Wednesday, June 23, 2010

Recovery or Doubledip?

      If a water pipe bursts inside your house, whom do you call, your plumber or your pastor? As ridiculous as this question sounds, it is a metaphor for the problem facing President Obama at this time. I am afraid he is going to call the pastor.
      We are in the midst of a partial recovery from a reasonably deep recession, and the question for him is from whom to get advice - economists or ideologues. Should he seek advice from men who have devoted a lifetime to studying economics, or from conservative Democrats, Republicans, Tea Partiers and others who got us into this position during the reign of King George (2001-2009)? Should he trust the guidance of pilots who know the waters, or should he let the ones who steered us unto a sandbar take a second run at the beach?
      In 1929 the economy was bustling along, and the Gross domestic Product value was at an all time high of $103.6 billion. Then the depression hit, and by 1933 GDP had sunk to $56B.
      At that point the New Deal took hold, and the government began spending money on job creation projects: highways, dams, conservation, construction, etc. By 1937 the GDP had climbed back to $102B, and FDR decided it was time to submit a balanced budget. Expenditures were cut back, and over the next 13 months the GDP dropped back to $87B – a decline of 15%. Spending for lend lease and military supplies started at that time; the GDP took off and never looked back.
      From 1942 through 1945 the biggest deficits in the history of the country, ranging from 12% to 28%, were accumulated. How could we ever hope to recover from this period?
      The answer: prosperity. Johnny came marching home to shortages, which led to mass employment. The standard of living rose drastically over the next 35 years.
      In 1981 Ronald Reagan introduced his “trickle down” theory. The years from 1982 through 1985 ran deficits in the top 20 of all time. The reason: tax cuts for his friends, the rich. The only way enough money trickled down to support the working family was if both parents held jobs.
      I do not mean to suggest that indiscriminate government spending automatically leads to prosperity. On the contrary, imagine a president who was handed a budget surplus; by fighting two wars and cutting taxes for his high income friends he could probably change it into the greatest government debt of all time. Oh, wait a minute, that already happened!
      Here is a good rule of thumb for presidents: judicious spending, e.g., highways, technology, education, etc., during a downturn, and judicious cost cutting during good times, lead to a stable, prosperous economy by stimulating jobs, jobs, jobs.
      One more thing: tax cuts have limited job creation value. If I do not have a job, why should I care if the tax rate is zero?
      Rush, Sarah, Sean, Glen, why is that so hard to understand? Let us hope that the President understands it.
      From beliefs such as these, it is an easy step to the conviction that certain persons are permanently possessed by a deity, or in some way are able to exercise supernatural power to the extent that they deserve some degree of homage and sacrifice. Sometimes they also have extreme political power, in which case they are kings or queens as well as gods.
      Man Takes Control – The Spirit Runs Through It.

      The book or a free download is available in paperback or on Kindle.

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