Wednesday, August 25, 2010

Musings on the Economy

Well, this has been kicking around in my head for a little while, how it is that we can get this economy going and get people back to work. At the risk of exposing my ignorance, I am going to muse on the economy and the fixing of it. Following are three themes that emerge over and over in the discussions of experts as far as I can understand.

1. Give the people and businesses tax cuts and cut the government budget.

2. Raise taxes and cut government expenses to get the deficit down.

3. Raise taxes and use some more government spending, such as a stimulus package, to get people employed.

Yesterday I was listening to Rush sub professor of econ Walter E Williams and he mentioned that the federal government up until 1920 consumed around 10% of the GDP. After that it has been 20% or more. Prof Williams argues it is because the federal government is doing things it was not mandated to do in the Constitution.

Read Paul Krugman in the New York Times--he is insisting that the country needs a stimulus package to get people back to work, and continued benefits to unemployed to make sure they have money to spend.

As we have gone through this economic hard time, we are relating back to the 1920s, 1930s and 1940s. Everyone has an opinion about what got this country up and out of that hard time: FDR's programs or World War II. Some now believe we have more in common with Japan in the 1990s with the tight money supply and unwillingness to spend.

I do not believe that we can go back to the kind of economic system this country had in the 1800s--which often appears to be what conservatives want. One thing is very different about our country now--there is no expanding geographic frontier. Actually, as I consider this, barring a huge technological revolutionary find, there is no frontier--period. There is no area of expansion.

There will be no recovery or slow recovery if we cannot get people back to work. Those working do not spend much money. Those underemployed are not spending. Those unemployed are certainly not spending.

Businesses do not want to hire because they are not sure of the future. They are not sure about the impact of the terrible health care bill. They are not sure they can pay any new hires and still be able to stay in business.

Nobody wants to spend or lend money.

Many do not want the government to start spending a lot of money, to either support people, or to try and stimulate the economy. Others swear that this is the only way we will get out of the recession cycle.

I am not educated enough in economics to have a strong opinion. I get conflicted. Part of me knows that if you keep taxes low, and leave more money in the pockets of business and individuals, that money will be invested and used. Part of me knows that there are some people out there who are going to need assistance--sometimes I think we just make unemployment contingent on doing some work that needs to be done to maintain the community. We give you a bit of money, you help with road work, or upgrade the computers at DMV or something.

In the end, I think we are going to end up in a different place. Our economy is going to be different from the economy that was based on consumption that we've had for the past 40 years. Also, that transition is going to hurt, regardless of whether in the end, we look more free market or more socialist/government oriented.

Yeah a really encouraging rah rah kind of post...I know.

10 comments:

Radioman KC said...

Very interesting. Thanks for the read.

emawkc said...

The difference between our current recession and the one in the 1920s is that EVERYBODY is waaaay overleveraged. So when you say our economy will be much different, I think what we'll is a shift from a debt/credit-based economy.

Sure, credit will still be a major tool of finance, but everyday Joes will be much more debt averse.

Problem is, the road from where we are (in a gigantic debt hole) to where we're going is going to be very painful (as we're seeing now).

I suspect that it will take the least attractive of the items you listed to get us through this problem: Reduction in services and increased taxes on the rich (and probably everybody else, too). I just wish I had some level of confidence that those who levy the taxes will have the fiscal restraint not to waste it all.

It is not going to be fun.

Bob G. said...

T.O.:
The Walter WIlliams spot (w/ Thomas Sowell) was some fo teh BEST 3 hours of talk radio I;ve heard in a LONG time...excellent discussion.

There;s lots to consider from times past.
-We're off the GOLD standard.
-The FED RESERVE prints too much money
-The feds SPEND too much money
-They don't spend wisely.
-We've lost our edge in manufacturing
-We're losing our edge in information gathering

The whole lower taxes COULD backfire, in that people are getting WARY of spending (which would drive our economy UP)...therein lies the problem.

How to motivate people when the economy sucks...hard one to call.
We'd be spending on IMPORTS instead of nationally-produced items. This would mess with that trade deficite gig.

But higher taxes would be FAR worse and send us into a nice depression...and that could spread globally.
"emawkc" makes some darn good points as well.

It sure makes 'ya think...

Ed G. Mann said...

"... Part of me knows that there are some people out there who are going to need assistance--sometimes I think we just make unemployment contingent on doing some work that needs to be done to maintain the community. We give you a bit of money, you help with road work, or upgrade the computers at DMV or something." [snip]

Let the churches, the local communities and if necessary the counties handle this. It used to be worked in this manner; who else knows the individuals better than their local citizenry as to need, worthiness and the individuals ability to contribute.

Our troubles started with the "big government" can do it better. Instead of the people joining to pull the wagon, most of them climb up on the wagon. Why not, it's free to me, I'll get mine. OPM will pay for it.

Well here we are.

the observer said...

Such interesting comments! I really was writing as only an interested layman--not even a college course in Econ 101. Wonderful to get back some thoughtful comments that add to my knowledge.

@Ed G Mann I struggle with the helping people who need help thing. I know that closer to the people is better, but I also know that the private safety net is not as strong as it should be (shame on us Christian believers--we need to be better "doers of the word") and I am afraid that people will fall through. This is why I sometimes find myself wanting someone to "do something." Thanks for making me think it through!

Everyone, thanks for stopping by and reading, and leaving a word or two.

The Observer

Ann T. said...

Dear The Observer,
I can't believe I missed the first round of comments on this post!

I am with you about the deficit and with many of the above commenters--about trusting the government to put the money on the debt principal.

We are going to have to tax the rich, cut the services, and get the private/charity sector more involved.

What the Feds are best at, on the local level, is breaking backwaters of ignorance or corruption, (some state legislatures are unbelievably silly, some cities unbelievably corrupt)and insisting on minimum standards. They are not very good at figuring out what local standards of conduct, et cetera are, and they need to butt out.

As for spending, I'm seeing more a reorganization. I think people might be shopping somewhat more strategically. It takes a while to save for a big-ticket item, especially when you're starting from Zero. We are on the cusp of a major change, for sure, where jobs are going to be hard to come by--but also the products we are interested in buying are not currently in stores. For example--fuel-efficient or alternate fuel cars.

More in a sec,
Ann T.

Ann T. said...

Dear The Observer,
As to FDR, he was brilliant. But it doesn't follow that we need the FDR we think we had. We need the FDR we REALLY had.

That FDR pushed through rural electrification and other programs that brought our economy into the new era. The War alone wouldn't have brought us to prosperity without the work he authorized in front of it to increase our industrial capacity and SPREAD it across the nation.

What kind of hodgepodge system of electricity, roads, city squares, et cetera would we have without government standardization of current, amount, et cetera? Something like Europe, with a different outlet at every border. How would we have been the world technological standard without his input?

We need not a big government man but an FDR who can see the future might of the U.S. and put the money towards U.S. potential, not its dragging sectors. he hacked people off right and left, and somehow gaily sailed forward anyway, in wheelchair and out.

A rising tide lifts all boats. He created the swell.

Wow, my epic!!
Thanks for provoking me!
Ann T.

Groucho K. Marx said...

Ann T said (among other things):

"A rising tide lifts all boats. He created the swell."

My sentiments exactly- Thank you!

The way things are now- the tide has retreated- leaving many of us exposed.

Lifting the poorest of the poor lifts us ALL...

Thanx T.O.-

Groucho

the observer said...

Ann T:
Thanks for your wonderful, epic comment. I think we are in for a big change, that there is no avoiding. My prayer is that we can do this peacefully, and still leave this country's unique upward mobility mostly intact.

As to FDR, I have no idea what to think. To some he is a villain, to others a hero.

You know what--I think we need a frontier!

The Observer

the observer said...

Groucho--

What a different world we have here now! Could you ever imagine Ruskin Heights looking as it does, with 64134 having the highest foreclosure rate? This means the economy has not zapped the poor the worst--HUD housed people are still in their HUD houses--but the upper lower, the lower middle and the middle middle of economic classes.

It's a whole new world out there...we need to lift each other out during this mess.

Thanks for stopping by.

The Observer