Gordian Knot

Gordian Knots
It is impossible not to have some sympathy with the tea party/ rural republicans stance in the USA on the debt crisis. On other issues they are downright insane. But this one not so much. For basically they’re asked to sign a blank cheque in perpetuity. 
The question is what are they seeing that’s missing is the general analysis. I think what they are seeing is the results of underemployment on a local rural area. Where the only people with any certainty are those on a Government pay cheque, be this a Dole or pay cheque. And this with small farmers and the local business people being squeezed out of existence by economic circumstances designed towards the ever bigger and ever more efficient. All while being fleeced by a taxation system in its workings designed to operate against itself and requiring an entire industry to keep the plates spinning. When what should be in place for anyone with less than ten employees should nowadays be input-able in some basic IT programme and the bill spat out on the other side. Of course, the unhappy question here is if there was less taxation on those local areas would the cash be used to create new businesses. It sure as hell didn’t here in Ireland, we had the wealthy investing in any part of the world the could find a risky home. But even outside Ireland the general evidence here is No. So basically this is insolvable using the levers of to-days economy. 
In the Anglophone economies there are similarities. These similarities are at such a basic level that most don’t even know they exist or see them as being almost part of the woodwork. 
That there was a profound fixation on communism over the last 80 years of the 20th Century meant that 17 century systems that needed reform were artificially retained for years after their use-by date. Why these reforms were not enacted in the 19th is directly down to the great empty space that was the middle of the USA taking the pressure. Then these areas together with Oz, NZ, Canada and parts of Africa went through two thousand years of economic development in the space of 50 years. From the Trapper of fur to the high finance of building the Panama Canal. 
But they were intent on replicating the Home economy IN EVERY ASPECT.
On the European continent the Napoleonic Wars brought forward the nascent middle classes and the subsequent wars moved that class further to the fore. Culminating after WW2. But here we’ve a tiny bit of hilarity. The western Allied Powers in their governance of Germany and their chauvinistic fixation with the destruction of Krupp and IG Farben ending up recreating the economy of New England with its focus on the local coupled with international trade. Culminating to-day with a Germany where unemployment is mostly non-existent. And largely so for 50 years.
It is at this point where things get a bit confused.
That the systems of finance replicated across the anglophone world is easily proved as most Finance Houses have a genesis in the City of London, that of Bristol or Liverpool. While the Medical Community and the Legal Community have direct active links to this day. Education is so closely tied that they might be said seamless. And while Religion has certain differences, they are not so different in a game changing way as to fall outside.
Is it any wonder then that given the system and resulting problems that all would conform and would fall less like Dominoes but in a form of sympathy.
So then what the heck is the problem.
 Well I see it as one where the cash, – where called cash- does not hang about in the Local System long enough to do much if any good. Where if one takes a small economic unit like a farm, forgetting about any subsidy, and simply looking at the lines that the cash takes. The trades in other words. We will find that the lines are very short indeed before the cash enters the Banking systems and is then sucked out of the community. Such that in the US it is not just out of the community but out of the State entirely. So when a tractor bought by the farmer with borrowed money imported in at high cost with the cheap local cash ferried to head office. The active cash sticking to the Local economy is less that 10% of the price. Anyhow, the question is how much is held by the local area. Think of it as Seed Money in the very real meaning of the word. But seed money in the form of a local development bank where a percentage of that money paid in taxation remains within and administered by an unpaid rotating board made up of all the community. 
Can this be converted to the big town or City. Well yes, I believe it can. And further I see no reason, why those unemployed areas cannot put in say 5% of their unemployment cheque to such a system. The local people know who will repay far better than those outside. And I see little reason in providing a system of Aid in perpetuity while making certain that every penny of that aid is removed instantly. This is valid for Africa also, where billions have sent only to rebound as if there was a yo-yo string attached.  
Why on earth am I looking at the issues in the USA for heaven’s sake, have we not enough economic issues on the island of Ireland that I’ve to go looking for them outside. The reason is simple, it’s far easier to see from further away. And this gets to the title of the post. 
The Gordian Knot cannot be undone until Alexander hits it with his sword, job done. Well that’s what most people get for that story. But that wasn’t the original point of the knot at all. It became the entire point. Much like the civil services of the anglophone countries. Much like the finance systems. And much like the professions. They’ve become the reason for the States very existence. Or the Knot, when the point is to release the Ox-cart. Put simply, the Ox-cart is the reason not the Knot.  
These last few days here in Ireland we received a report of the budgetary intentions of the Government. They want to remove 2.5billion from the welfare and rise tax by 1.5billion. This seems reasonable on the face of it (isn’t even measured in a sneeze to what is going on the USA). That is until you count in that there are 450,000 people unemployed within a 4.5million population. Where like in the UK and USA and unlike most of Europe, the welfare payment pitched at a level designed for deterrence. And realizing that there are NO jobs. For even though we are running a very positive balance of trade. Any spare Moneys sucked into covering gambling debts made by privately owned banks. 
All the while, where a country GP is getting €500,000($712,000). Not the plastic surgeon, yes I do mean the local lad you go to for antibiotics. And the civil service has an understanding with the Government that their pay cannot be in any way reduced, but are getting an average of TWICE what the same levels are getting in Germany.
To sum up, it’s the local economy stupid. It always has been. And it always will be. 
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11 Responses to Gordian Knot

  1. Leslie says:

    Thanks for stopping by the house…I'll come back and read your take on our disaster in finance later when I've got time to absorb.

    The daughter was both in the south of Italy and Rome. I think these were taken down south…she talked about their guide explaining the fixation of the ancients on the topic flippantly known as junk!

  2. Vince says:

    Your welcome anytime.

    And yes, the romans had a fixation with sex. but it could go both ways. One, relatively small was fixated with having as much as they could with whatever they could. But first the Augustus and then all emperors after had profound difficulty in getting the Citizenry to breed at all. They even made laws about it. I expect it was a combo of the lead and acidic water through volcanic rock that took the steam out of the populous.

  3. R. Sherman says:

    The problem is, government revenue –regardless of tax rates– brings about 18.5% GDP. Never is it more and in fact, the higher the rate the less marginal utility working for the extra dollar has, which causes drops in revenue. John Kennedy was the first to realize this and lowered rates significantly leading to an increase in revenue to the magic 18.5% of GDP.

    Consequently, the only real way to increase government receipts is to facilitate growing the pie. Then 18.5% of a bigger pie is more dollars.

    Unfortunately, the regulations on small business are killing us. Small business is the engine which drives the economy. Moving federal dollars around or attempting to take more to give to some segment of the population does nothing to grow the pie. Borrowing/quantitative easing is a fancy way of printing money and of course, that doesn't work when the pie the shrinking.

    I know from my own business this is true as the true cost of an employee gets larger because the hidden costs placed on having one, in the form of government taxes and regulation, get larger every year. I could cite specific examples –a lot, in fact– but even when I do that, people insist upon hiding there heads in the sand and saying I don't know what I'm talking about.

    The reckoning will come, unless the the excessive regulations go, and government gets out of the way and encourages entrepreneurs and business people to get rich or at least try.

  4. Vince says:

    Yes, it's the growing of the pie I'm on about. But in our system of economics this cannot be achieved by Government inspired growth unless there is a semi permanent version of Q.E. This was discovered long ago but it was during the Civil War/War of Northern Aggression 🙂 that it was fully realised by the scholars, then forgotten until Panama. Next the Mexican wars, then WW1. Then 30s 40s 50s 60s 80s 00s. The gaps where the Dems decided to inject cash in a different way. And then what you tend to get is umbrella factories in deserts or one off infrastructure projects that generates huge revenue for a few years. Would you like to be an owner of property in Boulder City after the dam was finished,
    But the need for business people to get rich is not truly necessary. What we need is the the option for a person the start their own business is equally if not more attractive than working for someone else. However to achieve this, there needs to be a dramatic change in how education is managed. But for Gods sake leave the teachers alone.
    As to the regulations, distinct from tax reliefs, for the most part these can be folded into each other. Why have a fire inspector, building inspector, a health inspector AND an insurance inspector. Why not just have a requirement under law that insurance be in place.

  5. Ed says:

    I've been for cutting the size of government and cutting spending all my voting life. Unfortunately, every president except for Clinton who actually balanced our budget, have done exactly the opposite. So when the Tea Party cropped up about exactly that, I was ecstatic… at least until Sarah Palin hijacked it. Fortunately she has kind of disappeared from the scene.

    So after this debt ceiling deal has passed, I'm happy that the Tea Party stood up and said hell no to it. I just hope that it translates into more people in favor of cutting our government and spending getting into office next fall.

  6. Oh dear, that is A LOT to digest when I'm on summer break isn't it? The history is very interesting, and I think your point about a system that is outdated, overdue, or whatever is valid. It certainly seems like what we are doing isn't working doesn't it?
    Maybe I'll comment further after digesting it, or maybe I'll just go back to the pool and take a nap. 🙂

  7. Vince says:

    Ed; the thing about cutting Government spending is that it has to be replaced with something else.
    And that something has to be fixed to that area. If we take where you come from. Iowa is a generator of income. If it were an independent State it's balance of payments would be good. It has been good for 10 of years. So why then do you have such migration out of the State. And within also from the farming areas to the cities. While you were in receipt of huge farming subsidy, all that was happening was the price of land went up as did the price of anything coming in from outside the State by 20% more than the subsidy. So what on first viewing was a cash injection to the farmers was in reality a net transfer out of the State. And succeeded in driving off huge numbers from the land.

    P_D; But it isn't just the US. It's all the anglophone countries. All are in the situation to varying degrees. It is a gold rush mentality to economic stability.

  8. Rebecca S. says:

    I see I am way out of my league trying to comment on this post. I don't understand economics very well at all, I just know that several years ago my parents and I were sitting around the dinner table shaking our heads and saying, “something's got to give…we (meaning the general 'we')can't sustain this kind of debt and crazy expectation of an ever higher standard of living. And then came the Wall Street Debacle. Government can only be held responsible for so much, and Obama inherited an already sickly situation. Btw, the Tea Party are scary. I wouldn't trust them as far as I can throw them. Pardon me if I sound like a Socialist.

  9. Vince says:

    To be honest Rebecca, the right left divide is meaningless. It may have had some about 1980 but I doubt it. But in this situation where understanding is concerned, we all understand far more than certain players would like us to get.
    On Obama, I'm one of the people that read his 'dreams of his father'. And it's well written. But I know many many professional people that are African or west Indian to be over impressed by a black literate guy. Frankly it's only in the States that that makes ANY statement at all. And here's the rub, he was made POTUS because he was black not despite his colour. And his dealings with the health bill proved that. How in the name of God could he have gotten up the noses of the working poor, the very people that the bill should have been helping. It displays a crass political ineptitude on a scale last seen lord knows when.
    The POTUS that the USA and the World needed was a plodder. An insider. A consensus maker.
    As to the Tea Party, they are afraid they will be hung out to dry like the happened the urban working class in the 80's. Albeit, that they don't realise that's what it is, yet.

  10. When I see the Tea Party and Fox news etc they talk like utter loons. But in the end when it comes to the choice of a balanced budget or 'a blank cheque in in perpetuity' then I have to agree with then. wouldn't have em in the house mind.

  11. You are very passionate in your writing. I like that. Well done. 🙂

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