Posted on 10/18/2003 8:21:41 AM PDT by abeane
The Concept of First Wealth Value Added Dollar Creation In Establishing a Rational, Overall Economic Policy For the United States
By Alan F. Beane Part 1 of 2
This discussion is about First Wealth Value Added Dollar Creation – a concept that focuses on the value added dollars created in the economy versus those that are re-circulated; sort of a production vs. service economy distinction. A few years ago, I recall various economic studies that indicated that $1 of First Wealth Value Added Dollar Creation money ended up being multiplied some 8 to 16 times in terms of service economy activity.
First Wealth Value Added Dollar Creation in our economy is a function of value added sales of the following four things where the value added activity is within the borders of the United States, i.e. domestic:
1. The domestic value of what we take out of the ground via developing natural resources, including both renewable and non-renewable.
2. The value we add to what we take out of the ground by our labor, intellect and capital via domestic manufacturing/process operations.
3. The domestic value we add by our labor, intellect and capital to what we import.
4. The domestic value we add strictly as a product of our intellect.
The economic activity resulting from First Wealth Value Added Dollar Creation is reflected in domestic and export sales – both fuel the growth in what we conventionally think of as value in the economy, although the mechanisms are different for each. In turn, First Wealth Value Added Dollar Creation provides the foundation for the service economy by increasing the standard of living (via the distribution of the earnings of such wealth) and thus creating demand for conveniences and the ability to pay for them.
Most importantly, the value of the economy driven by First Wealth Value Added Dollar creation is the economic foundation for the sovereignty of the United States – it is our real economic power as a country. Our ability to be a sovereign country is the key to our continuing freedom and independence. And it is absolutely clear to me that our sovereignty is under serious threat from influences both domestic and foreign.
As a key determinate of the Country’s sovereignty, First Wealth Value Added Dollar Creation and the distribution of that wealth are concepts defined by the boundaries of the country. This fact stands in direct conflict with our free trade beliefs that U.S. citizens and businesses fundamentally have a right to trade with anyone, anywhere, anytime. This is a “micro-economic” level of activity where individuals and enterprises act in their own interests to create as much value added dollars as they can in any way that makes sense, i.e. fundamental capitalism. On the other hand, the sovereignty of the Country demands a “macro-economic” policy designed to maximize First Wealth Value Added Dollar Creation as a Nation. These concepts are not mutually exclusive; and an effective "macro-economic" policy as I am suggesting is a first order matter of National Security.
The Country desperately needs a high standard for making National Economic Policy decisions; and I suggest the following simple statement and supporting definition:
Policy Statement:
“The economic policy goals of the United States shall be (1) to create for the citizens of the Country, now and in the future, as much First Wealth Value Added Dollar Creation as possible; and (2) to broaden, as much as possible, the distribution of earnings of that wealth by our citizens.
Supporting Definition:
First Wealth Value Added Dollar Creation in our economy is defined as value added sales of the following four things where the value added activity is within the borders of the United States, i.e. domestic:
1. The domestic value of what we take out of the ground via developing natural resources, including both renewable and non-renewable.
2. The value we add to what we take out of the ground by our labor, intellect and capital via domestic manufacturing/process operations.
3. The domestic value we add by our labor, intellect and capital to what we import.
4. The domestic value we add strictly as a product of our intellect.”
The simple policy statement described above should be an overall decision mechanism to drive a very large portion of the Government’s role in determining the priorities and necessity for expending public resources. This means that every time we are asked to evaluate the “goodness” of a bill, policy or directive, we should ask “Does the desired action create or sustain value added wealth for our citizens, and if yes, does it contribute to a broader distribution of earnings of wealth among the citizenry?” If the answer is no to both, then we should consider saying no to the desired bill, policy or directive where there are not substantially overriding national security, social safety net, and compassionate issues at stake. Compassionate conservatism needs to have a decision matrix that goes with it – and I suggest that this is it.
With such a simply stated standard, we can put ourselves into a position of doing what is “right” for the country with a rule driven, as opposed to poll driven, standard that most folks can understand and empathize with for running the country in terms of economics designed to strengthen our National Sovereignty.
s/Alan Beane Gilford, New Hampshire
Among others this is a questionable concept.
One could argue that our economy is largely supported by the capital flowing into the U.S., which in turn does so because of the perceived stability of this country. That stability has something to do with the service part of the economy --- people and their values.
In the very least, this and some other statements are unsupported.
You've spend a great deal of time structuring the basic elements of your model, but the way they are put together is weak. That has to be taken care of before you proceed to the policy implications.
It is also pretty clear that you have worked in reverse: you are worried about phenomena such as loass of manufacturing in this country, concerned about its implication for our soverignty, want to argue (policy) that this must be stopped --- and then ask, "How can I rigorously justify such request."
Well, the taxonomy of a particulat value-added process is not enough.
I think we should ask: "Is it Constitutional?" Congress rarely does.
Wealth is created only by engaging in value-added activities. By the same token, Service sector activities do not create wealth, they merely transfer, redistribute and eventually dissipate wealth as consumption. Thus, as value-added activities move offshore and the U.S. labor force shifts to the Service Sector, wealth is dissipated, not created. And the U.S. standard of living declines as a result.WEALTH: The net ownership of material possessions and productive resources. In other words, the difference between physical and financial assets that you own and the liabilities that you owe. Wealth includes all of the tangible consumer stuff that you possess, like cars, houses, clothes, jewelry, etc.; any financial assets, like stocks, bonds, bank accounts, that you lay claim to; and your ownership of resources, including labor, capital, and natural resources. Of course, you must deduct any debts you owe.
VALUE ADDED: The increase in the value of a good at each stage of the production process. The value that's being increased is specifically the ability of a good to satisfy wants and needs either directly as a consumption good or indirectly as a capital good. A good that provides greater satisfaction has greater value. In essence, the whole purpose of production is to transform raw materials and natural resources that have relatively little value into goods and services that have greater value.
SERVICE: An activity that provides direct satisfaction of wants and needs without the production of a tangible product or good. Examples include information, entertainment, and education. This term good should be contrasted with the term good, which involves the satisfaction of wants and needs with tangible items. You're likely to see the plural combination of these two into a single phrase, "goods and services," to indicate the wide assortment of economic production from the economy's scarce resources.
One could argue that our economy is largely supported by the capital flowing into the U.S., which in turn does so because of the perceived stability of this country. That stability has something to do with the service part of the economy --- people and their values.
While I have not run accross the original poster here before, the poster does not totally discount the service economy or discvount the inflow of capital to the USA as a part of adding value. So this objection is not necessarily valid. Further the implications of your statement eliminates the domestic generation of capital which is another fundamental aspect of our economy.
It is also pretty clear that you have worked in reverse: you are worried about phenomena such as loass of manufacturing in this country, concerned about its implication for our soverignty, want to argue (policy) that this must be stopped --- and then ask, "How can I rigorously justify such request."
This statement is clearly unsupported on your part. One may as easily state that "top quark" males his posts from the conviction that the support and development of nations other than the USA is the ultimate good and anything harmful to the USA is what he will support. Before you cast stones and question others assetions I suggest you back up some of your past unsupported assertions made made in other threads.
Let us keep the discussion civil. Let us keep the discussion fact based. let us keep the discussion mathemetical. In short, if one makes assertions let them back them up either here or have done so in other threads. If the author is concerned about manufacturing operations leaving the USA then it is a reasonable basis to begin analysis test the model on its own merits not on pro-WTO bias.
The objection is to the attribution of effect to a supposed cause. In his model, it is made too loosely. I offered an alternative candidate for the cause to our ability to remain soverign. That he does not TOTALLY discount is is irrelevant: he must have taken it into account FULLY --- and then dismiss it or accept.
I thought it was obvious that I was referring to his thought process of which I am not a part and cannot possibly know. Our minds play games with us when we try to formulate or advance theories, and I offered the author a possibility that led him to over-reaching conclusions. Sometimes it helps us to recongize what ails us, that's all. <P: If you need an explicit statement that that was a suggestion, here it is: the above-quoted statement is entirely is not, and cannot be, supported ---- TopQuark.
Stating that the paper is week in its argumentation, and hence over-reaching in its conclusions, is not uncivil.
Stating that the paper is weak in its argumentation, and hence over-reaching in its conclusions, is not uncivil.
P.S. Sorry for the typos in the previous post.
I know: that is what you think. I have mentioned to you before that this is not the case and suggested relevant literature. I cannot help any further, so please spare your time and mine.
As I cited literature which actually addresses the point and you mentioned some rather obscure references. I am used to someone providing references which conform to standard academic style or link this is what Free Traitoirs have demanded of me so please I demand teh same and not some didactic maner of post. Whhen you provide a link to a peer reviewed document that actually supports your position I will be more than happy to acknowlede same. However if you procide an obscure reference that conforms to no academic style to an author I have not yet accepted as being even worthwhile (No One knows every economist and there are many so called economists who actually are little more than bags of air) That does not qualify as a refernece for your unsubstantiated assertions.
By the way I would not have brought this matter up except for your initial agreement that mathmatics should be provided where possible. Now we come down to the typical stand of most advocates of Free Trade. Accept what I tell you because I am a member of the ruling class. Exactly a neo-liberal stance.
And without a doubt, we are clearly out of step with the "progressive" portion of the populace; Thank goodness that you are: that part of the populace scares me to death.
I can tell you the exact hour and day that as a business person, I first became an internationist. In the best interests of my company, I made the decision to acquire one of our Taiwanese competitors and build a Far Eastern based equity. Frankly, as a citizen, it was damned uncomfortable.
I perfectly understand that and, I am sure, I would have similarly mixed feelings. However, if I may respectfully suggest: you cannot (always) be a better friend to people than they are to themselves.
The Taiwanese subsidiary was attractive (I presume) at least partly because of the lower labor costs (if it was the knowledge of local markets or some other strategic consideration --- that obviously exists but not relevant to job outsourcing, right?) You have a responsibility to the people that gave your their money, the shareholders, to turn competitive level of profit. If the workers do not want their jobs to be outsourced, they must help you. But that is a big part of the problem: unlike at any other time in our history, the level of comfort people achieve becomes an entitlement; thing MUST always get from good to better. There are many reasons for that, as you know, and one of them that we had a great ride for almost 20 years; people forgot that THEY must save for the rainy day, and that THEY must better themselves to stay competitive. And, if betterment does not help, we must bite the bullet --- take pay cut, for instance.
The point is, that if you do not outsource you are hurting people that hired you to work in their behalf --- what's so fair or ethical about that? If you do, people whom you hired lose their jobs. There is a compromise --- pay cuts --- but near-sighted folk keep saying gimmie and don't want to hear of it. You cannot be a better friend to them than they are to themselves.
Unfortunately, my experience and ability to skillfully write about it may be a bit out of synch.
Oh not at all! And I am most terribly sorry for making you feel that way. The mistake is entirely mine: it is precisely because it was well-considered that your post made me think that you were… an academic, which prompted my reply. I wish all practitioners of business were as skillful and analytical as you are and, conversely, that academics in economics and business had one-tenth of your knowledge of the real world. Again, please forgive me for writing my previous post under a wrong assumption and making my comments inappropriately forceful.
I am afraid that you are really going to dislike part 2. I don't know, that may or may not happen. But I promise to keep an open mind.
40 years of dumbing down the public education system in the US, as well as a whole host of other artificial politically originated constraints, has made it almost impossible to implement a sufficient level of productivity capable of driving a viable industrial base. This subject is the fodder for part 2
Trying to stay within the scope you chose in Part I, I did not say anything about this aspect in my previous post. But I can now admit: I was thinking constantly about that as I was writing. When people increasingly cannot read and comprehend well, when they have no breadth of knowledge --- and it is breadth that is needed when they are laid off and need to retool --- when they do not know much about how their economy and the major institutions in their country function --- it must by now be translating into a slower productivity growth. Eventually, the living standards become unsupported by the output and something must give.
Your overall point on the role of the government is well taken. I personally would prefer an immediate tort reform and tightening of the borders (primarily for security reasons but also because a small stream has become a river, and we are growing our population through immigration faster than our productivity as a result; please do not read in this any prejudice here: my thinking applies equally to the border with Canada as to that with Mexico; and if we want to let in this many people --- fine, but I would like to do it in a controlled manner and see a justification for that first).
I would like to see an immediate simplification of the tax code: just the compliance with it is an enormous drain on the economy. (If they would like to continue providing tax incentives --- fine. But let us start from scratch: first abandon all such incentives, and then let Congress argue again. If nothing else, this serves as a spring-cleaning. Ideally, I would like to see a revolution in the education --- disbanding the union. In all of these and similar matters, the government has to take leadership, as you pointed out.
I know, you will say, or at least think, that some of my expectations are naïve --- especially the last one regarding the teachers union. I know that it is entirely unrealistic in the present environment. But let us still ask, why? You will say that the public will be sympathetic once teachers will start screaming and threatening to abandon our kids --- a form of blackmail, actually. See, the loop still closes on the people that do not want to help themselves. Just as a CEO cannot do anything if his employees refuse to change with the times until it is too late and they have to be let go, so is a senator, however farsighted, cannot instill in public the values it does not have. A representative government cannot be better than the people it governs.
I very much enjoy our interactions and look forward to Part II or whatever other posts you will chose to contribute.
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