The Best Way to Fix Our Economy: Not EasyâJust Right and Best ; Build on Our Strengths or Lose Them Forever. Richard G. Lazar PhD
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debt and to finance health care for all. Prolonged war has hurt badly . . . very badly. At this time, 93% of Americans are hurting. There is no end in sight. They only way is through peace, progress and profit through the rigid adherence to the CPP™ and the prescription I advance in USA The Innovation Nation. Now let’s get it on!
The Central Productive Process™ (CPP™) first published in 1989
Richard G. Lazar, PhD and Carôn Caswell Lazar
In 1987, Richard first constructed what he called a Behavioral Economic model that describes what it takes to have a strong and sustainable economy and called it The Central Productive Process™ or CPP™. In fact, when we met 22 years ago our very first conversation was on the US economy and product building.
And, although he and we have refined the model over the last 21 years, it remains as true today, December 2008, as it was then. At the CPP™’s core is the “Building and Producing of High Quality and Market Driven Products for Sale in the U.S. and Abroad,” (step #1 of model). Everything progresses from this single strategy for economic prosperity. Everything depresses from ignoring this single strategy. Economic well-being starts, or stops, with building and producing products domestically.
To believe otherwise, that a successful economy can be created, grown and maintained by the financial and service sectors, has driven us to one of the lowest economic points of our history.
From the production of tangible, market driven products all other sectors of an economy develop. When a company employs people to build a tangible product it will soon employ people to sell and service that product. The company will hire others to improve the design and function of its product. As the company grows more people will be needed to administer the affairs of the company. All of these employed people will need homes, furniture, food, and even books. Many want coffee and donuts from the coffee truck that comes at 10:15 in the morning or from Starbucks. The building of products springs forth all sorts of businesses that employ many times the number employed by the product producer (spin-off job factor estimates are 3.5x to 12x). All of the people employed in the construction trades to build the homes, the furniture makers to fill the homes, the farmers and food processing companies to feed the families that live in the homes, and the authors and publishers who produce the books to fill the minds-hearts-and shelves of peaceful inhabitants’ homes, and the coffee truck owner and Starbucks—all of them derive their income from the product builders.
They, in turn, also financially support the providers of goods and services and they all then pay taxes that combined with the taxes of others provide for the common good. But take away product building and there is no foundation upon which to grow and then a once mighty economy will begin to move towards the tipping point that can almost overnight reverse the fortunes of whole local communities, nations, and even a world. We are on the verge of that collapse now.
The key to a strong economy is income, taxable income. And the way to ensure income for individuals and government is with jobs centered in product building and then moving out in circles around that center—like the ripples formed when a rock is thrown into water. That’s the ripple effect to aim for. Have you noticed that when the rock sinks to the bottom, the ripples also end? That is not the ripple effect to aim for. We need to re-establish our economy as diverse product builders that provide a continuing stream of expansion. The financial sector is not one of the rocks it is one of the ripples. No product-building, nothing to invest in. A strong economy is founded on ideas made tangible and consumable. Believing that the financial markets can continue to offer sound investments and flourish while selling dying ripples is just foolish. There has been a misguided notion of what creates ripples.
Sticking a bit more with the thrown rock/ripple analogy it is important to also note that the bigger the rock thrown, the more the ripples. The bigger the rock that sinks and is no longer sending energy into the economic lake the more ripples end. And, while a rock that has hit the bottom can, with help, be lifted off the bottom of the lake when a ripple is over its gone for good. Now when you lift the rock it does provide some movement in the lake but to really get the water oxygenated you have to throw the rock again so new ripples can be formed. So if, for example, we call the big three auto makers really big rocks—boulders even—that were once thrown into Lake America and created not just ripples but waves of success and opportunity perhaps it becomes clear that in the near in future it is imperative not to let those rocks lie motionless on the lake floor but to lift those rocks and then get some real thrust behind them as they get thrown again into the water. All this to say the big three automakers must not perish. The only crane capable to begin lifting them is temporary federal financial support that makes requirements for performance, they have to re-tool—not to just match what foreign competitors have accomplished but to surpass them with even newer and more cutting edge products.
What are These Steps?
The CPP™ (figure 1) can basically be divided into three sections. Section One is made up of steps 1-8. These are all actions that drive the income and revenues necessary to meet the goal of step 9: keeping more revenue in the USA, not leaving the country, notably to China. Why is it important to keep revenue in the USA? Because when our money leaves the USA in support of another country’s economy unless it is returned by that country buying American produced products it is gone for good and no longer is recycled within our own country in the forms of income to citizens, investment for citizens, and tax base for local, state and federal budgets. Revenue leaving the country means job loss, companies failing, the credit market drying up, mortgage foreclosures, property devaluation . . ..
Section Two begins with step 9 of the CPP™ is what produces disposable income for spending, saving and investment (step 10). Only when we achieve steps 1-8 and are into steps 9 and 10 do we begin to see a strong economy. It is at this point that service sectors of the economy can take off. These include banking, real estate, construction, insurance, transportation, health care, education, distribution of goods, hospitality, tourism, restaurants, advertising, retail sales, and others. Achieving step 10 makes it possible to lower taxes because more revenue among more people and businesses means less needs to be taken from each. When people have lower incomes and companies have lower profits the shortfall causes taxes to rise in order to make up for budget shortfalls. When you and your neighbors make more money and when new business open and thrive your taxes can go down. Achieving step 10 lowers budget deficits and puts money in the bank accounts of individuals and the government. Each of the next steps of the CPP™, steps 11-13 all result from success and drive towards continued and increased success. Trust, confidence, pride and a better international image make for a more stable stock market, a better value for the dollar and lower trade deficits. Steps 11-13 bring higher return on investment (ROI) and encourage investments in step 14. And step 14 closes the circle and provides the investment capital, enthusiasm and creativity to continue the cycle of steps 1-14.
Section 3 is described in the column on the right of the CPP™ that describes the results of steps 1-14. This Strong Economy column outlining the end results of a well-managed and successful CPP™ can only be achieved by committing and executing step 1 of the CPP™. It all starts and ends right there. And the beat goes on and Americans and America thrives. When America thrives the world thrives. The world slips when America forfeits its position as the world’s preeminent product builder.
Eight Critical Conclusions
1. Only through success in the CPP™ can there be a strong economy. The failures of Banking and Real Estate with the massive numbers of foreclosures and deep recession are results of the failure to build products here and to keep jobs, income and profit in the USA.
2. Big product industries spawn small business.
3. Big and small businesses create service businesses.
4. Services: financial and government can’t ever on their own improve the economy.
5.