It is not easy to both balance the federal budget and spur the economy. The Keynesian theory suggest that borrow money is the best way to spur the economy. But there appears to be a limit to what borrowed money can do, and it appears that all of the money borrowed by Congress since 2008 has done very little to spur the US economy. The jury is still out on whether or not it even prevented a worse problem.
The US economy does not need more federal spending right now. One of the problems is that the bold spirit of entrepreneurism that was once a staple of the economy has disappeared. Do you remember when the American Dream was to be your own boss? What happened to that spirit? One of the reasons it has gone it has gone is that Americans have become more risk adverse than they were in the past.
Entreprenuerism should not be looked as as a bad thing. Almost every big business was once a "ma and pa" shop. Wal-Mart was once a single store in Feyetteville. General Motors was once a horse and buggy repair shop. IBM was once just an innocent idea of statistician Herman Hollerith. Almost every company on the Fortune 500 list had humble beginnings. Every forest in the world was once a single tree, and the Government needs to find a way to encourage small companies to start up again to repopulate the depleted forest. At the same time, the Government needs to find a way to tighten their belt.
One of the ways that Federal Government can do both is to encourage government employees to retire early and to back the risk that they will take to begin their own business. There will be opposition to this plan because it is risky and it does require spending money to begin with. But in the long run, the government will gain back more money than is spent and a long-term debt will be reduced.
1. Step one is to offer a buyout to government employees and military members who are close to retirement. But it can not be just anyone who is ready to retire, it has to be proven leaders who would be more likely to succeed in business if they strike out on their own. This will take an honest assessment. They will have to have enough funds set aside, or in their retirement plans to survive without an income for a couple of years. But there should be, out of the millions of Federal Employees, a few thousand that can take the risk.
2. The eligible government employees who chose to retire early will be able to use a percentage of their saved retirement money as seed money for their business and the Government will agree to match they money that they invest in an interest-free or low-interest SBA loan. Part of this loan will be forgiven for every employee that the new business hires that remains employed with them for 5 years, depending on how much that person is paid.
It sounds like the government is spending a lot of money that they will never see again. The fact is that when any business hires a person the government comes out ahead in three ways. First, that person is no longer eligible for federal programs like unemployment benefits, food stamps and medicaid. Second, that person is paying taxes on his income. Third, the employed person is injecting money into the economy because he has to spend money he has earned to live and much of that money is spent on recreation and some of that money is saved and invested.
In this plan, the government will benefit because they no longer have a higher paid employee on their payroll. The pension amount that this person would have received will be reduced because they retire early. The employee choosing this option will need understand what they are sacrificing to become their own boss.
In this plan, a new small business will get started. This can be any type of business. For example, it could be a military doctor retiring after 15 years in the service to begin his own practice. That doctor is going to probably hire a PA or a NP to help see patients. A nurse or two to assist him. Someone to process the medical records and bill the insurance companies of his patients. A business manager and a receptionist. Those people may be young people, but they may not be.
Other types of businesses, for example, a consulting firm, would require more experienced employees. The older types of employees who simply do not get hired by companies right now. These people may accept lower pay just to work again. Of course, I am referring to those over 50. Many in this age group do not have children at home may not require a higher salary. They are more likely to remain on board with a small business for the required 5 years. This could stave off some of the early retirements that are currently draining the Social Security System faster than expected.
Many of the other plans that government has tried during the current recession, such as the Cash for Clunkers program were one and done deals. They were programs where there was one shot to spur the economy and that was it. That one shot has been spent, and the money is gone with little economic benefit. When the government helps a small business to start up and remain viable, there is a lasting effect on the economy. It is money well spent, and the government will make back more in taxes than they will spend.
The final benefit is that the government is not just letting people go and hoping that they can find work in the private sector. They government would be giving people an incentive to continue to work and add to the economy. That is a long-term investment.
Posts
