We Lose Money on Every Car We Sell But Make It Up In Volume or The Accountant Ascendant
Losing money on every car but making it up with volume was the marketing strategy mockingly attributed to General Motors a generation ago. Surprisingly it turns out to contain the key to the closest universal truth yet promulgated by our fallible species; i.e. if you control the numbers you control the world. You can make people retroactively happy. You can do anything.
Consider Social Security. It appears to be growing broke. The realities of American life seem to preclude discussion of this problem by anyone in authority; so federal commissions are threatened. Whenever the government sets up a commission to deal with something important they are embracing the white feather. Yet the accountants are quietly rushing to the rescue with a fix breathtaking in its simplicity and implications.
They propose, as you may have heard, that the government which annually adjusts Social Security payments for inflation has been systematically overestimating the inflation rate and thus the cost of living increases given Social Security recipients for decades. Reducing the annual cost of living increase by 1.1%, which is what the accountants believe the inflationary overestimate to be (actually they picked 1.1 arbitrarily from a range of 0.6 to 1.8%), eliminates three quarters of the Social Security shortfall projected to occur when the baby boomers retire (baby boomers has the same resonance as a murmuration of marsupials). No pain, lots of gain. But think about the implications of this adjustment.
Readjusting inflation downwards over the past few decades requires rewriting a lot of history. If inflation has been less than stated by more than 1% a year, the wages of American workers have gained ground over the past 20 years, rather than the reverse. In other words, their real wages have been much more than they thought. All those workers who have been unhappy with their economic lot will have to become retrospectively happy. Alternatively, they could sue someone for making them unhappy when they should have been delirious with delight. No wonder Bob Dole lost; he was telling us we should feel worse than we do when the truth is that we really should feel better. Bill Clinton will have to renounce the pain he felt four years ago even though it got him elected.
Alan Greenspan and the Federal Reserve will also have to redo the past. They have been fixated on the inflationary effects of too rapid economic growth. They threaten to raise interest rates any time the gross domestic product seems to be growing faster than a coral reef. Well it turns out that the economy has been speeding along like a runaway race horse without any impact on inflation and without the Fed knowing what was happening ever since Jimmy Carter decided to make being an ex-president his life’s work. The truth seems that we can safely lower interest rates without penalty until the banks are almost paying us to take their money.
Having shown that the accountant is omnipotent, I will now use the magic and romance of double entry bookkeeping to show how we can spend ourselves rich, which is the so far unrealized goal of every liberal democracy. Not too long ago Time or Newsweek, they’re indistinguishable to me, was carrying on about depression at such length that I was getting depressed until a dollar sign caught my eye. Depression (the disease not the economy) was said to be costing the country around 100 billion dollars. I was very impressed; that amount is more than 10% of the national medical care bill. I decided to see what other diseases were costing us. Of course I couldn’t consider diseases as obscure as acute intermittent porphyria, but I did tally the cost of every disorder that had at least one special interest group devoted to it.
Imagine my surprise when I discovered that the direct and indirect costs of disease in America come to three times the gross domestic product, (GDP is currently about 7.5 trillion dollars). Here was a real investment opportunity. Most experts have been worried about the high cost of American medicine, about 15% of GDP. They want us to spend less. It should be obvious that we should spend much more. If we triple or quadruple what we spend on medical research and health care we should eliminate human disease, or at least vastly reduce it. Let’s think positively and assume we’ll cure or prevent everything. This would raise our national income from about seven and a half trillion dollars to about 30 trillion. All this for a measly cost of three to four trillion.
Medical care is, of course, just the start. Everything we do costs something. I’m sure that when these costs are calculated they will also exceed what we spend on them, though I admit some of them might not exceed GDP. Biggies like pollution and occupational injury will likely amount to a multiplier of national income, however. Thus, we must increase spending on the environment until we are blue from cleanliness and eliminate every hazard from life until accidents are impossible. Another gigantic economic benefit that also needs to be factored in is that this spending on medical care, pollution, occupational safety, etc will create new businesses and jobs. More entrepreneurs will become billionaires, most of us can become as rich as Bill Gates. Unemployment will be a mystic memory.
I hope you see how the conservatives have gotten everything backwards. Rather than reducing spending and taxes we should increase them. Taxing and spending can only make us rich because the more we spend the more we make, just like GM.
By spending more and more we can only increase our net income. Accurate accounting holds the solution to everything; the more something costs the more profit there is in it if only we will invest in America. Dr Pangloss didn’t quite get it right. I envision a future that is better than the best of all possible worlds. Future columns will discuss investment opportunities in the Brooklyn Bridge, the Philosopher’s Stone, and perpetual motion.
Kurtzman NA: We Lose Money on Every Car We Sell But Make It Up in Volume or The Accountant Ascendant. Lubbock Magazine (February): 22-23, 1997.