FREE E-BOOK: DROPPING OUT - a Self-Help Strategy to Increase Your Standard of Living and Quality of Life

Ch. 2 - The Economy Cannot Improve for Most of Us

This is the most important chapter of the book, explaining why in the author's opinion the economy cannot improve for most of us unless we take individual action to effect changes for ourselves. Thus, the chapter heading is not correct: the economy can and will get better for those who break away from the group and take individual action for themselves, to make the changes required to participate in economic growth. To understand what you should do, you should understand the different shock waves which are adversely affecting the United States economy.

A. Erosion of the Middle Class

The problem seen by millions of individuals and families, but not seen very clearly by them as to their friends, relatives and neighbors, is the lowering of their standing of living. This erosion takes place in a variety of ways, some subtle and some not. Without attempting to put the factors in any particular order, let us examine some of the most important components of this erosion. Inflation is one, but now a much less important component of the forces which lower the standard of living for most Americans. Inflation causes prices to go up without any increase in quality, so that a person on a fixed income winds up paying more for certain items, which leaves the person unable to buy some of the things bought in the past, and resulting in a lower standard of living. Also, the value of a person's savings declines in real value, because inflation decreases the purchasing power of savings, enabling savings of a constant dollar amount to buy less and less each year. Interest traditionally offsets just about the amount of inflation, except that income taxes take perhaps 50% of the interest, which results in an overall decline in real value of savings after interest and taxes are taken into account.

I only point out inflation to indicate that certain persons have been suffering for many years from erosion of their savings and standard of living particularly when the persons are living on their savings, or on a fixed income, annuity payments or fixed retirement income. This vast group of persons, numbering many millions of persons, are quite experienced in living with a decreasing standard of living. Many more persons, however, have not until recently been noticeably affected by these accumulated forces which reduce the standard of living of most persons in the United States. One obvious decline in living standards is the percentage of household income which is devoted to rent or housing. Years ago, 25% was considered typical, but now for many persons with lesser incomes the percentage is between 50% and 70%. I can't even tell you that 70% is impossible, but I will. The reason that 70% (of one's gross monthly or annual income) is impossible is that individuals are required to pay an income tax amounting to perhaps 50% of their gross income, which means that many persons only have 50% of their gross income available for everything but taxes, making 70% for rent truly impossible to meet, unless there is some tax cheating going on (which means some type of underground economic activity which is not getting fully reported for tax and gross national product purposes).

Another tell-tale sign of our deteriorating standard of living is the need for 2 or more members of the household to be gainfully employed in order for the household to make ends meet. Years ago, it was quite unusual for a husband and wife to be employed, but now this seems to be the rule, rather than the exception. This need for extra income leads to a major distortion in the way in which the nation's gross domestic product (or GDP) is calculated and reported, making it appear, erroneously, that the nation is producing far more today than it was years ago when only one family member was employed. What is worse, however, is that much of the additional income of the second wage-earner goes for taxes on the second income (at a higher rate than would be paid on a single income alone) and to pay for the services at home (now we're beginning to touch upon family values) which the second wage-earner no longer has time or the inclination to perform. Instead, a percentage of the second wage is spent to free up the time of the second wage earner, and 50% of that gross wage to the domestic employee is provided as an additional source of tax revenue to the taxing governments, merely because someone hires a housewife hires someone else to do the dishes, wash clothes, take care of the children, and clean the house. This added and unjustified tax revenue for the taxing authorities contributes significantly to the decline of the standard of living for many families having two or more breadwinners. So far, we have only talked (for the most part) about previously-existing factors which contribute to the lower standard of living for many persons.

Before jumping to the main problems, I would like to discuss the problems of the differing tax consequences between private and public grade school education and between ownership and rental of a family's housing unit. Public policy has created a major eroding force for the standard of living of persons sending their children to private school and for persons who rent instead of own their housing unit (usually because they are too poor to buy).

When a family in New York City, for example, pays $15,000 per year in tuition to put a child through private high school (instead of sending the child to a public high school, to avoid the higher risks of drugs, violence, gangs, and lack of a good education), the family has to set aside, in its mind, $30,000 of gross annual income, pay a tax of 50% on the $30,000, and then turn over the remaining $15,000 to the school for the annual tuition payment. $30,000 per year for one child means $600 of earnings per week, 52 weeks per year, for just one child in private high school. Two children in private high school means $1,200 per week in pre-tax earnings which have to be set aside for tuition. Obviously, unless you are earning a hell of a lot of money, you have to be poor to reside in a city such as New York, if you put one or more children into a private high school. The effect on the standard of living for such families is devastating. Ask anyone from April to September, or beyond, who has to pay $15,000 to $30,000 or more for private school tuition. Also, this applies to college tuition, as we'll see later. Private school education is such a major expense, in many cases exceeding housing costs, that the quality of life of families living in many cities is adversely affected either way: you're damned if you don't [put your kids into private school] and you're damned if you do.

Housing is another problem, made much greater because of the absolute dollars involved. Land values go up presumably because the amount of land remains the same, and rents tend to go up as land values increase. Thus, to live in a city such as New York (Tokyo or London, for example), the cost to rent a 2-bedroom apartment usually exceeds $2,000 per month, which generally is not tax deductible. Accordingly, as we have seen, a family renting an apartment for $2,000 per month (or $24,000 per year) would have to set aside gross income each year of $48,000 to wind up, after taxes, with the $2,000 per month to pay for rent. This high cost of rent, together with the tax consequence, leaves nothing left over for clothing, travel, books, and other entertainment for most persons who choose to live in a large city. The quality of life for apartment dwellers without means living in a big city has to be much lower than desired and expected for the amount of earnings the family must have to rent such an apartment (and put one or more children in private high school) in the first place.

Yet, while talking about lowered standards of living, we still haven't hit upon the main problem. Let's take it on right now. The main problem is that with all these forces already discussed which lower the standard of living for most persons, we now have in the United States a concentration of the economy (through mergers and acquisitions) resulting in massive terminations of employment, (mostly higher-paying jobs) coupled with jobs going to other countries where labor rates are much lower, and the profits on the sales of foreign-made goods going back to the foreign owners of the foreign manufacturers (or at least not winding up in the pockets of anyone you know). Because of the decline in higher-paying jobs, the persons who become unemployed (persons who have children in private high schools, who have expensive apartments or home, condo or co-op mortgages, who have extensive credit-card borrowings to pay off, who have mortgages on one or two vehicles and possibly a boat and/or summer place) are now unable to pay for the commitments entered into in more prosperous times (proving to them quite quickly that they are undergoing a much lower standard of living, although their neighbors do not necessarily see this to be the case). When persons are terminated by corporate downsizing, statistics show that very few ever earn as much as they had been earnings, and in fact the vast majority wind up working at jobs running from $3 (substantially lower than the national minimum wage of $5.50) to $12 per hour, or $105 to $420 per week (for a 35-hour week). $105 per week is about $5,500 per year; and $420 per week is about $22,000 per year, which is not enough to pay even one private school tuition or one $2,000 per month rent for a city apartment. For these millions of persons who have been downsized, the standard of living has declined dramatically, overnight. But for the rest of us, the standard of living is declining substantially, as well. Many of the high-paying jobs in manufacturing are gone, to other countries. High-paying middle-management jobs are gone, with low-cost desk top computers available to everyone taking the place of high-cost middle management. Wages are much lower because the demand for jobs by the unemployed reduces the amount which employers have to pay. Employers are cutting back on benefits, as well, which lowers the standard of living for the employees of such companies.

To sum it up, the deteriorating economic conditions in this country are making most of us work many longer hours for a lot less money, which is the best way we can determine for ourselves that our own standard of living is lower. We may see others living in the same house or apartment, and driving the same (or even a new) car, and keeping their children in private school, but we don't see how they are paying for it (such as with second mortgages on their homes, credit card borrowings to the maximum limit of their many cards, assistance from friends and relatives, and much longer hours at lower effective rates per hour. But you can tell yourself that there is a breaking point. Bankruptcies were at their very highest in the United States during 1996. All of these factors and others indicate that we have a lower standard of living, and it keeps getting lower for most of us. However, as I will point out several times elsewhere in this book, a lower standard of living for millions does not mean for all. In fact a lower standard of living for millions suggests just the opposite for a group of persons who will be identified at different places in this book. To follow my plan of increasing your own share of the pie, you are going to have to learn how to take your small piece away from others who are getting too much. This is what the book will enable you to do, to identify where others are getting too big a share and what you can do to reduce their share, while increasing yours.

B. Globalization: How, Why, Who

Although there are many forces at work which are contributing to the lower standard of living for most Americans (which forces, by the way, are creating vast fortunes for the few), the straw which seems to be breaking the back of America's standing of living is what we refer to as globalization of the economy.

Let me try to explain this standard-reducing force to you. Years ago, everything took more time, from communications to news, markets, inventories, determination of profits, product life, packaging, publishing, news, decisions, market development, and other things which make up government and business. A company with a product or service could develop a market in the United States and have less competition to worry about. Because of slower communications possibilities, competition could not find out about product and marketing successes and it was more difficult for foreign competition to find out and react to competitive factors in the United States. Typesetting and printing would take much longer. Inventories would take longer to order and receive. Information about a market would not be available through on-line services. Foreign companies did not know the United States market and were not able to develop products or services for the United States market. All this has changed over the past years.

American is the number one market in the world. For a manufacturer of candles in Brooklyn, the United States may be the target market, and probably not Chile, Okinawa, Romania or Australia. But every one of the 500 some off countries in the world want to market their goods and even services to the United States to take advantage of this vast market, providing devastating competition for the candlemaker in Brooklyn, who has no idea how to market his candles to Okinawa or Chile. There is a much higher percentage of persons in Okinawa who speak English and can assist in marketing to the United States than there are persons in the United States who speak Okinawan (or Japanese). A small candlemaker in Okinawa would strike it rich selling a few candles to the United States, whereas the Brooklyn candlemaker has no ability under present business structure and conditions to sell candles profitably to Okinawa. The aggregate of 500 countries chipping away at the business of the Brooklyn candlemaker cannot be reciprocated by the Brooklyn candlemaker, and his business gets distributed throughout the world without much in the way of offsetting foreign business for him.

There is a vast industry needed in the United States to assist small United States businesses in marketing their goods and services to other countries, but this book is not the place for such discussion. Hundreds of thousands of United States jobs, including many high-paying jobs, could be created by the development of such an industry, especially if it is planned from the start, to help small business. No existing government program would seem to be of any value and perhaps this is best, to keep government out of this area, and let private enterprise gear up to do the job without government involvement, control and the typical bureaucratic results.

So, globalization has occurred to some extent because the United States market is sought after by all foreign countries, whereas small U.S. businesses cannot now compete very effectively in 500 countries. This could and should change, but until it does globalization of business will be taking away business and profits from U.S. businesses and sending the business and profits to other countries for their benefit, and for the loss of United States businesses, citizens and residents.

Globalization of the economy in the sense of allowing foreign businesses to sell to the United States is justified as a matter of public policy by claiming that lower prices for goods result in the United States, which is good for consumers. This argument is appealing at first glance, especially if one disregards the working conditions of the employees in the foreign country, the extent to which the foreign goods are subsidized by the foreign government, and the laws and practices of the foreign country which (such as in Japan) prevents American companies from selling in Japan with the ease that Japanese companies can sell their products in the United States.

I have always been for so-called free trade, and how can anyone not be for so-called free trade and survival of the fittest business? The problem with this argument is that trade is not free in the United States or elsewhere. In the United States we have certain labor-law requirements which cost a manufacturer money to comply with, and by allowing foreign goods to be sold in the United States when made under working conditions much less stringent than our own (such as with child or prison labor, or at a rate of $.25 per hour), we can only expect business to go to the countries with the lower standards. We have to choose whether to lower our standards for U.S. businesses, or prevent products from being imported into the United States when they have been made under working conditions which fail to meet certain articulated standards.

My own feeling is that a statute should be enacted which would give any United States business the right to go into court to stop the importation of foreign-made goods which were not made according to the minimum standards set forth by United States rule or statute.

As it is today, we have permitted the President of the United States and his trade negotiators to select which business interests will receive United States protection, through negotiation of favorable trade terms, and the rest of the business interests of the United States obtain little or no protection at all. Thus in Japan, the United States trade negotiators were concerned with cars, computer chips and film, and protected these U.S. interests during trade negotiations, but the trade negotiators obviously failed to look after the 10,000 other interests which are hurt by the way that Japan excludes products and services from the United States and other countries. The cure for this is to permit private enforcement of U.S. business standards to permit the Brooklyn candlemaker to sue to block importation of foreign-made candles which are made with child or prison labor, or are made with government-financed factories, or are made in a country which prohibits candles from being imported from the United States, just to name few standards which come to mind. But, I don't think that I have touched yet upon the real problem of globalization. The real problem, as I see it, is the U.S. government's tolerance of ever-increasing concentration of the U.S. economy through permitting mergers and acquisitions with little or no question. The purported justification is to enable these companies to expand more readily into the world market, but at the same time they are making it impossible for small businesses to compete with such large and larger companies in the United States as well as in foreign countries. The mergers and acquisitions are taking place in which markets for goods and services are becoming monopolized (which under law is about 65% to 67% of the total market in a defined geographic area). When this occurs, two big companies combine into one large company, eliminate all competition between themselves, and prevent effective competition by small businesses which remain. The purported justification that such increase in size is necessary to enable them to compete in the worldwide market seems unnecessary and unproven. Perhaps the United States should place restrictions on the right of foreign monopolies to sell in the United States, but the United States should not permit the creation of monopolies in the United States to enable them to monopolize world trade outside of the United States.

The main problem with the mergers and acquisitions (whether for globalization purposes or not) is that they are used to eliminate jobs, create new jobs in foreign countries, and to import foreign-made goods into the United States for the profit of the foreign interests, with no profit or jobs for the communities which had the plants before the acquisition or merger.

Globalization is creating a third-world economy out of the United States and should be stopped, by enforcement of the antitrust laws to prohibit mergers and acquisitions which result in monopolized markets or submarkets (something which is not apparent without proper economic analysis). For example, are sneakers and shoes in the same market. I don't know the answer to this, but if they are, a shoe manufacturer with 35% of the market for shoes in the U.S. would not be able to merge with a sneaker manufacturer which had 35% of the market for sneakers in the U.S. The test for whether they are in the same market is whether a 5% increase in the price of sneakers would cause persons to switch to shoes (assuming that shoes did not increase in price). The United States Justice Department has been too liberal in allowing mergers and acquisitions by not looking carefully enough at the relevant market. If the Justice Department concluded that anything worn on the feet were a footwear market (including rubbers, slippers, shoes, sneakers, tennis shoes, roller skates, galoshes, children's shoes, sandals, women's dress shoes, loafers, men's work shoes), you can see that no company would ever have a monopoly (or 67% of all footwear products in the United States). It is just this way of analysis by a government siding with big business which has permitted all these mergers and acquisitions to take place which has caused millions of persons in the United States to lose their jobs, to globalization, which really means to monopolization, as I see it.

When a merger or acquisition takes place, many tens of millions of dollars in fees are earned by lawyers, investment bankers, finders, accountants, financial printers, and others, in the Wall Street industry of moving capital around for profit, creating no jobs at all, but causing hundreds of thousands of persons to lose their employment and put severe strains on their family relationships, and causing many communities to lose businesses on which the communities were dependent. And, a few years later, the same business could be merged with another one with another set of human and community losses as a result. The one constant factor in mergers and acquisitions is the profits of the money changers (i.e., the investment bankers, lawyers, accountants, arbitrageurs and others) and the loss of jobs, business and profits in American to foreign interests.

If we as a country cannot stop these mergers and acquisitions, and I am assuming that we cannot (although I do go into court to try to stop them as an antitrust litigator for injured small businesses), then you and I as injured persons should implement a plan to try to offset the evils of such undesirable mergers and acquisitions. I have such a plan in mind, not only to offset the evil effects of such mergers and acquisitions, but to offset other micro-economic restraints as well. Before talking about what you can do, I want you to learn about other areas in which you as an American employee, businessperson, family member or consumer are being taken to the cleaners.

You can and do something about this because you are losing more and more, causing you to be suffering from a dramatically reducing standard of living.

C. The GDP Is a False Economic Indicator

The gross domestic product or GDP (formerly called the gross national product or GNP) is used by persons who support the present division of the economic pie to convince you and me that the economy and our standard of living is improving, in spite of numerous indications to the contrary. Recently, the GDP has come under severe scrutiny and attack, for failing to take various material factors into account, or through the inclusion of economic losses as gains. For example, the destruction of the federal court building in Oklahoma City was reflected positively in the GDP through the costs involved in tearing the building down and the costs of putting up a new building, as well as the costs of medical services and funerals for the dead and injured. These costs were added to the total economic output of the United States and help to make it appear that the economy is doing well. The loss of life, limb and economic potential was not deducted from the GDP in any fashion.

Thus, when the government tells us that the economy is doing better, you have good reason to distrust the calculations and conclusion. The truth is that the GDP does not measure all things which should be measured (such as the value of family and community services which are rendered without salary or invoice) and includes as growth the cost of replacing a building which has been bombed by terrorists). Also, the GNP does not reflect the destruction which occurs to the ecology, or the various external costs which corporations force on taxpayers and the ecology.

As long as the government cooks the books through the use of meaningless economic data, you will have apologists for the economic status quo telling you that the economy is improving, even though most of us in the United States know for sure that this is not true for most Americans.

D. Ecology, Environmentalism and External Costs

The depletion of the scarce resources of the earth, together with the higher costs to taxpayers which result for failure of corporations to manufacture and sell products to cover true costs (thereby externalizing such costs for payment by others). The environment is an asset which must be protected, and one way is to charge appropriately for its depletion. Such charges will encourage conservation, which is a rule which will enable you to maximize your economic position when DROPPING OUT and changing your economic lifestyle. Companies which externalize their costs are making you pay for their excesses, which you can avoid (but only in part) by refusing to deal with them.

E. Micro-Economics Tells the Whole Story

Micro-economics is another way of showing there are no free lunches. The entire economy is made up of millions of economic considerations (in the form of taxes, exemptions, rules, regulations, customs, agreements, practices, product life, cost v. benefit analysis) and the state of any economy is the result of all micro-economic matters. By identifying which micro-economic problems cause the greatest loss to the economy, one can also figure out how to avoid losing money and prosper while others lose out to these micro-economic restraints. For example, there are major consequences which can be predicted and created in knowing that many private colleges and universities charge $35 per hour for instruction when $2 would suffice. Micro-economics explains how this takes place, and suggests what can be done to eliminate this excessive cost, which has families paying perhaps $30,000 per year per student in pre-tax income to put one child through college when $4,000 or $6,000 would suffice. Monopolies are classic examples of micro-economic restraints, enabling a monopolist to charge higher than competitive prices because of the absence of competition.

The way to offset these higher prices (and monopolistic profits) is to buy in a competitive market and avoid purchasing from a monopolist. It is little know, but true, that the stronger a trademark the more the trademarked product functions as a monopolized product. This suggests that the purchase of very successful brand names involves significant overpayment for the goods being purchased.

F. Restraints on Capital and their Effect

Although the United States is the land of so-called free enterprise, it is not a land where people may raise capital freely (and therefore compete freely). It is a land of heavy regulation when it comes to the raising of money to go into business, and this has had a stifling effect on small business, with the result that big business has gotten bigger, controls the political process, and small business continues to get the short end of the stick, in spite of the fact that it is small business which generates virtually 100% of the new employment opportunities in the U.S. Micro-economic restraints abound in this area, and various hints are given to persons who would like to (or find that they have to) become small businesspersons.

A good rule for finding a new business opportunity is a takeoff on the adage Find a need and fill it. The revised rule is to Find a monopoly and fight it. Governments provide a good starting place for finding business opportunities, since governments often create monopolies (such as the postal service, public schools, colleges, ambulance services, police services, transportation services and hospitals to name a few). These areas of monopolization by government provide opportunities for small businesses to figure out a way to bypass the monopoly and provide what the public has demonstrated that it wants (a proven market) at a lower price and/or with higher quality service.

In the private sector, monopolies abound, and offer substantial business opportunities for small businesses to prosper. If, for example, a company has a monopoly on ready-to-drink orange juice (not from concentrate), there would be room for a competitor to sell the same product to retailers who are presently forced to pay monopolized prices for orange juice. How to do this successfully (i.e., what type of marketing techniques are needed) is what the new small businessperson would have to figure out. A person working from his/her home could set up a national distribution network of independent distributors using the successful marketing techniques.

G. How We Got to Where We Are - An Explanation

There is a simple explanation for the complicated problem of how the U.S. economy got to its present state (referring, of course, to the deterioration of standard of living for most Americans while a much smaller group is increasing their incomes, profits, lifestyles, opportunities, wealth and political power.

The economy is an engine which creates and distributes the products and services of this country, and like any engine it can be mistreated and deliver less power than it was designed to do. If the engine is not working on all cylinders, where some cylinders are using the distributed gas wastefully, the engine does not deliver the power needed to drive the vehicle or other machine in which it is installed. Thus, when our economy has imposed restraints on itself, such as by excluding persons from competing in the offering of educational services, such micro-economic restraint pulls down the efficiency of the overall system (or engine) and has predictable adverse effects, such as reduction of opportunity, income, savings and lifestyle for the persons excluded from competition; higher costs of education for students and their families; an overall reduction in the availability and quality of education which lowers the country in the globalized market; reduction of the nation's tax base through the loss of income, earnings and taxes from the persons who are cut out of competition and the students who are deprived of a better education or any higher education at all.

The economy as a whole suffers when some parts of the engine are prevented from working properly. The allocation of parts of the economy by government or the taking over of parts of our economy by monopolists have the same deleterious effect on the engine and economy, and the results are quite predictable. In fact, you can now see and feel the results of years of improper maintenance of the economic engine upon which all of us depend. The U.S. Constitution thought about this problem and decided that the best way to prevent one group from taking more of the economy than it should was to set up a system of checks and balances, so that the Executive Branch of government was held in a variety of checks by the Legislative Branch, and both of them would be held in check by the Judiciary.

However, when the Judiciary is undermanned and underfunded, there is a serious disruption of the checks and balances because by political action (or inaction) by the other two branches of government, the Judiciary has been reduced to a status of less power and greater subservience than intended by the framers of the U.S. Constitution. This distortion of constitutional power is a contributing factor, which results in the inability of private persons to enforce the antitrust laws against big business, especially when the U.S. government has already been undermined by private interests and campaign financing from special interests and is unwilling (and no longer able) to do anything to control the growth of the monopolizing companies, who devour the U.S. economy on their way to global domination and economic destruction.

The economy has become damaged by the inability of government (Executive, Legislative and Judicial) to offset the power of the large corporations and monopolists, and the only thing left for individuals to do is to recognize this fact and resort to damage control for themselves through self action of the type envisioned in this book. The result should be to increase the political power of the middle class sufficiently, over the years, to enable them to offset the destructive forces of the large corporations and monopolists and put the nation's economic engine back into proper working order, which will cure the current problem for millions of a lower (and increasingly lower) standard of living. The economy needs a relief from the forces which allocate too much to favored persons for too little, and a relief from the forces which prevent the government from performing the needed repairs on the nation's economic engine. Somehow, whether through government action, private lawsuits, or wholesale DROPPING OUT, the economic engine has to undergo some significant repairs, to enable the middle class of this country to get back its fair share of the economic pie.

H. Taxation: the Decisive Factor for Most of Us

If there is any one aspect of the economy which should drive a person into economic implosion it is the nation's system of taxation, which is to take it from the middle class and give most of it to the rich (corporate welfare), to the undeserving (through excessive salaries to an unneeded bureaucracy) and to the poor (through misguided welfare programs designed more for the support of the bureaucratic establishment than the uplifting of the poor). Taxation adversely affects renters, who cannot deduct the amounts they pay to the landlord, even though he makes interest payments of a substantial part of the money he receives as rent and receives a tax deduction for such interest payments; and even though a homeowner with comparable monthly payments is entitled to deduct interest payments from his/her taxable income. Taxation adversely affects employees, who have no way to deduct expenses which his/her employer routinely deducts, including automobile expenses, office-type supplies (including notebooks, pens and pencils for the children), taxi, train, air and bus travel, videos, movies and other entertainment, gifts, liquor, parking expenses, courses, books, and magazine subscriptions. Thus, an employer or small business person is able to live to some extent at taxpayer expense without any corresponding opportunity for a salaried employee to do the same.

Taxation makes most parents economic slaves when they find it necessary to spend their children to private grade, middle and high schools because government is unwilling to fix the known education problems caused by a strong teacher's union, civil service rules, due process requirements when a government terminates an employee.

Parents, as we have seen, have to earn twice as much as the tuition, pay a tax of 50%, then turn the other 50% over to the private school as tuition, often leaving nothing left for meeting a decent standard of living. Also, there is the problem that exists, for example, when two persons who are broke exchange services with each other. Both are theoretically required to declare as taxable income the value of such services and barter companies are already working with the Internal Revenue Service to report this type of taxable income to the taxation authorities. Yet, if these services are performed by family members, or within a charitable, religious or perhaps other non-profit organization the same bartered or shared services may not be taxable. Thus, it would behoove a person seeking to minimize his/her taxes to make sure that barter or other exchange transactions are done in such a way as to properly avoid, rather than to illegally evade, reporting and taxation.

Taxation has made it unworkable for many small businesses to hire any employees, because of the amount of regulation, reporting, withholding and hassles which develop. This has led me to push for a national apprenticeship program under which any person (you, me, General Motors, or the A&P would be able to hire up to 3 people and pay them as little or as much as they wanted, without any reporting or withholding. I call this plan The First 3 Are Free, meaning that there would be no rules or regulations relating to the first three employees of any person (other than not being able to beat, maim or kill them; not being able to hire illegals; not being able to hire children or slaves). As to the IRS, if the IRS wanted, I would make out the weekly paycheck (if any) jointly to the IRS and the special employee, with that check each week being the last thing for which the employer would be responsible for as to the past week's work of the employee. This in effect would be a massive national training program for persons wanting to learn a business as an unpaid assistant or trainee, with the employer being free to pay as little or as much as the employer wanted, which presumably would be enough to keep the employee from going elsewhere, and be a free market for wages unhampered by the nation's minimum wage which deters many employers from hiring anyone. Persons in (or seeking to start) their own small businesses might be able to retain one or more assistants by making them independent contractors or partners, to avoid having to withhold and pay income taxes. But make sure you clear the specifics with an attorney or tax person before doing this, to avoid problems with the IRS.

The main point to remember about taxation is that it puts a substantial burden on the activity which can make it unprofitable to undertake with the taxation component, such as having to earn $30,000 a year to put a child through a private high school. Many more parents could afford $15,000 per year than could afford $30,000. Always look at the tax implications in schooling, ownership v. rental of housing, and employee v. partner/joint venturer or independent contractor. And do not forget that services performed by family members are tax free, but when performed by domestics there are various levels of taxation which you (the employer) would be providing the money to pay.

Another taxation factor is the real estate tax in the area in which you plan to move, and the quality of the schools, if you plan to make use of them. A low real estate tax rate coupled with home ownership, gives you a low overhead, something which cannot be easily duplicated when living in a city.

I. Restraints on Education and their Effect

The single largest item in the budget of many families is education, particularly higher education. The cost is often $15,000 per year for tuition alone (one student), but this means $30,000 pre tax (for one student). Also, colleges and universities charge about ten times more than they should, and you can do something about this (to avoid this cost), as part of your plan to downsize your own economy and increase your own standard of living. The specifics about private-school and college-degree education will be discussed in later chapters.

J. Restraints on Small Business and their Effect

Small business for years has been ruined by excessive government regulation, and there is a way to fight back. One of the principles is to set up a virtual business, a business without employees. The various governments have made it economically impossible for the smallest businesses to hire a single employee, and as a result millions of jobs which could exist do not, and everyone loses as a result, except big business, which wants small business to be unable to compete. The restraints on small business include licensing, capital requirements, delays, bonding requirements, government regulations, and abusive taxation and enforcement. Persons who are downsized may find it necessary or more practical to open up a small business than to work in a fast food chain serving hamburgers for $5.00 per hour. These ideas will be explored at length in later chapters.

K. Price Discrimination, Effect on Small Business

Micro-economic restraints on the economy for small persons are no more noticeable than in the discriminatory prices which small stores pay for goods (mainly to large manufacturers and wholesalers) than the superstores with which small stores compete. These discriminatory prices are charged to small drug stores, small stationery and office-supply stores, small grocery stores, small book stores, small hardware stores, and small beverage distributors, to name a few of the types of businesses adversely affected by price discrimination. Price discrimination is made unlawful by the federal Robinson-Patman Act, which prohibits the sale of goods to competing retailers or competing wholesalers at differing prices per unit, or the rendering of services or giving of other benefits, unless the prices are cost justified or were given to meet competition, defenses which are difficult to prove in most cases of pervasive and substantial price discrimination.

The effect of uncontrolled price discrimination (which is what we have now in the United States for failure of the Federal Trade Commission and U.S. Justice Department to do anything to stop the practices) is to create a 2-tier system of retailing in the United States, with superstores being able to sell branded goods for about 30% less than the small competing independent or mom and pop stores. The effect, obviously, is to put the smaller stores out of business and create more superstores. The public is always willing to pay less, even when destroying their own economy, in the long run. The public cannot be relied upon to pay higher prices to small stores in order to preserve the American way of life in the long run. Instead, government agencies should enforce the nation's various antitrust laws (in this case, the Robinson-Patman Act).

In later chapters, we will discuss what you can do as part of your own plan of economic reorganization to maximize your position. It should be noted that private antitrust enforcement is available to injured small businesses through the commencement of treble-damage antitrust actions against the discriminating manufacturers as well as the superstore retailers (and large wholesalers) who induce or knowingly receive discriminatory prices from the large and often monopolizing manufacturers.

The effect of uncontrolled price discrimination is more than the injury of competing retailers and wholesalers. It also has the effect of enabling a manufacturer to monopolize the market for goods. When a manufacturer is able to enforce different prices to competing retailers and wholesalers, this is a sign that the manufacturer already has a monopoly or near monopoly of its goods because if there were competing products available to the small stores (or small wholesaler) at lower prices, the small retailer or wholesaler would avoid the effect of price discrimination by ordering the competing goods from a lower-prices manufacturer or supplier. But this doesn't work because of trademarks and brand names. A person who smokes Camel cigarettes will often not settle for anything else, and a retailer who does not stock Camels will lose a certain amount of sales to competing stores which do. The power of trademarks to create little monopolies is known to persons who own and use them (such as Tropicana, Monopoly, Power Rangers), because they permit the owner of the trademark or brand to charge higher than competitive prices profitably, without losing too many customers. The small store has to order these trademarked and branded items to remain in business, even though the small retailer (and small wholesaler) is paying more per unit than the competing superstores and large retailers.

The effect of this is to drive small business out of business by rendering them unable to compete on the basis of price, which is the main basis upon which customers make their choice. The other two factors, for the record, are quality and service. Since the quality is the same for a given branded item, the only thing left for the small store is to offer better service, such being in a location where the customer has no choice to buy from the superstore. But with more and more superstores opening up, there is less and less space for the small retailer charging prices 30% above the prices of superstores, and small business employment, profits, and the political power which goes with business success are being lost, and the power of the superstore and the monopolizing manufacturer are taking over.

An interesting fact is that the amount of recovery under the Robinson-Patman Act for a small businessperson's losses due to violations of the Act can be calculated by this rough rule of thumb: 9,000 times the amount of pre-tax loss (after deducting direct expenses) suffered in one average day. This means that if a small businessperson (such as a small grocery store operating 7 days per week) calculates (correctly) that he/she loses about $100 per day in bottom-line (pre-tax) profits by reason of the antitrust violations of a certain manufacturer or supplier, the total recovery in a lawsuit would be about $900,000 (or 9,000 times $100).

L. Restraints on Media and their Effect

One would assume that with all the diversified media in the United States that the public would have no problem in finding out what they need to know to take the right steps to protect themselves, whatever those steps might be. But if for some reason the public cannot and does not find out what is happening, it also can be seen why the standard of living is falling for most of the citizens and others in America while the monopolies and their owners are thriving, and the stock market indices are always reaching new highs. The nation's airwaves and telephone lines are either owned by monopolists or have been sold to the highest bidders (in the case of the nation's airwaves) and are not being used to undermine the interests of their owners.

It is unrealistic to expect that television would run stories exposing the illegal activities of their leading advertisers. Thus, the public has been kept in the dark about the real economic problems of the United States and are told instead that the economy is improving, even when we see that it is not, for most of us. When the media talking heads say that the economy is improving, they are actually telling a partial truth. The economy is definitely improving for them and the other wealthy individuals and corporations in the United States. The stock market's steady rise to newer and newer heights confirms this for all to see, and the vast majority of persons who do not share in these increases do not understand that the improving economy is not filtering down to them and in fact cannot filter down to them unless they take steps to help themselves to their fair share of the economy, a plan for which is discussed in later chapters. The saying that a rising tide carries all ships can no longer be accepted based on empirical evidence. The stock market and GDP keep rising (and have been doing so for many years) while most Americans are experiencing a declining standard of living (for many years).

M. Restraints on Politics and their Effect

Politics is just one more way that the economy is allocated to the wealthy, at the expense of the masses. Politics takes money away from the working taxpayers and redirects the money to programs which benefit the wealthy. Some money, of course, is spent on the poor and needy, but not much, and whatever is being spent is under severe attack, such as with welfare reform, which of course is necessary, if done correctly. But together with welfare reform should go reform in many other areas, especially government giveaways to the rich. These giveaways are not obvious, and often exist as restraints imposed by law or regulation which prevent competition and require persons to buy from high-priced (and high-profiting) suppliers, such as the non-profit educational community, who are charging at least ten times what they would be able to charge in a free market for educational services.

The persons who benefit from government intervention can be expected to support legislators who continue the giveaway programs, and the educational lobby is one of the strongest lobbies in the nation, making it virtually impossible to create better schools at substantially lower costs to students and parents. These micro-economic restraints imposed by government and their effect on the economy will be explained, and what the person can do to avoid these restraints and associated higher costs will be discussed later on in the book.

Politics: having elections paid for by government money; short term limits; eliminating the purchasing of votes and enabling legislators to pass laws for the country instead of special few.

N. Economic Prison [without Bars]

With all the restraints imposed on the nation's citizens and other residents, we wind up with most of us paying more than our fair share, money which is diverted by government directly, or through monopolies, to the rich, requiring that most persons work longer and harder to try to maintain their existing standard of living, and failing in the process. What we have, basically, is a form of economic prison in which the citizens of the nation are being driven to work harder for less money to meet the requirements imposed on them by government and other monopolistic forces. These imposed costs can be avoided and the masses released from their economic imprisonment by a restructuring of their economic lives. Some of us will be unable to do this because of existing ties to monopolies, government and communities which would make it difficult to remake one's personal economics, and these persons may want to do only a partial makeover. Others, such as persons nearing retirement, persons with no significant (i.e., high-paying) job opportunities on the horizon, students who can choose without forfeiting as much, and others may be able to restructure their personal economics to a much greater extent and actually improve their economic position substantially, from the way it is, or is heading, today. Later chapters will explain how this can be done.

O. By-Passing the Micro-Economic Restraints

As we have seen, restraints are all over the economy, and each restraint has a cost. The sum of all restraints is the sum of all economic costs which are being paid by the masses, for the benefit of others, generally, and the way to improve your own standard of living is to stop paying these costs in situations where you can, and choose to, reduce these costs. Some of the costs will be too difficult to bear, such as giving up your automobile, if you have one, or moving to some other place. But you should at least look at the price you are paying by not doing what you could do. Other costs will be easier to eliminate. What you need to do, however, is become aware of micro-economic restraints, because they probably are the source of your economic problems, or most of the economic problems in the country. Even business reversals, if fully understood, might be traceable to restraints of which the businessperson was unaware, which caused the business to fail.

So, to understand what you should do to change your standard of living and living lifestyle, you should think about economic restraints, and try to identify where they exist and what if anything you should do to avoid their effect on your pocketbook, your economic well-being, yourself lifestyle, and your political freedoms. The persons with money have the political power in the United States, and without money you have little or no political power. Your standard of living is eroding because others have the political power to direct the economic pie to be divided more in their favor each year, and most persons in America have allowed the power to slip out of their hands by failing to recognize what is happening and doing anything about it. Now that these preliminaries are out of the way, let's start discussing how DROPPING OUT can be to your economic advantage.

[End of Chapter 2.]

Carl E. Person, Author of DROPPING OUT,
For the c.v. (resume) of Carl E. Person, click on Carl E. Person C.V.

Copyright © 1997 by Carl E. Person

Dropping Out and Dropout Community are trademarks of Carl E. Person