When we see the struggles facing so many today, such as the 94 Million Americans without jobs (www.bls.gov), steep declines in labor force participation, and many older Americans forced to continue working past retirement (www.bls.gov), we can’t deny that things haven’t gone to plan. America is losing ground, losing opportunity, and losing prosperity, and that’s simply not what America is about. If we want different results, however, we need to start making different choices.
In 2007 and into 2008, the “Great Recession” knocked the American economy right onto the ropes, and the economy continues to stumble on its feet, even after seven years of every conceivable federal program, subsidy, give away and free money. In September, the Federal Reserve Board elected yet again to not raise the interest rates from near 0% where it’s been since the worst of the 2008 Recession (www.nytimes.com). Even with the Federal Reserve’s brakes completely off of the money supply, the Gross Domestic Product (GDP) growth rate has been more than 4% (robust growth) only 3 out of the last 16 quarters, and 2015 has staggered along with growth rates of 0.6%, 3.9%, and 1.5%*(www.bea.gov).
Why isn’t it working? It’s because the true believers of leftist ideologies believe that government can solve all of our social ills, if only they can find the magical combination of huge government bureaucracies, punitive taxes, and costly entitlements. This is a pretentious delusion. The cold hard reality is that there is no “magic bullet” policy that will eliminate the ills of unemployment, income inequality, poverty, racism or anything else. As the wisest of the wise once said, “The poor shall always be with you.”
No matter what the federal government may try to do at the national level, by the time the federal dollars hit actual working parts of the economy, people choose to do what is best for their particular situation, not necessarily what the administration hoped they woul. This is because business owners do NOT hire workers that they don’t need, and consumers do NOT buy things that they don’t want.
So, many might be wondering if there even is any way a society can minimize poverty and disenfranchisement. The overly simple response is “yes”, but the solution doesn’t fit into the any politician’s time scale. It’s slow, so things won’t get better overnight or even in a matter of years. The changes necessary at each of step are incremental and will vary from community to community. Some communities seem hopelessly off track, but everyone can take hope! There is no place that can’t recover and thrive if the community as a whole buys in philosophically and emotionally for the long term (ten to twenty years).
The Market Prosperity Model
To start with, we must look at the fundamental building blocks of a community, and we’ll start with the absolute worst case, where things have gone horribly wrong for so long, that things actually do seem hopeless. Crime is rampant. There are so many thousands of derelict and abandoned homes. Joblessness is almost normal, and people are just existing day to day, with no real aspirations for tomorrow.
Even under these circumstances, there are what the market prosperity model refers to as basic tier one businesses (businesses that provide basic individual needs and wants: food, fuel, and shelter), whether it be gas stations, fast food restaurants, a local diner, a grocery store, or what have you. There may even be a few barber shops or hair salons, because people need to have their hair cut periodically. When taken as an aggregate, however, the maximum possible number of jobs that these tier one businesses could possibly offer the community is far below the number of people who need work, with precious few opportunities for middle class careers.
The good news is if we look anywhere in the world, we will find these sorts of tier one businesses. These tier one businesses will exist even if the people are literally being butchered in the streets by their government. As long as human societies have existed, these tier one businesses have existed, eking out a living. Which leads us directly into “Step One” of the market prosperity model.
Establish a secure and law abiding community wherein private citizens and business proprietors can reasonably expect that their physical assets are not in danger of damage or theft, and where possible barriers to business growth, such that restrictions of land use and cost of labor, are limited to only those that are necessary and reasonable to all parties.
It’s obvious that living in a community where it’s safe to leave a front door unlocked, kids can leave their bikes lying unattended in a park, windows are not broken for sport, and walls are not gratuitously defaced by graffiti is superior to living in communities where this is not the case. It should be unsurprisingly that it’s also better to own a business in such communities.
Why would a business owner consider opening an expensive store with costly inventory in a community where they have to fear night after night after night what they will find when they come to work the next morning? A business is more than just property or a source of income for a business owner. It’s how the business owner intends to provide for his or her family. If he loses his business, then he loses the ability to pay for a roof over his family’s head. And no one should be forced to put their family’s welfare into jeopardy. That’s why the business owner is not only justified but actually obligated to look for the best possible community to live and open his business in.
As far as barriers to growth, all communities must have reasonable restrictions on resources, especially when resources are limited. Real estate is a good example. This cannot, however, come at the expense or exclusion of the opinion of business owners. It is true that a community can impose whatever restrictions that they want on the business community and plead “democracy”, but that does not then force business owners to stay in these communities where their opinions and needs are clearly not appreciated. Only the community can lose in these situations, that’s why it’s critical that the concerns and reasonable objections of business owners be taken very seriously.
Once a community has a safe and secure business environment that is not hostile to businesses, then there will be a gradual and natural increase in the number of tier one businesses, which should then reach a critical mass and lead to the development of tier two businesses.
Promote a robust market of a sufficiently large amount of established tier one businesses (needs businesses) to create the natural demand necessary to support tier two businesses (trades businesses) that cater to the trade needs of businesses and of the community.
Once the basic needs and wants of a community are covered and saturated, which naturally depends on the size of a community, there is a natural demand for tier two businesses that specialize in the trade servicing of businesses as well as private citizens. Whether it be a plumbing company that mainly does commercial plumbing, but also does residential services, or a restaurant that mainly focuses on its restaurant business but also starts to do some business and private catering on the side, these businesses open up other opportunities for employment for employees of various skill levels above what most tier one businesses can offer, in many cases including middle class salaries.
Because of the necessity of keeping large amount of expensive inventory and the absolute catastrophic loss that the destruction of this inventory would represent financially to these businesses, they simply do not exist outside of communities that are not safe and secure. They also generally need either very large markets or very few barriers from the local government. Florists, furniture stores, art boutiques, and jewelry stores all start cropping up during Step Two, but they are such costly enterprises, that the heavier the burdens of local government on their incomes, the larger the market must be in order to offset the costs of conforming to local regulations, however, when both factors are present (large markets and reasonable local regulations) the development of tier two businesses is that much more rapid.
The most important thing that tier two businesses bring to a community is the opportunity for members of the community to earn middle class incomes without having to own or manage a businesses, which begins to vastly expand the economic base of the community. The marvelous thing about having people that have money is that they tend to want to spend it, and since they want to spend that money without going too far from home, they would prefer businesses that offer things that they want, not just need, closer to their home, which creates demand for more tier two businesses.
Promote a robust and growing market of tier two businesses (trades businesses) to create the natural demand necessary to support tier three businesses (professional services businesses) that cater to the professional services needs of businesses and of the community.
Eventually, with more and more tier two businesses, there are enough such businesses that eventually someone will open up a tier three business. Maybe the florist, the restaurant owner, and the barber all decide that they need an accountant, and it just so happens that someone from the community studied to be an accountant and had been working for a firm in another community for a while, but would prefer to work in the same community that she lives. She opens an accounting firm, and all of a sudden, the tier three is opened in the community.
The amazing part about Step Three is that it happens entirely by accident. This is why there are such stark differences between communities are plagued by broken windows and obnoxious graffiti everywhere and communities that are buzzing with economic activity. This is why the kind of crushing poverty that Americans see magnified by the media goes so often hand in hand with oppressive crime rates. This is also why crime rates are minuscule in communities that reached Step Three of the market prosperity model.
Don’t get too excited, though. The transformation from an utterly dysfunctional urban community to robust and prosperous step three market economy is huge. The tallest of the three hurdles is unfortunately the first, because it requires that literally everyone in the community commit to the betterment of the community, and that’s a hard change to make when everything has gone absolutely wrong for so very long. The buy in is the hardest part of the market prosperity model, but this model works will work on lifting 95% of people out of poverty. The 5% that remain we will have to address in a later article.
The key thing to remember, however, is that the market prosperity model works so well, so surely, and so predictably every time it’s tried that it has a specific name in economics theory. “Capitalism.”
Liberty is For The Win!