Saturday, January 24, 2015

Jobs and the Economy

The older I get, the more trouble I have in choosing between opposing arguments. I do not think it is because of my advancing age, although that could be a factor in the decision. No, it is because I can see the merit in both sides.
But there is one ongoing divisive disagreement in which I have no trouble deciding – both sides are right! I am thinking of the Republican argument to cut almost all government spending, with the major exception of defense, vs. the Democratic mantra of spending without limit. They are both right, with certain caveats.
But how can such opposite beliefs both be right? Let me explain. The problem is that both parties believe that their propositions are right at all times and in all situations. They are not; there is a proper time to apply each of their beliefs.
According to the Preamble to the Constitution, one of the jobs of the federal government is to promote the general welfare, and one does not need a great leap of imagination to realize that one of the requirements for the general welfare is a stable economy. Most people prefer to swim in a calm lake rather than in high surf. An economy exhibiting glorious periods of prosperity followed by crashing depressions is not conducive to promoting the general welfare, any more than the peaks and troughs of high surf lead to a refreshing afternoon dip.
Since the Reagan presidency the U.S. economy has been running on the theory that if those at the top of the economic ladder do well, the benefits will “trickle down” to those at the bottom. Through the efforts of those at the top, jobs will be provided for the middle and lower classes.
I like to compare this system to feeding oats to a horse, knowing that some will pass through undigested so that the sparrows on the ground can enjoy the benefits of what has trickled down. In the past this theory may have had some merit, because those in the top echelon realized that their continued well-being was dependent upon the physical efforts of their employees.
But that is no longer true. With the rise of the major third world countries, China, India, Mexico et al, cheap labor made it advantageous to export jobs to those areas. In addition, computerization and robotics made it possible to increase efficiency to the point where a growing work force found that fewer jobs were available, especially to those with only a high school education.
This created a new problem: Less jobs translated into less customers. In order to stimulate buying, it became necessary for the interest rate to be lowered. For a time, the economy boomed! Unfortunately, people began taking advantage of the low rates and easy credit to buy houses and cars they could not afford, and when they were unable to meet their obligations, a severe recession followed.
In 2009 the government initiated a stimulus package. By issuing money to provide jobs, the recession avoided sinking into a full depression, and since then the economy has managed a slow but steady recovery. The consensus among economists is that the stimulus helped limit the damage from the financial crisis, but it was too small and faded away far too fast.
During the same period the European countries, led by Germany, initiated a severe austerity program, cutting costs and raising taxes in order to prevent runaway inflation. And prevent it they did; this past December the inflation rate in Europe actually became negative, and the economy is going down and down.
“Wait a minute,” said the naysayers. “If you start issuing money, inflation is sure to follow.”
But it didn’t happen. Since 2010 the annual U.S. inflation rate has averaged 2.0%.
For those with an open mind, there is a lesson to be learned here: During periods of prosperity, cut your costs and save your money for the periods of hard times which are surely coming. Conversely, during recessions spend the accumulated capital to stimulate the economy.
 Democrats – when times are good, do not give away the store. Follow the lead of your Republican friends, cut spending, and save some capital for the low periods which are sure to follow. Republicans – during periods of recession listen to the Democrats. Authorize expenditures for infrastructure, education and other programs which will create jobs and benefit the upcoming prosperity.
But wait a minute; it is part of the conservative mantra that the government cannot create jobs. This will come as a surprise to the 21+ million people on the government payroll at the federal, state and local levels. In addition, certain government functions are contracted out, and while those people are not included in the above total, government is certainly responsible for providing a situation (not a job) whereby they can earn a living.
Let me submit a graphical representation of what I am proposing. The economy’s ups and downs can be represented by a wave, as can government spending. Without going into the mathematics, the situation in which the government increases expenditures during recessions, and decreases them during prosperous times can be pictured as shown. Of course the timing of the spending would not follow the economy as closely as depicted in the graph, nor would the amount of the expenditures fully offset the peaks and troughs in full, but it could be adjusted to mitigate the extremes.

So you see why I say that the arguments of both parties are correct in certain situations. Whether or not you agree, the mindset that closes out any possibility that the other party’s argument is wholly wrong absolutely needs to be adjusted if the general welfare is ever going to be promoted successfully.


My books, “There Are Only Seven Jokes” and “The Spirit Runs Through It” are available in paperback or Kindle at Amazon.