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A view on economics at home and abroad

Posted: June 6, 2011 - 7:55am

Thoughts expressed at the May 17th Kenai Borough Assembly echoed the conversation taking place all over the country at every level of government. At last, citizens are waking up to the fact that governments have long created the illusion of economic prosperity in large part by excessive borrowing and spending.

One logical reaction is to demand government to tighten its belt.  Were our collective debts a mere year’s income such measures alone might be enough. But with our nation facing liabilities ten times the size of its economy there is simply too much debt to pay off solely with spending cuts.  Governments in this position have the same options as individuals.  The only way out (bankruptcy excluded) involves significantly increasing receipts as well.

Of course, what governments call revenue we call taxes. That’s why taxpayers prefer governments to raise receipts mostly by helping to increase the volume of whatever is being taxed.  This avoids the necessity to increase tax rates and leaves everyone (taxpayer included) better off.

It would be great if this concept would reach Washington.  Thankfully, it has long been practiced right here at home. That is one reason the Kenai Peninsula remains one of the best places to live.  Our community has consistently invested in projects and programs which have helped to create new wealth for a good number of us.  Our main job now is to preserve what we’ve accomplished while continuing to work towards making things better for an ever-greater portion of our friends and neighbors.

In coming up with a plan to create new wealth its instructive to revisit where our existing wealth has come from.  Look closely and one can see it all goes back to two sources: The earth and the sun. Mankind can create more of neither but we are very good at turning these two original sources into things both necessary and nice to have.

The items we use to convert these sources into wealth are deemed “fixed capital” by economists. Such items classically  include buildings, equipment and farmland, plus something referred to as “human capital.” According to Adam Smith, human capital may be defined as “… the acquired and useful abilities of all the inhabitants or members of the society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship … (which al)though it costs a certain expense, (it) repays that expense with a profit.”

Of the many things the Peninsula has gotten right, the creation and maintenance of a local college ranks among the very best.  Every day, folks come to this college specifically to acquire that “human capital” such that they too may become even more productive members of our community.

The role our local college plays in the future of the Borough is the main reason the Assembly has consistently and confidently funded it to the maximum amount authorized by the taxpayers.  Up until now, that is.   This year, the Assembly is justifiably wary about spending money on virtually anything, education included.

Personally, I can’t blame anyone for being critical about government spending. What does worry me though is the thought of cutting back on productive spending, that being the spending which again “repays that expense with a profit.”

Ironically, sometimes those calling for cuts in such spending also speak of friends and relatives who have recently lost their jobs.  One such story came in fact from a gentleman who spoke of a young man who had been supporting a wife and child by working as a janitor. I pray that young man might find his way to my classroom this fall.

Truth is, many a student has worked their way through KPC as a member of our Maintenance staff.   In fact, just this year I had the honor of presenting the Outstanding Student of the Year award to one such graduate. This alone would have made the speaker’s comments poignant enough, but what really got me was the fact that I, too, had worked as a janitor while earning my first college diploma.

For myself and many others, college was the only place it became possible to transform any job (nay, even no job...) into renewed and expanded capital, ultimately increasing the collective wealth of the entire community.

Now there are those who argue KPC should continue to receive funding because the voters expressly approved it. They have a point. There are also those who argue good faith demands advance notice of any changes, thus allowing KPC time to rearrange its affairs. That argument has merit as well.

For me, however, I support continued full funding solely for the reasons Adam Smith laid out: KPC “repays that expense with a profit.”

To me, economic turbulence — whether actual or anticipated — is the worst of reasons to cut back on productive investments.  Thanks to a dedicated staff, inspirational instructors and hard-working students, KPC remains one of the Borough’s most profitable expenditures, or so I hope!

Tom Dalrymple is an Assistant Professor of Accounting and Co-Chair of the Business & Industry Division at Kenai Peninsula College.  His position is not funded by the Borough.

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