When it comes to the election, “It’s the economy.”
We want to know what the dickens the president, or his Republican challengers, will do about it.
Republicans frequently hold up Ronald Reagan as an example of a good leader, by nearly all accounts. But his was a different time.
These days, prolonged under-employment and weak demand are greater threats to the economy than inflation.
“Supply side” economics were right during Ronald Reagan's years, because tax cuts increased supplies of goods to meet pent up demand.
Today, however, we have more supplies than demand -- a different situation.
So, cutting taxes is not the cure-all for our economic woes, contrary to what Republicans like to tell us.
Tax cut policies are like trying to cure heart disease with chemotherapy.
The “Baby Boom” generation that drove inflation 30 years ago are now changing their spending habits.
As they near retirement they’re looking to save more than spend. Their families grown, they’re unloading their larger houses and furnishings, spending less on their kids, and looking to increase retirement income. Saving rates are at high levels not seen since the 50s. (That’s one reason interest rates are so low. There’s a growing amount of money to lend, with less desire to borrow.)
In many ways the economic situation today resembles what America faced in the Great Depression of the 1930s.
When historians and economists did the post-mortem on the Great Depression they agreed that the two biggest problems were unemployment and lack of demand for products. The two fed off each other. When people didn't work, they didn’t buy. If they didn’t buy, then business owners had no reason to create jobs.
One of the faults of a totally free market economy is that once it starts upward or downward, it tends to keep going that direction. It resembles cancer that starts in one part of the body and if left untreated can consume the whole body.
In the 1920s-30s, as today, the role of the federal government was greatly debated.
President Herbert Hoover felt it was wrong for the government to intervene in the free market and felt it was wrong to have a government deficit. But when the economy remained stagant through the Hoover years, it was obvious the free market was not going to correct itself in anyone’s lifetime.
The New Deal of Franklin Roosevelt was controversial, because it brought about a government spending deficit and injected public money into the private economy. As the economy began a slow recovery, concern about the deficit caused Washington to tighen the purse strings. The result was a recession.
Employment didn’t reach pre-Crash levels until World War II. But when you think about it WWII, it was the ultimate stimulus program. And every time since, every economic downturn has been met by some sort of government stimulus.
Milton Friedman, one of the fathers of supply side economics, admitted it is necessary for government too incur deficits during war or recession. But once those threats ended, Freidman said the deficit should be paid. The longer a deficit lasts, the more harm it does to the economy, he observed.
These days, both the debt and the deficit seem to be out of control. Many people confuse the two. The debt is the total of what you owe, like when you buy a house or a car. As long as you make your monthly payments you’re okay. But when you come up short on the monthly total, you have a deficit.
When George W. Bush took office, there was no deficit. But the tax cut (stimulus) package of 2002 and two wars brought deficits back. As a result, when the crash of ’08 occurred, necessitating more government action, the deficit grew more.
Today the situation is dire, as just about everyone says. No one can predict when the next economic downturn or international crisis will happen. It could come any day. So, we need to get our financial house in order now.
Some people recommend cuts in unnecessary government spending -- spending that doesn’t benefit them -- to solve the problem. But proceed with caution. Government spending amounts to nearly one-fifth of the entire national economy. A drastic reduction would slow the economy and could cause another recession.
Such actions need to to be coupled with tax increases.
Unfortunately, politician today are more concerned about their political skins and ideology than being responsible. But any politician not willing to consider tax increases is doing a disservice to their constituents.
It's a bitter pill to swallow, but it needs to be done.
-- Reid Rodgers lives in North Platte and studies economics and finance in his spare time. He recently performed on the nationally televised Jeapordy quiz show.