, and reduced the tax burden to the private sector as the public sector shrank, it would mean that the tax burden to the private sector would shrink even more. Put these two things together and it means that everyone’s taxes go from heavy to extremely light. It would also mean that, despite shrinking taxation rates, that tax revenues overall would increase while tax rates and expenditures decreased.
Here’s another thing: because there would be an abundance of work available, we should see the portion of our population that depends on social welfare programs shrink substantially, meaning government spending could be reduced even more, thus allowing us to lower tax rates even more. And since our social welfare programs are presently designed not to help people get out of poverty, but to keep people dependent on the government and chronically poor – especially black people (making these programs anti-black) – our social welfare programs here in the United States are due for an overhaul anyways.
We would be in a situation where tax revenues are extremely high – higher than they’ve ever been, even though tax rates would be the lowest they’ve been since perhaps 1914, while government spending was lower than its been in decades. This would give us the ability to substantially pay down our national debt or eliminate it entirely. Since a portion of our tax revenues goes to pay the interest on our national debt today, that spending could eventually be eliminated. And once we pay off our national debt, tax revenues that go to pay for that, and its interest, would be released, and that could mean lowering tax rates even more.
We could have a level of economic growth that causes job creation to take place at a record-high level, meaning that demand for workers is driven to all-time-highs. Having a demand for workers that’s much higher than the supply of workers would mean two things:
1. It would drive up the wages in the working class to all-time highs, meaning more prosperity and a better life for those in the working class.
2. Letting the demand for workers get to a point where it is much, much higher than the supply of workers available may actually be like a damper on our economic growth as a nation, so we would want to make sure that we limit the difference between the demand for workers and the supply of workers. In other words, it would necessitate the need for more immigrants to fill many of those vacant positions, which would drive up the immigration rate to even higher levels than we have now, making such a program pro-immigrant.
(Keep in mind that immigrants come to the United States to have a better life, meaning that they expect the economy to be good, and a plenitude of potential jobs and other economic opportunities to be available to them so that they can work to create that better life for themselves than they could ever hope to have achieved in the countries from which they migrated, which is why they immigrate. Creating a situation where we have completely open borders and let anyone and everyone in, with no controls, would eventually overwhelm our system by making the supply of workers higher than the demand for workers, and this keeps wages low for those in the working class. By going this route, you will make those immigrants have many of the same economic problems here, of low wages, and struggling to survive, that they were trying to get away from by coming to this country. That would make an open-border policy and an uncontrolled immigration policy anti-immigrant, in my opinion.)
Ok, if you’ve come to the conclusion that tapping into this unutilized low-ROI portion of the economy would be in our best interest, then it begs a couple of questions. Where do we begin? Where do we look to find these untapped low-ROI business ideas?
So, here’s a couple of ideas:
1. Was there a manufactured good that used to be made in this country, but now it’s made elsewhere, like in China? The businesses that moved their manufacturing overseas did so because their profit margins were too low here. Or, to put it another way, the ROI was too low, and to get a higher ROI, manufacturing was moved out of the country where labor was more expensive. There are literally hundreds of billions of dollars in manufactured goods that are made elsewhere, but could be made here, if we had things set up here (such as low-ROI loan programs and tax policies that helped) to allow low-ROI businesses to be created.
2. Go to the bankers, investors, and venture capitalists, and find out through them business ideas that they turned down because the ROI was too low. They probably have a list of all applicants and the business proposals in their records. They might even tell you, “That was a good business plan, but the ROI was just too low.”
No-ROI Ventures
If we can tap into the low-ROI business models, could we go even farther, and tap into the…umm…no-ROI sector of the economy to get even more productivity and GDP and wealth creation out of the market?
Ok, Ryan. Now you’ve done it! Now you’re just talking crazy talk!
Ok, but am I really? Hear me out.
I know there are some business models out there that would never even be considered by traditional capitalists, such as bankers, investors, or venture capitalists, because they would never see any profits at all. The reason these business models are never developed is because after the cost of construction or purchasing a facility, and buying the necessary equipment to produce that good or service, when considering the cost of paying for the facility and equipment into their business costs, that is, overhead costs, they are actually losing money – they are taking a loss.
But let’s say that we accounted for this by setting everything up for the business to run properly, without cost to the business, so that the business can just pay for itself, that is, its own operation, without needing to pay for the facility or machinery. How do we do this? And how can I help you to understand? With an imaginary, hypothetical story to provide an analogy, I suppose. So here it is:
An Analogy
Imagine, if you will, that our Department of Defense decides to put a new military base in imaginary Middletown, United States. Because of the need for homes for those working at the base, construction companies pop up and housing construction happens. Roads, and other infrastructure, are created. New restaurants and other businesses are created to cater to the people working at the military base and the people supplying the base. New distribution centers open up. Manufacturing springs up that starts producing needed goods for the military base, but soon expands until they produce products for the whole country, and then the world. The local economy grows and expands around this military base, with the base itself acting as the seed from which the rest of the local economy grows.
Some decades later, the federal government decides to downsize the military, including shutting down the military base in Middletown. But by this time, the local economy has grown to the point where it’s now self-sustaining and doesn’t need the military base as its backbone. After the base is shut down, Middletown continues to thrive and prosper – in fact, over the course of the next century, the amount of tax revenues brought in from Middletown more than pay for the initial cost of creating the military base and sustaining it over the course of several decades.
In this short, imaginary example, government spending was used to create a seed from which a local economy grew. In a similar way, we could use government spending to set up business models that would never be created because they don’t offer any return on investment, or ROI, but only make enough income to cover the cost of operation. Once the government sets up the business, and gets it running, it backs off, and lets the business run itself. Over the course of the next several years, the amount of tax revenues brought in through that business model, through business and individual income taxes, more than makes up for the cost of establishing that business model. In other words, the government is, in its own way, getting a return on investment, or ROI, by tapping into the no-ROI economic sector that no investor, banker, or venture capitalist would even think of touching because they wouldn’t get a return on their investment. And the lower tax rates get, the more this economic sector’s potential expands.
Traditional government spending, it is argued by some economists (such as those from the Austrian and Chicago schools of thinking) doesn’t pay for itself in the long run. For every $1 spent by the government in the public sector to stimulate the economy, less than $1 is spent in the private sector, they say. For example, for the government to create one job for one year that paid $40,000, it had to spend $100,000. My plan would use government spending in a way that grew the economy and would pay for itself in the long run. And it would do so much more, which could have a profound beneficial effect on our system of free market capitalism.
By tapping into this hidden economic sector, we can increase the amount of wealth being created in this country, grow our GDP, reduce the need for public sector jobs and big government, and lower the amount of taxes that are levied on businesses and individuals. This last part, lowering taxes on businesses and individuals means that this component helps to improve capitalism – it helps to improve the ability of businesses to make a profit and make a return on investment. High-ROI businesses can make even more profits. Low-ROI businesses can get to the point where they become higher-ROI businesses. And no-ROI businesses, created with the help of some of our tax revenues, can become businesses that have at least a little bit of ROI, a little bit of profit.
All of this is what can happen by tapping into the low-ROI and no-ROI sectors of the economy. Great things.
