How does money work in the economy? / Day

by times news cr

2024-05-05 02:17:11

Earlier in the rubric Who cares? we found the answer to the question: Where does money come from?”, but now let’s look at how it moves, dividing the family into different sectors of the economy.

In the first article of this topic Where does the money come from? (Day05.04.2024) we found out that the basis of the foundation for money to enter Latvia and start promoting the turning of the “flywheel of the national economy” is the export of our services and products, but in order for it to be used effectively – a balanced number of employees in the private and public sectors of the national economy.

Money creates money

If the export brings in at least as much as the import eats up, then the goods and services created for domestic needs also continue to run the “flywheel of the economy” started by the export, ensure the functioning of many processes and services, the payment of taxes to the state budget, from which the services needed by society are already financed, also public service or state administration activity. Quite simply, the ultimate goal and task of this entire process is to ensure the well-being of our country and its citizens.

However, there is a nuance that is often forgotten by the representatives of the public service – the fuel (finances) of the entire system or economy is based primarily on the taxes paid by those employed in the commercial sector (employees and entrepreneurs). It is the private sector that maintains the welfare of the state, because the first payment is required. Namely, as long as there is no money from private sector taxes, there is nothing to pay for public service services.

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It goes without saying that the President, Prime Minister and all other public sector employees and employers also pay taxes. However, the salary of the public service is paid from the taxes paid by the private sector, and there is only one moment when the debate should start about it. That moment is when tax money is not enough for public services.

It is just as simple that if the top management of the public service – the Saeima, the government – and officials and employees at all levels do not care enough and sometimes even carelessly treat the true creator of money, the “flywheel of the national economy” will continue to brake more and more and the amount of money in the economy will continue to decrease for absolutely everyone – both money creators and those who are financed by money creators. As a result, due to a wrong understanding and a nonsensical ratio of employees in these sectors, we can end up in a situation where families of the same nation are artificially contrasted due to their source of income.

How does everything work?

In our opinion, the national economy of any country can be divided into two parts (as can be seen in the diagram) – the commercial activity sector and the public service sector. Both of them create products and services needed by the country, both create money circulation, which in turn provides financing for all needs.

In our view, both in the private and public sectors, the family is at the center of everything – the child (who is a pupil or student), parents (who are employees or employers – thus earners and taxpayers) and grandparents (seniors). Both parents can be exclusively in the private sector or exclusively in the public sector, but there can also be a mixed model – one working in the public sector and the other in the private sector. But importantly, in any role arrangement, all families need the services provided by the public service: high-quality and easily accessible education, a pension corresponding to human dignity (not a survival allowance, as is the case for a large number of seniors), high-quality and timely access to health care and all kinds of security. By security, of course, we mean well-paid and equipped policemen, firefighters, high-quality roads and safe traffic, i.e., a safe and friendly environment for people, especially children and seniors, everywhere – both in the city, outside the city and on the road, both in the park – anywhere!

As if all this is already so simple and logical, but it is still not so – absolutely everything from what was listed above is missing. To the question “why?” we already answered in the previous publication Where does the money come from?. According to OECD data, on average in Europe, around 15% of the able-bodied work in the public sector, but in Latvia this number is twice as high. This means, first of all, that about 100 thousand public sector employees need to be paid, as well as that there is a shortage of about 100 thousand employees in the private sector.

Priorities and pseudo-priorities

The many governments that we have had so far, almost all of them have defined people as the main priority – children, parents, grandparents. Just as often in words, governments (essentially representatives of the public service) have emphasized that every entrepreneur is very important to the country – so, in our words, the primary creator of wealth. If it were as the politicians promised, Latvia should be sufficiently rich and successful, business should be prosperous, but foreign investors should stand in line at the border of Latvia, competing with their offers. Unfortunately, this is not the case – the majority of entrepreneurs are fighting a hard battle every day to maintain their business, continue to provide jobs and still pay taxes, foreign investors’ assessment of Latvia’s investment environment has fallen to the historically lowest level.

I would like to emphasize to potential critics – no, this is not whining or “it’s all bad” propaganda. Indeed, despite the fact that the work of the top managers (politicians) of the public service is largely inconsistent with the promises, entrepreneurs (including foreign investors) continue to work, earn and pay taxes in Latvia – continue to create wealth. However, the main problem is that we don’t have enough of these wealth creators, and that’s why even if they want to, they can’t create enough wealth or money in Latvia to be enough for everyone and everything. In order to change the situation, public service management must change its thinking and attitude towards wealth creators. In fact, not even so much the attitude towards the wealth creators, but the understanding of where the money originates or who the money creator is, and what will happen when the number of money creators falls below the critical limit, when they will no longer be able to finance the public service sector. And here we are not talking about public service management, but about the real service providers – teachers, doctors, policemen, firefighters, public infrastructure maintainers, social workers, armed forces and many others – whose work the money creators willingly finance by paying taxes, billing in good faith, that the services will be received on time and with high quality.

Basically, every country is built and functions on the basis of mutual trust and an unwritten agreement – a person (wealth creator) contributes a certain part of the fruits of his labor or profit (in the form of taxes) to the common treasury (state budget), but the public service provider uses this money in good faith for all the common for the financing of needs, but also for the wealth creators and thus the money paid into their budgets to become more. If this agreement is not fulfilled at some point or is fulfilled carelessly, the system begins to slip. So simple.

2024-05-05 02:17:11

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