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Breaking Out of the Vicious Cycle of Cost

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No matter how one looks at the economic woes plaguing America, in essence they are simply costs of all kinds--costs that keep escalating and accelerating at the same time. Rising unemployment, budget deficits, housing foreclosures, rising energy and food prices, unaffordable healthcare, accumulating credit card debt, bailouts, devaluation of the U.S. dollar, outsourcing, global trades, products built with planned obsolescence and obsolete technologies, global warming, natural disasters, depletion of natural resource, nuclear wastes, wars--all these represent costs, either recurring, periodic, catastrophic, or some other types.

Reducing the general cost of an economy requires the implementation of a series of well-measured economic, monetary, fiscal, political, and technological policies. It would be a disaster to try to reach this goal by mimicking the CEOs of some corporations, who can think of no way to cut costs other than firing employees, downsizing, and outsourcing production to low-cost-labor countries. These methods may generate profits for corporations and their shareholders but ultimately are destructive and cause the middle class -- the most important base of an economy -- to break down, shrink, and disappear.

But if cost-cutting measures such as firing, downsizing, and outsourcing are poor choices, what is the alternative solution?

The first and foremost goal of any economic-political policy must be to avoid the conventional method of increasing poverty in the interest of maximizing profit. This method is wrong socially because no one should have the right to damage another's livelihood for the sake of profit. In addition, it is shortsighted because in the long run, everyone loses--even the rich and superrich.

No one would deny that the rich and superrich should be able to enjoy life in an environment of peace, prosperity, and security. Maximizing profit in an environment of uncertainty and at any expense should be given low priority. Acquiring wealth through methods that make others poor and homeless is no great achievement. Instead, the trick is to make others well-off while accumulating wealth for oneself.

The vicious cycle of cost is paralyzing our economy. To break out of this cycle, we cannot simply take imprudent and shortsighted steps such as firing people, or reducing their salaries and benefits to balance the budget without taking the most necessary measure!

Energy is the most devilish cost and must be eliminated - totally, rigorously, and permanently -- before we can tackle any other cost. The cost of energy, whether for private households, corporations, or government, is the plague of our economy.

Why must we tackle the cost of energy first? Because it is the root source of the vicious cycle of cost. The cost of energy does not just escalate and accelerate as energy goes through the different production stages until reaching the consumer. It also causes these negative effects:

-         It reduces the purchasing power of private households, companies, and governments.

-         As the cost of energy rises, the entire economy becomes less mobile, leading to a decline in economic activity and eventually to a recession.

-         The increasing cost of imported energy (crude oil) leads to increased deficits, which compounds the cost of interest further.

-         Unemployment rises as the cost of energy escalates.

-         Rising energy costs put America's wealth at risk of ending up in the hands of hostile Middle Eastern countries.

-         The future cost of developing alternative energy sources becomes tremendously more expensive.

-         Social costs stemming from environmental degradation and depletion of natural resources (crude oil) increase.

-         Ultimately, the United States will lose its economic, technological, and military superiority in the world.

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http://www.khavariforgovernor.com

Farid A. Khavari, Ph.D., is a noted economist and independent candidate for Florida governor in 2014. He is the author of 10 books including Environomics: the Economics of Environmentally Safe Prosperity (1993) and Toward a Zero Cost Economy (more...)
 

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