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Imagine, if you will, that our economy is not 300,000,000+ people, but just 300 people… where you pretty much know everybody, and everybody knows you. This exercise converts the huge, imprecise, impersonal, economy into a local, specific, personal economy with all the macro and microeconomic functions still in tact, just on a smaller scale. Reducing the scale of our community makes the impact of events more personal and more immediate. It reduces the logical distance between micro and macro economics, between government and the citizens, between businesses and customers. If unemployment is at 12%, you know the 36 people who are out of work, and if some group of people decide to start or expand a business and hire six people, you can literally see the effect of a reduction of the unemployment rate from 12% to 10%. If taxes go up, you can more readily see both the impact of the loss of spendable income in families in the community and you can see the impact of fiscal and monetary policy on the people of Microville. Additionally, economic phenomena like inflation, money supply and velocity of money are more apparent.

MicrovilleUSA has all the businesses, organizations, government, schools, concerned citizens and aspiring people of a larger nation. It has a financial system with currency and banks, and a government entity (but rather than having many layers of government: City, County, State, Federal; we only have the local MicrovilleUSA government).

To simplify the model even further, initially MicrovilleUSA will be a closed economy/society. If you want to sell stock in a new business, then the stock must be sold to the other 299 residents of MicrovilleUSA. If you want to build a new road, the resources needed to build it will have to come from the people of MicrovilleUSA and the benefit will go to the people of MicrovilleUSA.

Eventually, MicrovilleUSA will become one community in a global economy, MicroWorld, where there are imports/exports, different currencies, conflicting policies, immigration issues… but for today we have just one community, one currency, one government, 300 people (bakers, bankers, burglers, bishops, bee-keepers, baseball players, busybodies and bums) that all live together and form one community…

…Welcome to MicrovilleUSA.

Copyright 2011 – John H. Lundin, PhD

All rights reserved

Personally, I believe that the interest difference between AAA and AA+… is due to Congress’ malfeasance. I suggest we take the difference out of their pay for as long as it takes [let’s see… $100 billion / (535 Congressmen/women * $200K/year) = 935 years]… that means we will have a volunteer congress til almost the 31st century… Maybe we should ‘clawback’ their pensions too… that’s a good start. Let’s let them feel the pain resulting from their fiddling.

Posturing and rhetoric no longer have a place at the legislative budget negotiations. The time has come where our representatives’ personal pain of no agreement needs to be greater than their pain of pissing some people off.

I suggest jail time, say 30 days in stripes for all of our representatives, including the President, for ‘economic malfeasance’ or, more generally ‘legislative malfeasance’ if there is no agreement by 11:59pm Sunday, July 24th, 90 days if no agreement by the end of the 26th, 180 days for failure by the 27th… you get my drift… Let them spend their campaign and vacation time behind bars for the next few years hobnobbing with people who cannot vote (felons). They wanted this job, let them perform or face hard time. The message needs to be “find a timely agreement or go to prison.” There is a point where brinkmanship is distinctly unpatriotic. Now is that point.

The question is how to trigger such a painful measure to get to a solution, and for what reasons. I would suggest that there needs to be some judgement about what would constitute a critical legislative event and a critical timetable. Federal Government has known for months about the debt ceiling and about August 2, 2011. I would suggest that the Federal Reserve could select the topic and trigger the countdown. Another option would be that the President could initiate the action, and a third option would be the Judicial Branch could arbitrate the solution. We have ‘checks a balances…’ let’s use them.

As much as there are pockets of representatives holding specific ideological perspectives, everybody needs to be ‘encouraged’ to come to the middle. I profess some rather unpopular opinions about government and its role, but there are times when all ideology must take a back seat to the welfare of the whole… the greater good. This ‘back seat’ is called compromise. Not moving toward the middle is a legislative form of blackmail… and right now there is no place for this legislative blackmail.

There is precedent for this kind of action. In the working world, if Labor and Management cannot come to an agreement where a strike would cripple the Nation, then the President can call for a “90 day cooling off period.” Well, this suggestion places those 90 days for cooling off be *after* the crisis solution, not before. We need the belligerents at the negotiating table, working toward a solution. We need the clock to be their worst enemy… more than a block of ‘no compromise’ caucus members. We need cooperation to have a chance to prevail over our adversarial form of government.

Our legislative process has succeeded in finding solutions to difficult issues in the past, but it has also failed (slavery comes to mind… and more recently both immigration and energy policy). I want to take ‘failure’ off the table.

I am reminded of a old business saying: “The beatings will continue until moral improves…” OK, you suggest something better to ‘get to Yes’ on difficult legislation.

Citizens, it is time to let the belligerents know that there is one thing worse than compromise… and that is not to compromise… and to that end we will lock your sorry ass up with real criminals if you do not get the message. What is it about ‘come to an agreement in a timely manner’ that you don’t understand?

The Debt Ceiling resolution is being poorly handled… If the public would just demand a ‘conclave’ (yep, like the Catholic Church does to select a new Pope), the Country would have a solution to our budget crisis in hours! Lock them in an un-airconditioned closet with no rest rooms, a couple of cots and feed them old dry sandwiches and water. Instruct them that they will be released only when they slide a bill with all their signatures at the bottom that can be presented to both House and Senate. Give them their freedom til an affirmative vote is taken and the President signs the damn thing… If that doesn’t happen, then lock them up again and continue the process til they get it right. I’m guessing that if the sandwiches don’t get to them, the lack of press attention will.

I like this ‘conclave’ idea for two reasons:

  1. It keeps all the players from talking to the press while the negotiations are in process
  2. It forces all the players to stop talking to their constituencies and start the process of compromise
One of my favorite questions in the political realm is: ‘How can you tell when a politician is lying? …His/Her lips are moving.’  This ‘conclave’ concept would keep the press and the constituents from hearing what those politicians are actually saying during the actual ‘sausage making’ process… after all, that is the way the Senate used to conduct business for our Country’s first two hundred years. Now we have an open Senate that gets nothing done. Yes, it is transparent, but I would rather have an opaque and silent process while my representatives are working toward a compromise that will get us past this crisis and this logjam… Heck, it might even set a precedent for getting past other big issues where our elected legislators spend more time with the press than actually addressing the issue. Boy, am I sick of that. Let’s just lock them in a closet.

Give every business and individual the ability to depreciate every capital asset purchased 100% for the rest of calendar 2011 and 2012…

That is it…

Before you just blow me off as some crank, have a quick listen:

  • One of the big issues is getting the ‘velocity of money’ back up (or in the press: how to pry businesses’ and individuals’ tightly wrapped fingers from around the trillions of $$ in cash that they have sitting on their balance sheets). This tempts them to make purchases now especially if they have lots of profits they can write down.
  • This is not a give away… if you take all your depreciation on, let’s say, a car… then next year you *don’t* get to take the normal 20% you would normally take, because it is already fully depreciated… So, the IRS loses the revenue in 2011 but makes it back starting in 2012 for the appreciable life of the asset. Eventually, the IRS will become whole.
  • This will cause a surge in demand for assets which are, arguably, the best in breed. Will this surge be uniform across all products? No, why would you want it to be? It will reward those products that are meritorious in their segments.
  • This surge in demand will spark companies to increase supply… to rethink their projections and employ people to the point fleshing out their ‘slack’ (read: factories that have more capacity)… thus creating more goods. I really like this because our governments’ programs are working on projects that have little or no ‘output’ which is inherently inflationary (more dollars chasing the same amount of goods)… [Ask me why this is such a good idea]
  • Increases in supply will put our manufacturers into a better profit position enabling them to make more business expansion decisions (read: more productive jobs), be more aggressive on pricing, and be rewarded for creative and innovative products.
  • Increased demand will hopefully put upward pressure on pricing (including the housing market) especially if employment increases.
  • Increases in asset demand and supply will have a strong secondary effect on the services markets.
Sooooo, let’s look at the stakeholders for an example. Let’s pick one that is a major contributor to our economy: automotive (I know something about automotive):
  • Vehicle Manufacturers: They would be ecstatic. They are currently spending about $4,000 per vehicle in incentives to help move cars off of dealers’ lots. Volume would increase. Inventories would decrease.
  • Automotive Dealers: More customers… what is not to like?
  • Fleet purchasers: For companies that are profitable, it gives me the option of marking down their profits by the added depreciation.
  • Individual purchasers: pay less tax this year… but more next year and the year after… it may be something I want to do… or not.
  • Banks: should love the new auto loans that are coming from healthy buyers
I have been tossing this idea around for about 2-3 years, thinking that I would eventually discover some fatal flaw. Well, I have found none on my own [this is where you help me…]. The best pair of issues that I can think of are:
  • It rewards the better products and more profitable companies and people (in economic terms: it is asymmetrical). But I really like that. It will show the economy what works and reward products are the best and what job related skills are really needed. We live in a meritocracy and meritocracies reward those who perform… it also expands the parts of our economy that are successful. If we build a better car at Ford or Chevy then those will be the ones that capture the greatest benefit. If not. then people will buy Hondas of Toyotas …that are made here in the US by US labor. How bad is that?
  • It is hard to model and forecast the impact. How many additional cars will Ford and Chevy and Honda and Toyota schedule for production? Which particular models will be most popular? How will they get their suppliers on board with more, say, tires? How many taxpayers will take advantage of the increased depreciation option? How much less revenue will the IRS receive? I do not know of one economist that has a model to estimate the impact short of an uneducated guess. [you econometricians please let me know if you *do* have a model… won’t you?]
But neither of these reasons is sufficient to derail the concept of boosting demand in a soft economy by deferring taxes. The balance sheet of the US Treasury (read: the US taxpayer) changes $0 over the life of the asset, if somebody flips the asset, then they pay tax on 100% of the sale price… Where is the hole in this policy? Most of all, I like this because it is a Demand-Pull policy rather than a Supply-Push policy. Right now our economy is acting strangely like a string and is not doing well being pushed… We, the taxpayers and citizens of these United States, need a ‘real’ reason to release the trillions of $$ that have come out of our economy and push ‘velocity’ back to where it will support a healthier economy. MV=PQ to my economic buddies…. ©Copyright John H. Lundin, PhD, 2011 — All rights reserved

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