Countries aren't companies

As I watch the markets during the day I have CNBC on the television in my office. Not to listen for trade ideas, but to listen to the ideas traders have. CNBC is on the "solve the fiscal cliff" trade now. They continue to have business leaders on for their advice. Almost without exception these leaders of corporate business have the same advice for the U.S. govt. and the fiscal problem. That advice can be summed up as " raise revenues and control costs". This is how a company survives and it is not surprising that they believe it is the prescription this country needs to regain economic leadership in the world. However I will point out that there is a difference between a corporation or private business interest and a country of multiple and varied interests.

It is not difficult to see the neccessity of raising taxes/revenue to balance the budget, particularly after 30 years of declining tax rates and increased loopholes. But the advice on controlling costs is different for a country than for a corporation. When a corporation controls spending, they are attempting to control the flow of money OUT of the corporation. They attempt to control the costs of materials or services that they use to produce the product or services they sell. A governments expenses are different in the sense that the taxes raised are spent inside the country. The analogy would be internal spending in a corporation or company between divisions or departments in the company. There is no net loss to the company as a whole. And spending between departments is probably neccessary to the functioning of the company. Tax money is mostly spent INSIDE the country so is more analogous to internal private spending. The loss to the U.S. economy is from the money that flows out of the country balanced against the inflow of money from items sold. In other words the balance of trade/current account is the most important indicator of economic strength or weakness in the longer term.

If we want to control costs we should focus on those things that we do that send our money abroad. Military spending to protect the world comes immediately to mind. The so-called "defense" spending. We spend more than the rest of the modern world combined on our military and we spend it around the world, freeing up those countries that we "protect" to pursue more productive endeavors.

Another cause of trade deficit is the offshoring of our production and import of consumer goods, which is exacerbated by our consumer debt. We buy stuff we don't need and borrow the money to do it!

I think that if we want to get our economy strong again and gain advantage in the world economy we need to stop listening to business leaders who advocate what is good for multi-national corporations. They will find their profits where they find them around the world. And their paradigm is one of the U.S. as a continuing "piggy bank" to be raided to support corporate profits. This is not what is good for THIS country. We need to think of the total United States as a company. Internal spending may be neccessary to change our "business model" to one of increased production of goods and services for ourselves and to export to the world. And while the argument of taxes as a drag on economic activity may have some validity in the short run, in the longer term it is only good for the multinationals. Tax cuts are only another form of artificial stimulus to the consumer and they are temporary. We need to raise money to invest internally and change the rules to encourage/promote exports.

Thinking again
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