You have to have Capital!

Thursday – December 2, 2010

You have to have Capital!

Yesterday, I wrote a small tutorial about our tax system. It might have been a bit boring, but none the less the history of taxation in this country is still a political tool to be utilized.

The reason I wrote about taxes was because of the anniversary of the income tax and the debate that was centered in Washington, D.C. Today, we still have the progressivity of the progressive tax. Taxes are levied to pay for the goods and services that government decides we need. Taxes are used to pay for the expenditures that government undertakes. When government decides on making expenditures they never have the capital to pay for it. When government pays for something they just turn on the printing presses. This is what the debate in Washington, D.C. should be about, instead of tax hikes.

There are some critical events that happened on this day in our history.

They are:
In 1930, President Hoover went before Congress to make a plea for a $150 million public works program to work on various construction projects that would put America back to work.

In 1957, Aiichiro Fujiyama, foreign minister of Japan, strenuously protested American restrictions on Japanese exports to the United States. He asserted that Japan was the biggest importer of American goods and limiting Japan’s exports was “a matter of life or death” for his country.

In 1969, the Boeing 747 (often known as the Jumbo Jet) a long –haul, wide body commercial airliner receives its FAA airworthiness certificate paving the way for its introduction into commercial service in 1970.

On this date in 2001, Enron, an energy trading company, filed for Chapter 11 protection in one of the largest corporate bankruptcies in U.S. history. By the end of the year, Enron's collapse had cost investors including pension plans billions of dollars. It also cost the American public jobs. Enron officials had donated millions of dollars to Republicans and Democrats alike. In addition, it was revealed that Enron had paid no income taxes in four of their last five years in business, using almost 900 subsidiaries in tax-haven countries and other techniques.

Each of these events has a common link they either cost capital or made capital. The first one on the list cost Americans capital in 1930, because there are never shovel ready jobs that magically appear overnight. These types of jobs are never permanent. The capital had to be raised by printing more money and not by investing capital in an undertaking that would create permanent jobs.

The second event cost the U.S. tremendous market share when we acquiesced to Japan’s demand. Now it is Japan who places restrictions on our products that are exported there. And it is Japan who now is creating a trade deficit.

The third is the best example of what capital investment means to a company that created jobs, because of a product that was needed. The 747 and the Boeing Company revolutionized air travel. Like the example I used yesterday, about Henry Ford introducing the assembly line in 1913, it revolutionized an industry to create jobs. In these two examples, government was never involved until they either taxed the profits or regulated the product which resulted in costing the companies more in the way of pass along expenses to the public who either bought a car or traveled by air.

In these two examples, capital was raised and it was invested in an idea. Boeing and Ford never went before Congress and never demanded that government pave the way for their success.

In each of these examples that occurred on December 2nd, roughly twenty years between each, what was the outcome? What was most successful?

The fourth example was the beginning of where we find ourselves now. Paper that is now running off the printing presses is not backed up with tangible assets. The paper is just paper that is being converted to bonds that other countries are buying in the form of debt. It is the debt that will cost untold amounts of capital in U.S. currency that would be better utilized if companies had that capital to invest in expansion and the creation of jobs. You have to have capital to move an economy forward.

A customer told me today that he used to be liberal until he was old enough to conserve and then he knew what conservatism was all about.

Gregory C. Dildilian
Founder and Executive Director
Pinecone Conservatives

A footnote: An idea for a product or service cannot be launched unless there is capital. The best ideas that use capital in the wisest way are the ones that succeed. Conservatism and capital go hand in hand. Liberalism and expenditures of false capital also go hand in hand.