Sharpening Our Pencils

If the system wasn’t broken in some parts, then it wouldn’t be a surprise when individuals succeed. How many times have you heard the questioning: How did you do it? Tell us your story of how you overcame the odds? Or, what’s the secret sauce to your success? These are all indicators that, for far too long, too many of us have been searching for more ways to be liquid in a dry trough, and to paraphrase a seasoned financial veteran – nobody likes wobbly money.

A limited number of participants have benefited tremendously from certain practices and structures of the modeling. The result: Household debt has skyrocketed; student loan debt has swelled; and discretionary income is minimal for individuals who need it the most. Some of the tenets of our financial framework are solid, but perhaps we should rethink a few of its elements, enabling us to reach a higher capacity for economic growth with more holistic benefits.

GDP is defined as the monetary value of all the finished goods and services produced within a country's borders in a specific time period. The five main components of the GDP are: private consumption, fixed investment, change in inventories, government purchases (i.e. government consumption), and net exports. Services, which are in the private consumption bucket, make up a great portion of the U.S. GDP. This is thanks, in part, to the expansion of banking and health care, sectors that grew considerably after the ‘60s. However, could the rise of fintech companies threaten to shrink this a bit?

Maybe something to ponder. Business investments, which include fixed investments and the change in inventories, are another key factor in the U.S. GDP. With the rise of companies using leveraged-asset models, this poses considerable food for thought as well.

Early in my career as a young loan officer, I was afforded the wonderful opportunity to offer a loan to a seasoned educator. Her response to my proposal was, “John, sharpen your pencil.” She could have easily gone with another offer but gave me time to rework the numbers. I received the green light from my boss to cut into our branch margin and give her a first-rate deal, and she signed our transaction with jubilation. A handful of top-notch economists think our current scale of measuring GDP doesn’t truly reflect our lives, and any congruent points made in this article are carefully noted as only the tip of the iceberg of great economic thought.

Here are a few additional thoughts to consider that may help foster a healthy growth trajectory.

More Value Adds: More value adds could lead to an atmosphere in which we are able to maintain solid price points and open the door for more building blocks of growth. Each market has a level of demand. Either you meet it, fall beneath it, or exceed it. As of 2018, approximately 160 countries use a VAT system. This economic framework is not perfect. However, it does open a new window for increased ways to add value to products and services. Some of the cons of a VAT system include the possibility of setting off inflationary propensities and a deficient countercyclical balance. Some of the pros include being potentially simpler to administer, having the ability to raise sizeable amounts of revenue at a lower tax rate, and providing stronger incentives for businesses to control costs. It may not be feasible to adopt this entire concept in our current landscape. However, integrating some of its elements could create a pro-growth dynamic.

Increased Velocity of the Dollar: During the Roaring ‘20s there was tremendous economic growth. One of the leading theories of the cause of the collapse was that this wealth was not distributed properly, causing the system to capsize. Presently, the estimated U.S. household wealth is at well over $90 trillion. We are truly a very fortunate culture. The U.S. national debt is estimated at over $21 trillion. Again, there’re enough resources in the tank. However, is this abundance positioned the best?

Taking earned dollars from one person and systematically giving them to someone else only fosters economic tension, and the best solutions happen when we work congruently. It would be great to open the markets up and let them roar while simultaneously enabling a greater network of access to more individuals.

Not everyone has the capacity as the wonderful Gates couple in sharing their fortune, but it’s certainly an excellent example to our society. Édith Piaf so eloquently stated, “When you reach the top, you should remember to send the elevator back down for the others.”

Apprenticeships: We must also factor in the health and well-being of human capital, one of our greatest assets. Currently a skills gap in the market places us in a concerning position as we enter the workforce revolution. Increased apprenticeships help to address part of this growing talent deficit. These programs are force multipliers in that they help individuals gain education without the massive debt burdens, help businesses become more competitive by reducing turnover, and lead to higher wages for participants who complete the training and master the skills. This established workforce development model offers tremendous benefits to workers and organizations.

If we continue to reap it in, and reap it in without giving a good portion back, it will eventually isolate us in gated cities that are destined to crumble. As Maslow brilliantly illustrated, each block of the pyramid is vitally important to our greatest resource, human capital. It helps us to grow strong organizations and communities. Hard work and sacrifice are two key components that reflect the technique of blocking and tackling in the sport of football. Without them, there will be no wins. That’s right, sometimes you have to sleep on your friend’s couch like Mr. Hockey, co-founder of Plaid, while your dream builds to a $1 billion valuation. Everything we need to be wildly successful is in our hands. When we operate in resemblance of a family, there’s no one who can truly stop us. Let’s shape and mold our environment to reach possible zeniths beyond.