What the Feds Can Learn From Amazon

The federal government, with its record deficits and poor results in terms of stimulating business and employment, could learn a thing or two from Amazon.
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NEW YORK (TheStreet) -- Amazon (AMZN) - Get Report reported spectacular September quarter results -- sales up 39% and profits up 16%, from a year ago. At the same time, the U.S. federal government concluded a September fiscal year-end with a $1.3 trillion budget deficit, or $325 billion per quarter on average.

More than any other retailer in America, Amazon has its salesspread across every single zip code, every single neighborhood. Itsspectacular growth in revenue and earnings comes as a result of itssuperior knowledge of what works in terms of selling to the Americanpeople. Clearly the federal government, with its record deficits andabysmally poor results in terms of stimulating business andemployment, could learn a thing or two from Amazon's methods toachieve economic growth.

What is Amazon's secret sauce? The key to Amazon's success isthat it conducts a never-ending series of experiments in terms of whatworks and what doesn't. Basically, here is how they do it:

Amazon divides its customer base into two. Try method number oneon the first half of the base, and then try idea number two on thesecond half. Measure the outcome. Then apply the more successfulmethod to the entire customer base. Repeat with a new experiment.Repeat, repeat...

This relentless pursuit of improvement, by conducting a never-endingseries of experiments on 50% of the customer base, has made AmazonAmerica's most successful retailer. So how can Washington DClearn from Amazon to improve economic performance, maximizinggrowth and prosperity?

The answer is easy, really: Divide the U.S. into two parts, eachapplying the economic policies and principles of the two politicalparties. Each political party will get four years to start, with aveto-proof majority, in each of these two new Americas.

Let's give Obama and his fellow geniuses the first draw: They canpick up to 25 consecutive states, out of whom at least 23 need to begeographically consecutive if they also pick Hawaii and Alaska. TheRepublicans get the other 25. Then let the competitive race begin,just like it works at Amazon every day, in pursuit of economicperformance.

The federal government in the 25 Democrat states would implement Obamaand Biden's vision for rising marginal tax rates, stiff corporatetaxes, increased capital gains taxes as well as on dividends, detailedregulation of all business activity, government-defined health care,massive government spending on just about everything (except policeand military). Basically, a three-step economic plan: If it moves,tax it. If it continues moving, regulate it. If it stops moving,subsidize it.

On the Democrat side of America, there would be unrestrained stimulus. The government would spend as much money as the governmentdepartments want. There would be no shortage of money becausetaxes would be raised at every step of the way. Alternatively, theDemocrat government would just print the money, so-called"Quantitative Easing." Printing money was so successful in Zimbabweand Argentina, as well as in Germany in 1920, so why not try it here?

Obama would probably introduce a new, simplified income tax form, withonly three lines:

1. How much money did you make last year?

2. How much have you got left?

3. Send it in.

In the Republican 25 states, led by -- say,

FedEx

(FDX) - Get Report

CEO Fred Smith asPresident and Rush Limbaugh as Vice President -- there would be noincome tax, business tax, sales tax or any other tax except that everyperson between the ages of 25 and 65 would have to pay $4,000 peryear. With a total population of around 150 million people, thatwould imply approximately 100 million such adults and therefore $400billion in tax revenue. This would be four times JFK's 1962 federal budget of$100 billion. It would pay for national defense and federal lawenforcement, but nothing else.

On the Republican side of the 25 state fence, there would be nobusiness regulations, and people would be free to do whatever theywant to do -- or not to do, and build, start a business, buy, sell,whatever -- without any red tape. No permits, no bureaucracy, noforms to fill out. You make money, you get to keep it -- just sendthe government $4,000 per year. No income tax form, no sales tax tocalculate, no accountants or lawyers to hire.

If we Americans would organize ourselves to conduct thisAmazon-style experiment, what do you think would happen? Afterthe first four years were over, we could measure the results. Whichside had more economic growth? Which side saw more prosperity? It isclear that there would be some sort of a result, from which we couldlearn.

If Washington DC is serious about improving the performance of theUnited States, it would immediately put in motion a plan to implementthis experiment, as Amazon does every day. As I write this

Oct. 21, President Obama ishaving dinner with

Google

(GOOG) - Get Report

in Silicon Valley. He could startby asking Google's management where they would choose to put theirheadquarters if the country were so divided into two new 25 statecountries.

Amazon has shown the way, with superb performance -- 39% revenuegrowth and 16% profit growth this September quarter alone. It is timefor the federal government of the United States to follow Amazon'sexample and divide itself into two, for a similar experiment of twodifferent economic policies.

As the time of publication, the author had no positions in any stockmentioned in the article.

Anton Wahlman was a sell-side equity research analyst covering the communications technology industries from 1996 to 2008: UBS 1996-2002, Needham & Company 2002-2006, and ThinkEquity 2006-2008.