The Exuberant Accountant - Scott Heintzelman

People continue to ask me for my opinion of what is happening with the budget deficit and debt ceiling. Why are food prices going up and the cost of gas surging? What is the economic future for our country? I wish I was smart enough to have answers to all these questions…because if I were I would probably be sitting on my own private island. 

First, a very quick history lesson. In 1944, after World War II, over 700 world leaders from the over 40 allied nations met in Bretton Woods, New Hampshire for the purpose of stabilizing and reorganizing the world’s economy. As a result of this conference a new postwar monetary policy was developed. It resulted in history’s first example of a fully negotiated monetary order intended to govern currency relations among sovereign states. The result was the creation of the International Monetary Fund (IMF), the World Bank Group, and the General Agreement on Tariffs and Trade (GATT). 

At this conference each country agreed to a monetary policy based on the “Gold Standard.” They each agreed to maintain the integrity of their currency based on a fixed price related to one ounce of gold. They also agreed that the U.S. Dollar would become the reserve currency for rest of the sovereign states (which it still is today). In 1971, the U.S. left the “Gold Standard” and allowed our dollar to become “free-floating fiat currency.” Many debate if this was wise move, but it was largely done to grow our economy. 

On Friday night, Congress and the President combined on a late inning rally that brought at least one small win. But the win is in a game which is very early in a long season for our country.

Avoiding a Federal government shutdown is, of course, a win at some level, when it appeared the rhetoric and momentum made any victory unlikely. But what did they really accomplish? If it were truly a game of baseball, we couldn't be further from a World Series trip as it relates to realistic fiscal policy. 

The issue is over the 2011 budget which started last October 1^st and ends on September 30^th of this year. This budget should have been completed 6 or 7 months ago, especially when you consider Democrats had majorities in both chambers of Congress and control of the White House. Now that Republicans control the House, both parties have to compromise to get any bill passed. 

I recently read a great article in the Wall Street Journal titled, We've Become a Nation of Takers, Not Makers. The article points out something I wrote about last January (How The Government Payroll is Replacing Goods Producing Jobs), that today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million).

This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government. 

The author points out we have gradually moved from a nation of makers to a nation of takers. Nearly half of the $2.2 trillion cost of state and local governments is the $1 trillion-a-year tab for pay and benefits of state and local employees. These trends are partly explained by the large productivity gains in farming, manufacturing… We can produce far more output per worker than in the past. But what about productivity gains in government?