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Econo-Me

22 October 2009

Above this article is a 30 minute video containing, what I think could be, the best and shortest explanation of the American economic crisis. This video is the watered-down version of a 2 hour long feature film. If you enjoy this subject, I highly reccommend the full film. If, on the other hand, economics aren’t your thing and you want a version even shorter than 30 minutes; Start watching the attached video at 2 minutes and 30 seconds until 11 minutes.

Turn on a television or open a web browser and there is a high degree of probability that the economy is being referred to in some way or another.  It happens so frequently that I would go so far as to say that many people worship the economy– but that is another blog entry altogether.  The popularity of the topic isn’t happenstance, it’s because it literally controls how we live our lives. Everything from getting your car washed to skipping a credit card payment effects the economy.  We have a symbiotic relationship with the economy; Everything we do effects it while everything it does effects us.

The federal government receives most of it’s revenue through taxes.  Taxes are imposed when you purchase a product or service and when you receive compensation for a product or service.  Overall, when compared to other nations similar to the United States, we pay far less tax than other countries.

According to the most recent data (2005) only Iceland and Ireland have a lower taxer burden than the US for a family with one bread-winner and two children.  France and Germany are among the highest taxed nations in the world but both countries have far more social services for their respective citizens such as healthcare, secured pensions, and severance pay.

Figures related to national tax rates.

Figures related to national tax rates.

In 2003, Mexico was the only country to pay less in taxes to their government than the United States.  The US paid 24.2% to Mexico’s 19.5% and similar situations occur every year.

In 2008, The United States government produced a revenue of 2.5 trillion dollars while it spent 2.9 trillion.  It doesn’t take a mathematician to come to the conclusion that in that year we added 400 billion dollars to our national debt.  This is another regular occurrence. Every year for many years our current financial system has dug between 200 Billion and 500 Billion dollars of debt into an ever-deepening hole.

Our 2008 federal budget looked something like this:

$204 Billion – Medicaid
$330 Billion – Medicare
$610 Billion – Social Security
$607 Billion – Military
$244 Billion – Interest on nation debt
$520 Billion – Education
$400 Billion – Everything else (Food Stamps, VA Benefits, Highways, etc)

We spend more per year on paying down the interest on our debt than we do on Medicaid.  We spend almost as much on interest as we do on Medicare.  Doesn’t it stand to reason that if we lowered the amount we pay on debt we could provide more efficient services or strengthen existing ones?

Unfortunately, there are only two ways to go about getting out of debt.  We could increase taxes or we could decrease spending.  Neither option is very appealing, both have serious drawbacks to our lifestyle.  The former ensures paychecks are smaller, businesses are stifled, luxuries are fewer, savings are lessened, and quality of life decreases.  The latter ensures that opportunities are fewer, education suffers, transportation decays, social services are reduced, health risks increase, and public safety is threatened.

In addition to a national debt problem, we have a personal debt problem.  Our American society has adopted the culture of consumerism.  Every good we might need, every service we might desire is at our fingertips; Anything for a fee.  It’s our consumer culture that has removed the idea of saving for the future from our list of priorities.  Instead, we get credit cards and sell our futures for the immediate gratification of now.

Photo by Joe Trohoski

Photo by Joe Trohoski

In 1975 Americans were putting, on average, 14% of their earnings into a savings account.  Compare that to the -3.4% being saved today.  That’s right, a negative amount. As of 2008, the average household debt is $117,951 and this includes credit cards, installment loans, home equity loans, and mortgages.

It seems clear that America has a financial problem. Both the government and the people are failing to live within their means which is certainly possible in the short term, but in the long term always leads to disaster.

Living beyond one’s means has but two resolutions as well.  Again, earn more or spend less.  To earn more requires a higher wage or another job altogether. To spend less requires lacking on luxuries or, in many cases, necessities.

(I must admit, I’m eager to see if there is a difference between the two polls.)

Another large part of our deficit problem comes from annual trade deficits.  A trade deficit is when you are buying more than you are selling.  There once was a time when the US was foremost in the world for earnings based on trade, selling it’s products to the entire planet.  There once was a time when American production meant quality and effeciency.  Those days have long since gone.  In 2007, the US came in 224th place for world-wide earners in trade.  China was number one.  Coincidently, or not so, the largest chunk of our trade deficit goes to China.  The second largest source of this annual debt is oil purchases from the middle east.

The two largest contributors to our trade debt are symptoms of cultural issues within our society.  The corporate sector often outsources to China to reduce costs, which closes down smaller businesses, which in turn reduces wages, which makes it harder to save.  For example, Wal*Mart does more business than Target, Sears, Kmart, J.C. Penney, Safeway, and Kroger combined and is the largest outsourcing company in the country.  China, I’ll bet, enjoys it’s relationship with Wal*Mart.

Wal*Mart

Wal*Mart

The second largest contributor to our trade deficit is oil consumption.  We’re a culture that, not so recently, had a love affair with cars.  In the last 40 years we’ve quite literally handed our money and our energy independence over to the middle east.

We’ve become a nation with virtually no product to offer the world.  We can’t sell our automobiles to other nations any more because we don’t meet their more modern standards.  We don’t sell many airplanes any longer because they are made more efficiently and cheaply elsewhere.  Computers are now being produced abroad for far less than they are within our borders.  We’re a country with nothing to sell… is it any wonder we have the worlds largest trade deficit?

Photo by flimjo.com

Photo by flimjo.com

What is more troubling is that our elected leaders know we are marching down the path to destitution and yet do nothing.  No politician who has proclaimed “I will raise taxes” has ever won an election.  Likewise, neither has a politician who says, “I will discontinue your social services.”  It reminds me of a quote from Upton Sinclair which was also used in the film An Inconvenient Truth: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

So how do we solve our fiscal challenges?  We’ve got nearly 53 trillion dollars in accumulated debt, liabilities, and promises.  I’ve said before that there are really only two options:  Raise taxes or decrease spending.

If we decided to raise taxes, we would have to more than double our current tax rate to make up for the deficit.  That means to cut the annual national debt we would have to increase our taxes to 48% of earnings.

If we decide to cut services, we would have to cut all social services by half.  Half of the people nation wide on Medicare and Medicaid would be cut off.  Education, health, transportation, and other social services would suffer tremendously not to mention the resulting unemployment rates.

Perhaps we could do a little of both.  Cut services and increase taxes to spread the burdens out evenly across the board.  But the most important thing we can do is make thoughtful choices.

Some ideas to improve our situation:

– Support a local family owned store instead of patronizing the one that outsources jobs and production.
– Ride a bike instead of driving your car or buy a car which doesn’t use gasoline as quickly.
– Write your representative and tell them to support a tax of your choosing.
– Support healthcare reform.
– Cut up a credit card.
– Fill a zip-lock bag with water, put your other credit cards inside, and freeze the bag – this way you have to think before you use them.
– Don’t buy things you can’t afford.
…and most importantly save money.

The most unique thing about America is that every obstacle that we come upon, we have the combined power to get over it.  If enough of us take small actions, they build and gain momentum and become common place.  It is only when we’ve convinced ourself that we are powerless that we become so.

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One Comment
  1. maplesyrup21 permalink
    22 October 2009 1028

    interesting video.

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