One of the major advantages of a capitalist system is the concept of “value added”. In practice, the concept is very easy to understand, but not likely to be taught in most schools. As I have watched the President and Congress work on the "Fiscal Cliff" (which they created), it has become clear to me that either they do not understand this concept or know about it. When land lies fallow, it has no economic value. When the farmer buys seed, for say $1,000, plants it in the fallow land and harvests a crop worth $10,000, that is added value. When a manufacturer buys steel costing $1,500 and converts it into a product that sells for $15,000, that is added value. Many Americans believe that a finite amount of money and wealth exist in this country and therefore it needs to be “redistributed”. This is nonsense! The amount of wealth that can be created is almost limitless. Manufacturing, agriculture and transportation are examples of value added businesses. The understanding of this concept is very important. Manufacturing adds wealth to the economy, so we need to develop more manufacturing to move the economy forward. The Institute for Supply Management announced earlier this week that their index had slipped to 49.5%. This is the lowest the index has gone since July of 2009. It means that, even though manufacturers have lots of money, they are not spending it, resulting in a sharp contraction of goods production and contraction in the number of related jobs. They are in effect saying, we don't trust the government to get their financial house in order! As manufacturing stalls, the economy stalls! The growth in GDP this quarter appears tepid and, without action on deficit reduction and tax increases, the economy could slide back into a recession. Long-term, I believe, manufacturing is going to be very important to the prosperity of the United States. As I keep reiterating, we have a stable government, high productivity, high quality, and low-cost natural gas. All of these could bring us back to being the most successful manufacturing country in the world. That means lots of value added, creating more jobs, more revenue for the government and higher interest rates for retirees.
Ed Mallon
