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The Three Knobs of a Country’s Economy

October 16, 2009

Economic growth is not luck, a surprise, or the result of brilliant politicians or creative banking (although, if any of these four things ever happened, we would accept them!). It is the direct result of actual productivity gains through the proper combination of three factors:

1. taxes

2. money

3. regulation

All things being equal, countries that twist these three knobs to the optimal settings are poised for economic expansion. Just what are the optimal positions for these categories? Does it take sophisticated bankers, talking heads on television, and "Tsars" to figure it all out?

No.

All one has to do is take a look at history. No matter what the collectivist, world-government, elitist, socialist, intellectuals try to make us think, history is clear on the three following points:

Taxes: When taxes are low the economy expands. This is because the fruit of investment and labor finds its way to those who actually earned it. The more one can keep what he earns, the more eager he is to work harder. The less he keeps, the less he works. This applies to individuals, to large institutional investors, and to corporations and their capital outlays alike. It's called incentive.

Money: When money is stable (meaning the overall supply is relatively constant; which minimizes inflationary losses of purchasing power or the converse: deflationary scarcity of capital), consumer and investor confidence grows. Savings increase, meaning money is more available for lending, which drives down interest rates, which makes capital more available to corporations for expansion and individuals for investing. This drives growth. It's called capital availability.

Regulation: The more a market is regulated the more it contracts. This is because every artificial action in a market (through tariffs, trade restrictions, prohibitive laws, wage laws, price controls, production caps, etc.) has an opposite reaction. Impositions placed in the way of the free flow of goods and services are compensated for by other industries, countries, or sectors. The net result for the regulated market is, at best, stunted growth, at worst, shrinkage or disappearance altogether. It's called freedom.

That's it:

Incentive.

Capital.

Freedom.

Give a people that combination and watch them produce!

Oh, if Washington (and I'm talking about nearly 80 years of Presidential administrations and Congresses, with very few exceptions) could get this right. It shouldn't be that hard; after all, it's how America was founded! But to know that, one would have to spend less time reading a teleprompter and more time reading history.

Posted in Politics

10 responses to “The Three Knobs of a Country’s Economy”

Phyllis Hoff

October 16, 2009

Chris:
I think we should put this post in a frame and send it to the White House.
Will you sign it for me?

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Chris Brady

October 16, 2009

Joseph Mikla: You are correct. Kiyosaki repeatedly states that the US went off the gold standard in 1971. This is an oversimplification, and, as such, slightly incorrect.
In 1933 President Franklin Delano Roosevelt suspended the convertibility of US dollars to gold for Americans. That meant that effectively all US citizens were immediately off the gold standard. They could not redeem their dollars for the equivalent amount in gold. However, the rest of world still could. Foreign countries and banks could still demand gold for US dollars. As they began to do this more and more in the early 70s, Nixon halted the convertibility of the US dollar to gold by anyone, simply because the US was running out of gold to give out. The US dollar had sunk in value so much that all these foreign banks were trading theirs in for gold. Nixon’s move was supposed to be temporary. But you have heard the saying, “Nothing is as permanent as a temporary government program.”
And so, in 1971, for the first time in world history, and still with us to this day, the US dollar is pegged to nothing, and the rest of the world’s currencies are pegged to it. Effectively, all the money in the world is pegged to nothing and is free-floating. Look at any of the charts on this and you will see what a bad idea this is. The value of the currencies all over the world has gone down steadily as a result.

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Rory

October 16, 2009

I’d like to gain some perspective. Who established gold as a standard for economic value? Why is it valuable at all? Isn’t value tied to a person’s beliefs or needs?
After food, clothing and shelter comes lifestyle and that is shaped by an individual’s desires. These desires come from a person’s heart.
What I’m trying to get at is economics is metaphysical. It originates in the heart and mind of the individual. There isn’t anyway to stabilize it unless the heart of man is honest and pure. Otherwise it will be manipulated for selfish personal gain. To truly gain wealth you must give away your blessings and knowledge.
This begs the question. Where did you get the blessing and knowledge to begin with?
Any other solution is no solution at all. It will only have put us back into the same patterns displayed throughout history.

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Cathy – Team Rascals

October 16, 2009

Chris,
I am grateful that I remember one point in our country’s history when these factors where in okay balance. Not great balance, not perfect by any means, but okay. I remember how the economy enjoyed an unprecedented boom as the effects of these factors were felt across the country, well into the years to come.
I speak, of course, of the Ronald Reagan years. The lowering of taxes he demanded (and got!) from Congress, the stability of the economy and the easing of (some) restrictions caused an economic boom not seen since the years after World War II. The only major thing wrong with the picture, as far as I can see, is the administration who followed Reagan took the credit (because the economy takes 3 to 5 years to react to any major change), when it was Reagan who did the work.
Let’s get back to this. Let’s only elect people who agree to stick to this, and un-elect them when they slide down the slippery slope of tax, spend, regualate and entitlement.
P.S. Phyllis — I agree with you, though you didn’t go far enough. It needs to be framed and posted not just in the White House, but also in the offices of Senators, Congressmen, Governors, State Senators and Assembly-people and every governmental apointee who deals with these matters! Oh, and they ALL need to read it on a DAILY basis until they GET IT!!!

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Chris Brady

October 16, 2009

Rory: You are absolutely right! In fact, property held in common would actually work quite well if people were not sinful (the New Testament has an example of a small circle of Christ’s followers doing just that). However, it is largely unworkable because humans are not basically “good” but are entirely “fallen.” Therefore, we struggle in this imperfect existence to establish frameworks that provide for the best possible situations given the actual facts of human depravity and sin. Gold as a monetary anchor and changeless measure of value has accomplished just that off and on for over 4000 years. The question of who established gold (an inert, basically valueless metal), as a standard of measure, is a good one! The answer is that nobody did! It simply evolved into that role; being scarce, pure and unpollutable, durable, portable, extremely dense, malleable, etc. Beginning with the Egyptians, we see it being used as a measure against all other goods. This persisted through the ages (with silver playing a close second, then a list of crazy things like sheep, beads, big round stones, etc.), and everywhere it was used and maintained as a measuring stick, the monetary system around it operated fairly stably and with minimal fluctuations. You are right that the definition of “value” needs eternal considerations, but pragmatically, gold has demonstrated a remarkably unchanging “value” across time, civilizations, and cultures. It simply works.

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Skipper

October 16, 2009

Great Post Chris, When I heard Orrin Woodward say the other day on a CD that the purpose of the TEAM is to”Share the Truth” he is right. You sure are doing your part in that statement.
All 3 knobs are so very important to an abudant economy.
Can we as the people control how much we are “taxed”, sort of by trying to influence congress.
Can we control the ?stability of the dollar”? No that is the job of the Federal Reserve and nobody has control over them, not the people, congress, or the president. However, it sure would be nice if they didn’t have so much power.
Can we control the “amount of regulation”? The bureaucratic
regulators drive me to no end. We the people don’t have any control over them. They take the legislation that Congress gives them and interrupt it any way that they want. I always thought that government was under the power of the people. It sure doesn’t seem like it is that way anymore.
Skipper

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Dennis Perry

October 17, 2009

Here you go brother. DP
Politician
The politician is my shepherd … I am in want;
He maketh me to lie down on park benches,
He leadeth me beside still factories;
He disturbeth my soul.
Yea, though I walk through the valley of the shadow of depression and recession,
I anticipate no recovery, for he is with me.
He prepareth a reduction in my salary in the presence of my enemies;
He anointeth my small income with great losses;
My expenses runneth over.
Surely unemployment and poverty shall follow me all the days of my life,
And I shall dwell in a mortgaged house for ever.
– Bob Phillips
There’s one thing the Democrats and Republicans share in common – our money.
– Bob Phillips

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Lucas and Chrystal Moldenhauer

October 18, 2009

Chris,
Your insights are so helpful. I agree with the equation of greater freedom for greater prosperity. I talk with folks everyday who still worry about “Deregulation” and they say, “just look at the mess of deregulating banks!”
(I’m not agreeing with them, but my ammo belt of answers is empty for that one.)
The mess of “regulating” health care insurance companies and virtually allowing monopolies to exist is starting to come to light. Can you enlighten me as to other cases of “deregulation” not being as bad as mass media makes it seem?
The media war is so deep, we need all the help we can get.
Lucas Moldenhauer
Team Stealth Minnesota

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Dana Holsten

October 20, 2009

Chris,
I love this recent post. I have many “politicsists” in my corpseoration I work at everyday. I find it extremely interesting when, I send some of your posts out to various people, with different views and ask their opinion. I find this helps give me great insight into their personality and assists with figuring out the best way to have the most positive influence on them and their thinking.
I thought I’d let you know & that it all begins with your leadership! You are Awesome!

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John Dickinson

October 26, 2009

Chris,
In reference to freedom/regulation, I came to the conclusion the other day that most individuals living in the United States really think they are free. This could be due in partly because of a lack of regulation in moving about the country. Someone can drive from San Diego, CA to New York City as long as they had the resources to get there (car, money, food, etc.)
The danger is in “regulation creep” where we now need to register our automobiles in order to drive them, we have to pass a test to see how slow we can drive safely, obtain insurance or self-insure ourselves to be legally responsible to drive, etc.
People might not think we are so free if we had to stop at every state border and show papers that allow us to travel between states.
Thanks for the 3 knobs!
John

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