Challenge of Polarization
Conventional wisdom - Politicians can do nothing about the economy
For most of the 20th. Century, politicians operated under a consistent political creed that held that the government could do nothing about the economy. Why had this creed developed? Because in the early 20th. Century, politicians used the economy as a political weapon. They misused what power they had. Finally they realized it was better for everyone to let the economy do what it does. Only the Fed had the power to dance in the economy.
President Reagan changed things with his emphasis on Supply Side Economics. Whether it was Supply Side Economics, or just a general golden period of the economy, that made people feel like it was working, we really don't know. The 1990s were a period of great economic expansion. But then pressure intensified on politicians during the Dot.com bust to do something... anything... to get the economy back on track.
Politicians can't resist going off the deep end when they think something works. Early in the 20th. Century, Keynesian economics transformed the economic situation for people's and countries. Twenty-four percent unemployment changed to close to full employment in both Europe and the United States. Heady with power from this new tool, politicians promised more financial gain.
Heady with the new tool of Supply Side Economics, politicians continue to promise more financial gain.
Politicians line up with the economic theory that supports their party. Democrats, the people's party, tend to favor Keynesian economics, if they make a choice at all. Republicans, the "business and wealth" party, tend to favor Supply Side Economics, which favors corporations and the wealthy.
Current economists, even those from the Chicago School which promoted Supply Side Economics, universally don't believe that the nations and world's economies can be reduced to such simplistic formulas. The economy is much more complicated.
While Democrats suffer from a general lack of consensus, because they generally lack a unifying vision and direction, Republicans suffer from a unity that paralyzes political action. Republicans have to hold together a unique blend of neo-conservatives (new conservatives), social conservatives (political or religious moral affiliations), and Tea Party conservatives. Keeping a united front causes Republicans to be very inflexible. As some have expressed, "It's my way or the highway." If they don't hold this coalition together, they will likely lose political power and the next election. So Republicans are in a tight spot. If they vote with the Democrats or the President, their own party will kill them. They march in unison despite individual thoughts.
The Democrats initially saw Social Security as a panacea. Republicans saw it as a curse. Today's retired see it as a necessity. It's all three - but that doesn't matter. The fact is, Social Security is funded by the people who pay into it, and not one penny is funded by "the government." The Republicans have fought every year to change it - they don't like government involvement in it - many in that party want to kill it. But today it is one of the programs that is "on the chopping block" because of it's expense, and the need to keep it solvent into 2030.
Congress faces the need to keep Social Security solvent every decade. The population ages, has greater longevity, so the needs change. By around 2030, the population is likely to stop growing, and there will be equal numbers of people of all ages in the population - every age group equally represented. Whatever funding formula is worked out to keep Social Security solvent to 2030, will likely continue to work.
Government regulation of Social Security, to agree with the Republicans who see it as a curse, has been insane. People pay their hard earned money into the Social Security system. The government borrows all of the money, free of any charge, and then complains because it is difficult to pay back. Some would rather cut the benefit than pay the money back. The answer to Social Security solvency is very easy. Quit allowing the government to use it for free. Instead, let the government loan it out in State bond issues, and other safe loans, which pay back good interest. The program funds itself, and maybe even part of Medicare and Medicaid. Quit letting politicians misuse the money, robbing us of our savings.
Wars and balanced budgets
President Bush elected to fund the war with Iraq "outside of the regular US budget." Essentially that meant it was funded by the national debt. Some think the answer is a "Balanced Budget Amendment." Congress and the President have typically been formulating "balanced budget" initiatives as all or nothing approaches to national finance. Either Congress has no spending restraint, or it gets locked into the imperative that the budget has to be balanced regardless of what has to be cut. Such balanced budget endeavors always get voted down - Congress is not going to be led into the trap of having to make cuts to programs that might lead to their being voted out - not that some programs should ever be cut. They will always borrow... and then place the President in the position of having to recommend cuts... which they will call out politically, and then refuse so they can get reelected.
Revenue rises and falls. You really can't require the Federal Government to not fund things that would hurt the economy, during the down times. The primary thing that Congress should pass as legislation, is the requirement that they fund any legislation that they pass into law. This is what they "currently" are doing so that they come off as "responsible" during this economic downturn. But they should never be given a blank check again. They have proven time and time again that they are not responsible and cannot be trusted. They buy votes with their legislation and then have to raise the debt to pay it.
Is it any wonder that Congressional approval rating stays in the teens?
Business and jobs
"The business of business is business." It is an old, trite saying, but very true. It is not the role of business to create jobs. Business creates jobs if it sees a market it can reasonably exploit to make money. Business doesn't create jobs if there is no market for its products and services. It doesn't get any simpler than that.
The delusion that business is going to create jobs because that's the way Supply Side Economics works, is just that, a delusion. Business became much more conservative in 2001 after the dot.com crisis. Being foolish with investment money came to an end. Being conservative with investment money - looking for certain return, became the norm. Today investors are much more interested in getting greater efficiencies from their companies, than in any other form of economic growth. The other place they look for financial return is in the financial markets. Companies and investors are simply holding on to their money by investing it in other businesses.
Republicans don't have a different answer than, "Give the money to business so they can create jobs." What a joke. Republicans and business are crying about corporate taxes (which I'm actually against) and regulation, tongue in cheek, and laughing all the way to the bank. Despite past tax breaks, a past good economy, and much less regulation, the business record on this has been clear since 2001 - minimal job growth.
The 30 year economic downturn
The economy improved some under Ronald Reagan as President, but that's not the entire story. For the last thirty years a major transformation has been occurring in our country. Individual savings rates dropped to zero. Borrowing rates went up to an average of $7000.00 individual credit card debt. The price of a college education and medical care have grown at an unrestrained double-digit rate. True earning rates have fallen. Business trims itself continuously of high paid positions and brings in either machines or less expensive labor - competition and investors demand it. The result of this financial situation is that there has been a transfer of wealth from the poor and middle class to the wealthy class (investors). (There is nothing wrong with wealth.) It is a systemic problem.
The result of this systemic problem is that each year people have less money to spend. They can't afford college, can't afford health care, can't afford their homes, and they have so little job security and opportunity that the future looks bleak. But important to the overall economy is the fact that people don't have any money to spend. This means for business that if they try to expand, their products won't be purchased at high enough rates to be profitable. The only realistic thing for business to do is hold onto its money.
We are at the point now, to the giddy delight of those who hate government, the point that essential jobs and services are being cut, which further takes away from the money those service providers have to spend back into the economy, so deflating job numbers. Education is being cut drastically. Money is taken from the poor and the sick... and maybe even the elderly - people that "moralist" conservatives typically say we must assist. We are cutting our own throat by cutting education, and preying financially on the weak and vulnerable - not something worthy of respect by any other nation. And because of our borrowing, our national creditworthiness is in question.
From this perspective, it is easy to understand why business is not creating jobs. There is no market for their products. No one has any money to buy them. Markets are growing very slowly, and it doesn't take added jobs to keep up. And few investors will risk putting money into a new product right now - the risk of market failure is too great.
Where is the answer?
The wrong answers won't work. If you think the answer to the economy is just shoveling money to business, it hasn't worked in a decade and still isn't. If you think spending a lot more money to stimulate the economy is the answer - that also has led to disappointment. There isn't enough money in the world for the government to pay everyone's salaries. These half-baked ideas, while they have some merit, they aren't answers.
The economy requires balance. People must have money to spend. If people have money, companies will go after it with products, which eventually creates jobs. To get more money, people have to have jobs. The government can help by targeting the areas most likely for job growth, and assisting them.
The public has asked incessantly for the Congress to focus on creating jobs. They focus on rhetoric and political posturing - the next election. Is it any wonder that Congressional public approval ratings are in the teens. Congress needs to focus on things that create new jobs or expand existing markets. Companies and investors already have money to put into these new and expanded markets. The economy needs focus on developing markets.
The next 30 years
If you think today's economic problems are bad, if Congress doesn't get its act together it is going to get very, very bad.
We are facing a perfect storm of problems:
1) Rapidly increasing world-wide competition is going to accelerate the race to the bottom for wages and prices. If you think people have little money now, just wait.
2) The transfer of wealth from poor and middle income to the wealthy is going to continue sucking the life out of the economy and people's lives until we get investments under control. The financial markets, which add nothing of any kind directly to the economy, are simply places for our money to go and make others rich. You can consider the financial markets a tax, and a big one. We have to move away from people making money on money, and get back to investing in companies and our future.
Investment is actually essential to the economy. It funds growth. Without investment, growth is very slow. But what is happening is money goes from the public into investor's hands. In their hands, it goes into speculation on futures markets, and into stock. Regular stock investment during times of market expansion funds the expansion. But during other times, the investment simply raises the price of the stock. Many investors competing for stock pushes the price up even further. And then, investment gains, instead of being reinvested into something that creates jobs, goes back into speculation and investment, where it sits and pushes futures and stock prices ever upward, sometimes creating bubbles. It also allows companies to buy each other, and eliminate even more jobs. This is extremely unhealthy for our economy. We would be wise to create a Constitutional restriction on types of investment.
3) When the population begins to stabilize (no growth) during the next 20 years, market activity will also change. This has already happened in Europe, and their prices have gone up. Prices will increase even worse when companies can't get greater efficiencies or new markets. If the public is already tapped out financially, they won't be able to afford company's products and services. Jobs will decrease. Government revenue will decrease. The standard of living in this country will decrease.
If each of these three things continue in the direction they are going, investors will have all of the money and own all of the property. Prices will skyrocket. People will not have jobs and will not be able to afford rents, products, services, or food. Investor's holdings will become worthless. Government revenue will not support the basic functions of society. We will become like third-world countries.
It is not Congress's job to stonewall and get re-elected. It is their job to solve problems or get thrown out. As an independent voter, I, for one, have had it with Congressional nonsense. I have never been angrier at Congress, and this has been brewing for 50 years.
Politicians represent the people, and divisions we see among politicians represents the divisions among the people who sent them there. It has been this way since the beginning. It is not easy in a representational system for people to find answers. President Lincoln recognized that, "You can please some of the people all of the time, you can please all of the people some of the time, but you can’t please all of the people all of the time." What those who have been asked to represent us are asked to do is find answers that work. What they do is find answers for getting reelected by reckless spending, avoiding responsibility, and refusing to cooperate. If they can't even find answers to prevent calamities, but instead stand in the way of finding answers, then they have no value. If Congress stonewalls its way through August 2, 2011 without coming to a good agreement that goes far in resolving our economic problems, but instead creates economic harm to our citizens, then we need to find a better way soon.
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