Nation Building

By: Thomas Lee Abshier, ND
11/26/2010

Overview:
The following is a short development of the next point in the theory of how to return America to prosperity. The key is giving, short term sacrifice, teaching righteous law and government, and the unemployed working to make the tools of production. In a Capitalistic market-based economy, there must be demand, and an ability to compensate for the consumption.  The first consumers of all the productivity will be the developing countries. Eventually, the gift, the service, and sacrifice will be compensated.

Initially, the American consumer will fund the enterprise.  Unemployed Americans will be employed to do the labor, export the tools of production, and serve in building infrastructure, teaching, establishing government.  Sacrifice will be required, as in saving, reducing consumption until the production increases.  Without restrained consumption, there will be an inflationary pressure.  The greater $ in circulation, due to more people being paid, but less no more goods produced will put upward pressures on prices.

On the other hand, opposing the inflationary concern is the fact that workers, with a paycheck, will give industry the needed incentive to start investing, expanding capacity, and hiring.  As more companies come on line, the price of labor will rise because of the demand for new productive capacity.  Very shortly, the unemployment problem will evaporate.

Administration of the program: the government allows banks to make loans to companies who are committed to creating wealth in the less well-developed countries of the world.

The unemployed, which are the underutilized labor markets in the USA, can be tapped for their experience and productive energy and ability.  These workers, under the direction of the corporations, contracted for specific tasks will conduct the duties that are required to install the infrastructure.  Some products can be manufactured and shipped.  But other duties will require ex-pat service as boots on the ground consultants, teachers, supervisors, and workers.

We have plenty of goods and services already being produced for our survival and entertainment.  In other words, if a portion of the labor force were diverted to producing tools of production, there would still be enough consumables to support life and modest consumerism.

This argues for the rationality of employing the unemployed in producing the tools of production, which will eventually produce a return in terms of consumables, but not immediately.

The Marshall plan was similar to this proposal, but not identical.  The Marshall Plan gave loans, and the locals did all the plans and work.  And being realistic, this produces local skill and “buy-in”.  The question is how to produce the same level of enrollment when the “foreigners” come in to set up factories, roads, and laws.  This solves the problem of diversion of funds since money is not given, only labor, materials, skill, organization.  The challenge is to produce

Will we have a recovery just because the domestic industry begins to reinvest.  In fact, a percentage of the investment is overseas, in already industrialized nations, where the standard of living is lower, labor cost is cheaper, and the regulatory burden and taxes are lower.  Investing in manufacturing capacity overseas will not put America back to work.  It might make manufactured goods cheaper, but the problem is putting America back to work.  This has been the concern about the export of American manufacturing capacity since we have embraced globalization legislation and policies such as NAFTA and GATT.  Free trade produces great benefits in the long run, but if the manufacturing capacity of the “rich” nation is reduced to minimal levels by exporting labor, there is no driving force to produce the continued expansion in the underdeveloped nations.  The result is the devastation and impoverishment of towns such as seen in Flint Michigan with the exodus of the automobile industry.  The ideal solution is for jobs to be created by private enterprise, and to let prosperity follow because of the ideas and ingenuity fostered by the Free Enterprise system.  But, one thing to note is that no system produces perfection without men choosing rightly in the process of execution of that system.  Reverse Tariffs and Fair Trade can prevent unfair advantage, and give incentive for quality of life and worker protection.  The problem we now have is our own moral degradation.  If we allow

Enrollment of the local cultures will be an important part of this project.  The locals must at the very least accept, rather than be committed to sabotaging or balking.  And, there is a very real concern of being “Westernized”, which has become pejorative, given the loosened morals of the West.

there would eventually be a huge return on investment (in terms of goods available for production), as we saw happened in Japan, Germany, and Korea. Such nation-economy building efforts should be coupled with preaching the Gospel. A nation without a moral base will not be great, or even able to support a market.

This solution will produce a return on investment over a period of years, maybe decades in some cases (depending on the initial lack of infrastructure, education, and moral degradation of the people). It will return the unemployed to work, and it will produce an ROI because this modern NRA (National Recovery Act) will be dedicated to producing productivity among the poor, undeveloped, resource-poor, culturally deprived. It is only a matter of time until these seed investments produce a return, and become worthy of being tradable instruments, and self-capitalized by the market. Eventual repayment of the public debt is possible by IPO, dividends, or retiring bonds. Eventually, the public debt will be capitalized by private investment.
Note, the process of Fractional Reserve Banking is by its very nature “printing money”. It is simply a regulated process that depends upon having a certain amount of liquid assets in comparison to the loan balance. The foundation of every bank is a contract between the bank and borrower, to produce value, and repay that value at a later time, plus an extra amount as interest.  Note: interest is paying someone for delaying their consumption.  Interest supports the bank as an institution, so it can function as that point of accountability for producing value.

The Problem:
Some of the issues facing modern American society include:
 The impending bankruptcy of Social Security, Medicare and Welfare
 The loss of jobs and the export of productive capacity to underdeveloped nations due to the incentives of Free Trade and Reverse Tariffs
 Dependence on foreign oil that threatens national security
 Terrorism, pollution, world poverty, and war
 A world financial crisis of unprecedented proportion precipitated by the policy of legislating Sub Prime Mortgages

Overview of the Roadmap:
America faces many economic and social problems that cannot be solved by the current legislative strategy of redistributing wealth (e.g. from workers to unemployed, from well to sick, and from rich to poor). To solve the problems of the poor, aged, unemployed, and infirm requires an increased productive output from the entire economy. A $500 billion/yr negative balance of trade indicates that America is consuming more than it produces. We have shipped our manufacturing plants overseas, where our consumptive needs are satisfied more cheaply. As a result, our current economy is experiencing the initial symptoms of becoming a poor debtor nation.

To reverse this trend, America must be put back to work producing goods and services (value) for the rest of the world in repayment for our consumption. I believe for America to make the changes and investments required will require a national change of mind and heart. To achieve real prosperity, we must:

 Give to the poor, teach them the Gospel, help them to become productive, and expect eventual repayment for our investment.
 Use our rich deposits of coal, oil and gas as a bridge to a produce energy with the cleaner, and renewable sources such as: wind, solar, biomass, methanol, geothermal generation, and hydrogen as the storage medium
 Return to God and follow His Way as a Nation

America has become dependent upon foreign oil for 50% of our needs. Transportation uses almost all of our oil consumption. Thus, by reducing our demand for gasoline, we can largely remove ourselves from bondage to foreign oil. Cost competitive methanol is now available by biomass fermentation (e.g. corn, sorghum, and any other plant matter).

As a bridge to truly clean technologies, we could obtain energy independence from foreign oil by passing legislation to require all new autos be “flex-car” ready.  With minor modifications, such cars could use a 15%-85% methanol to gasoline mixture.  With this proposal implemented so that demand could then build for methanol consumption, supply would follow, and in a few years, we would be independent of foreign oil.

As a nation, we should establish ourselves as a leader in alternative energy development, manufacture, and installation. Our energy grid is strained, and the Enron debacle has raised the price of electrical power. Any expansion of electrical power generation facilities should be alternative energy sources.

The Southwestern United States has been going through a drought for several years. The Colorado River flow has slowed to a small percentage of its former rate, and the Midwest aquifers are being depleted by the huge draws for agriculture and industry. The water shortage in dry areas could be solved by desalinization and pumping water from the Atlantic, Gulf of Mexico and Baja, or the Pacific. Desalinization combined with alternative energy would provide the foundation for industry, agriculture, and nation building. The market will determine if such a proposal is economical.

By eventually raising the world’s productivity, we will eventually improve our own economy. This concept is dependent upon investing in worthy nations, establishing a productive infrastructure and a righteous legal system. By producing the goods and services needed to establish the infrastructure of an entire National Economy, we as a nation can become fully employed and prosperous. Full employment depends on producing products that people will buy. The poor countries of the world want an infrastructure, but they can’t afford to pay for it. In general, the poor countries have few natural resources, are poorly educated, and have little infrastructure to support foreign investment.

“Infrastructure Export” may become a new productive market sector that could revive our economy. Once America successfully brings a nation from poverty to economic viability, and does it as a profitable market investment, the world will follow our lead. In order to bring our own nation out of its economic/jobless doldrums, I propose that we manufacture all the required elements to establish a nation’s infrastructure with American labor, and export the Infrastructure Modules to a Host Nation.

I propose that we finance the Infrastructure Building Program through various financial institutions – a partnership of governmental and private financial instruments. Since employment will be high, and a significant percentage of the national production will be unavailable for consumption, inflation may begin. A combination of saving and modest consumption should prevent an inflationary spiral. We must realize that this time of production, export, and saving is closely akin to a war economy since our domestic production will be unavailable for public consumption. Delayed gratification of consumption is the appropriate action when one’s income is low.

In general, any given company does not have enough capital or borrowing power to establish a nation’s infrastructure. The normal pathway to private overseas investment occurs when a private industry invests in a manufacturing facility in countries that already have an infrastructure in place to support their manufacturing.

Using the massive borrowing power of the Federal government, it would be possible to initiate the seed development of foreign infrastructure (roads, seaports, power generation, communication, food, law, water, sanitation…).  Once in place, private industry would be able to utilize the infrastructure to begin the establishment of various manufacturing facilities.

Of course, this approach is a big-government project, and the current conservative opinion is strongly allied against all big government programs other than defense.  Thus, for such a plan to be implemented in modern times, it would have to be seen as effective, temporary, and necessary.  After WWII, the United States instituted the Marshall Plan and began a rapid re-establishment of infrastructures in Western Europe.  The Marshall plan was based largely on cash aid to countries, who then made local decisions as to how it should be deployed.

This nation-building program is different – it is compensating Americans for developing the infrastructure to expand the world’s consumptive and productive capacity.  Infrastructure is an asset that is normally generated in tandem with the productive and consumptive pressures of a local economy.  Bonds and taxes typically fund infrastructure development.

Liquidity is simply being placed into the economy by the Fed with its QEII program. Having the increased credit available allows the market to invest.  But, how is that money being used?  The prime lenders have the money made available by Quantitative Easing, but is that money being channeled into productive resources which will produce a rate of return?  If that printed/borrowed money was placed into the stock market, then little benefit will be seen other than the illusory effect of market price inflation.  Thus, since government is the agent of money supply expansion, and the goal is the stimulation of production, should government likewise require that the ultimate borrowers place that money into ventures which generate production, rather than investment/financial asset inflation.

Such a restriction on the investment of borrowed funds may in produce increased production.  But, the question is whether the investment in productive capacity is desired, or will product a glut, oversupply, a depression of prices, and a failure of industries in that market sector.  In other words, government intervention produces an unnatural, external-to-the-organic-demand-of-the-market pressure, which disturbs the natural supply and demand of the market.

The best governmental policy is removal of government regulatory barriers to production.  When people are self-restrained, and manufacture products that are safe, and honor the environment that they and others live in, and tell the truth in advertising, there is little need for government, other than providing the court where plaintiffs bring their grievances about competitors violating the Golden Rule.

As far as government providing increased scrip, such efforts to provide liquidity will always be met with unexpected distortions in the marketplace.  The same monetary stimulus of printing/loaning money into existence could be mitigated to an extent by printing money only to industry, and never to Government.  Such is the prohibition against monetizing the debt – with government spending money to provide services, and then printing money to pay those who provide those services.  Money is a representation of value given, and if value is only consumed, then the chain of service is broken.  Money becomes a scrip that has no reciprocal representation of value provided by the payer.  Such is the case with the Federal Reserve, the Fed prints money, issues it to Prime Lenders, who lend to banks, who lend to those who declare their commitment to produce goods/services, and contract to pay back the principal with interest.  Such a system is workable, to the extent that the Fed and primary lenders do not abuse the trust and loan money to the government in excess of the government’s extraction of taxes from the people (which are in effect, the cost of providing the services consumed by the citizen-recipients).  Thus, taxes are the cost paid for goods consumed.  As long as there is a balance, the dollars chasing goods will remain constant, and there will be no inflationary pressure.

The problem with the economy in 11/26/2010, is the lack of domestic production and consumption.  Business is purportedly holding onto 1 trillion dollars in cash reserves, unwilling to commit that money to increase the productive capacity because of uncertainty about the economy.  Much of the productive capacity of the nation has been outsourced due to tax advantages, reduced regulatory burden, and lower wages.  Such a disproportionate advantage for the cost of goods makes competition impossible with domestic suppliers.

There are a number of caveats and questions about this program we must answer:
1. “Will a government program to hire Americans to establish infrastructure and the tools of production actually increase production?
2. Is this program the equivalent of economic imperialism.
3. Will employing the multitudes have the effect of producing goods for the host nation, and excess for world consumption?
4. Will it employ Americans in a sustainable way, by first giving them jobs to do, which will bootstrap production, and ultimately spark optimism that consumption will continue to increase.
5. Will the host nation take responsibility for maintenance of the infrastructure?
6. Will this program require continued governmental maintenance, or will the private equity markets assume the responsibility for future funding?

The “Host Nation” would contract to receive elements of their national infrastructure (e.g. energy, communication, roads, laws…). As the Host Nation’s economy develops, they will eventually produce an excess of goods and services above their own needs, and after reaching the point of excess productivity, the Host Nation can begin to repay the debt accumulated during the period of infrastructure development.

Coordination of the infrastructure building effort can be done by a governmental agency such as: the proposed “Agency for Nation-Building” which could be formed under the Department of State. This agency would coordinate the tasks associated with industry, finance, and accountability. For example:

 Corporations will compete for contracts to supply the various pieces of the developing economy.
 The Agency for Nation-Building will facilitate arranging the investment instruments to fund the contractors.
 The project will be monitored on many levels and data will be placed online so the world can see how the project is progressing. Substandard work and non-spec products will be exposed to public scrutiny, and consequences will be enforced. We must ensure that quality economic infrastructure is delivered. The future well-being of an entire nation rests on this effort.

Finances are a critical piece in the success of this project. The Agency for Nation-Building will coordinate the issuance of long-term bonds and other instruments through various financial institutions. Payment of interest should be delayed and compounded and repayment should begin after the economy has sufficiently matured. These “Nation Building Bonds” should provide a very secure long-term return on investment. As such, they may be good vehicles for retirement & Social Security investments.

The American and world economy has off-the-shelf industrial capacity to export all the pieces of a nation-building infrastructure (e.g. energy, communication, transportation…). Given the polluting nature of coal, gas, and oil, it would be wise to start a new nation out with a non polluting fuel technology.

To meet the energy generating needs of the Host Country, the developers should install an adequate manufacturing base to produce a Solar, Wind, and Hydrogen infrastructure. We already have a fledgling Alternative Energy industry doing several billion dollars a year. Ramping up this production to meet the energy needs of an entire country (and eventually much of the world) will bring that industry to maturity with the economies of scale. The Oil and Coal industries may see the wisdom of making the transition and choose to invest in establishing this new technology as the focus of their future business.

The key to a highly productive economy is an abundant supply of clean and renewable energy combined with an intelligent direction of that energy. The rate of energy usage of the world economy is very small compared to the rate of solar energy striking the earth. The entire energy needs of the United States could easily be met by the energy hitting an area 100 miles on a side. In other words, a large amount of energy is available to power the machines which can multiply our human efforts and help meet the basic needs for survival and comfort of the Host Nation. And, as their production increases past the point of personal consumption, their net exports will increase the world’s standard of living.

Again, the foundation of this venture depends on establishing an economic environment for productivity in the Host Nation. But, the character of a nation’s people is the single most important factor to consider when investing in a business venture. I believe the risk in funding nation-building can be reduced by choosing nations with a Christian work ethic and Godly laws which honor contracts, property rights, and rewards for personal effort and initiative. For example, Uganda, with its current spiritual revival after the devastation of AIDS may be a good candidate. The Nation-Building efforts should include industry and technical experts who function in consultant, teacher, and managerial roles. A cornerstone of this enterprise should be building infrastructure and teaching the gospel.

Proverbs 19:17 (NKJV) He who has pity on the poor lends to the LORD, And He will pay back what he has given.

Thom