How to Save us from the American Depression

As an amateur economist taking his first Econ class at the University of California Irvine, I came across a concept: higher income = higher standard of living. Is this true? This is only true if we can keep the cost of living at a constant value. That's impossible, especially at a current depressive economy of the United States. We need a model to decrease prices, but keep salary high.

Hence, currently, we are chasing the standard of living of the past because of the inflation of prices. However, it's impossible. The reason behind the inflation is that businesses need to make more money due to the globalization of our economy. To make more money, businesses raise prices and cut spending. What that means is that we make the same, or less, money than before, but we have to pay more than before.

What we need to accept is that we are entering global economy. It is no longer American business competing against American business. It is now American businesses against the world. The tariff system of the past can no long sustain this trend of globalization. We have American businesses outsourcing to India, China, Europe, Mexico, etc. The point is that we are not just serving the American market. We are serving a global market.

Therefore, instead of printing more money to allow Americans to spend more to encourage American businesses, we must understand that the more money we print, the more Americans spend on foreign goods, the more we lose money. Thus, we must increase trade and decrease printing money. We must use trade to earn money. If we decrease money printing, the dollar value goes up, which means that it would be more efficient to import, rather than export. This encourages American competition, which is bad for American businesses. Increasing trade by lowering tariff does the same thing. So why would we do this? This would make goods much cheaper. Because the dollar goes up, gas prices will not be $4 for a gallon of 87. And all other goods would be much cheaper. As goods get cheaper, it will be cheaper for businesses. This cuts business spending, which might stop pay decreases or businesses going bankrupt. However, the American businesses simply cannot compete with foreign goods. Chinese goods are simply too cheap. To match Chinese goods, the Americans must take the Korean approach. We must encourage monopolies within the US. Remember we are at a global market, an US monopoly simply means a big company in the world market. Yes, it will destroy small American businesses, but Darwinian principles require the extermination of the lowest denominator to evolve.

If we encourage monopolies within the US, this will mean that the economy will be more stable. It is much harder for a monopoly to go under than for a small business to go under (Darwinian principle that the fewer offspring a parent can have the more chance that offspring will survive due to parental care). The monopoly companies will have a better chance at competing with foreign goods. The monopolies have more resources than small companies, and can fluctuate prices more easily than small companies when needed. But we must consider the risk that a monopoly will just outsource to cheaper countries. This is why we must discourage outsourcing by raising taxes to punish outsourcing.

But exactly how will these giants compete with other giants? Simple, as a giant, these monopolies will increase the supply of the goods to lower the prices to be competitive with the competitions. This will increase more job opportunities and for every good sold, there will be more money gained; thus employees' salary probably won't go down. Think of it like this: instead of selling 5 Ralf Lauren shirts for $100 each, we can sell 500 shirts for $10 each. That makes a marginal profit of $500. There is also another reason for raising supply: because the dollar is now more valuable, companies must increase production to make as much as before. For example: when the USD was $2 for every EU, a company can sell a shirt for 1 EU and get $2 back; but when USD is $1 for 1EU, the company only make $1 for every shirt sold. This means that the production must double to be able to make as much USD as before.

Another problem with this model is goods quality. If we suddenly increase supply and decrease cost, product quality may diminish by a huge margin as evident in the Chinese market. This is where the government comes in. Tax return must increase as incentives for education and training to have more skilled middle and working class. Government should also create public projects to have more job opportunities and to increase technology to provide efficiency and quality. Public projects and company increase in supply will mean that we need a much bigger workforce. This means that unemployment rate will decrease and salary won't decrease with price. We must monitor unemployment rate carefully so that at a point, we must allow some outsourcing to lower cost for businesses. To encourage productivity and to fully utilize the workforce resources, we should discourage welfare. This money can go into more education opportunities, federal grants, etc to allow these underprivileged people have an opportunity to work and earn a living. This also enlarges the workforce, so we don't need to outsource as much. And as a traditional depression getaway plan, we should decrease taxes so people will be encouraged to spend their money. Of course, we should balance the tariff to be competitive with the monopolies so that monopoly prices will not be high.

So far we have low prices, high salary, and questionable quality. But in reality, low quality is not an issue. For higher quality items, they can be more expensive. Take cars for example: supercars are high quality and they cost as much as some houses; yet, they always get sold out in the global market. Higher quality items must sell like supercars. They must be scarce and high quality. Low quality items also mean that they break easier, which means that we need more people to fix these items, which means more job opportunities, which increases salary. So now we have low prices, high salary (at least stable salary), and low to high quality items.

What this means in theoretical reality is this: from the $500 a month we earned before with a cost of a bottle a wine up to $100 a bottle, we now still earn $500+, but the bottle of wine is only $50, and only the best of the best wine cost $100. We have now raised our standard of living not by increasing income, but by lowering cost.

There are two other crucial components to this low cost theory: the problem with gas. It is evident by recent airline activities (bankruptcies) that the gas prices are killing the US economy. This may be because of the war effort. I am not a politician, but we should have an era of peace. We should discontinue the war effort and reduce military cost because we won't need as large an army as we have now (especially all the mercenary spending). We should use our soldiers for defense only, not offensive war. Send in the troops only when situations absolutely dictate it. This might destroy our war economy. Yes, it might hurt it a bit. But I'm talking about reducing war, not war machines. You may call me horrible things, but I believe that Clinton had the perfect model: no war, but sell weapons of war. This encourages our war economy, and keeps our nations safe. The reduced military cost can also contribute to tax cut, tax return increase, technology research, etc. As for technology, it would be extremely helpful to find an alternative fuel. We don't have to be the first to find this technology; however, we should be the forefront in adopting it. As soon as any country finds an effective alternative fuel, we should hugely encourage it and research that technology ourselves so we are not dependent on the other nation. With our self-sufficient fuel, gas prices will decrease dramatically, and we will make more money from the alternative fuel for ourselves. So instead of spending money to purchase fuel from other nations, we are self-sufficient and maybe other nations will purchase from us. Again, we don't need to be the first to research, but we need to be the first to popularize it.

Lastly, I personally do not believe this is necessary, but we can also think of other ways to make this model better such as playing with interest rates. Increase interest rates will have people keep their money in the banks; whereas, decrease interest rates will have people investing more.

The whole point of this model is to try to lower cost without lowering salary or quality. Any constructive criticisms or suggestions are welcome. I will probably update more as I think more on this.