Towards a More Practical View of Economics

When some people hear the term economic theory, they often act indifferent or roll their eyes. This is because for years, many have equated it with a type of intellectual game playing.

Unfortunately, few modern theories have as much day-to-day impact on people’s lives as economics. Also, since economics is the silent partner of politics, few issues escape its grasp. In fact, when one applies a follow-the-money approach to political topics, they often find that across the spectrum, many issues have their origin in economic theory.

Because economics is misunderstood, it can be hard to discuss beyond the usual clichés. Therefore, when anyone mentions the possibility it can become more practical, many shrug and say, “Here we go again.” This confusion is compounded by how some theorists seem to setup axioms out of premises before all data is collected. As a result, economics is sometimes viewed as a statistical mishmash of competing ideas arranged in an arbitrary fashion.

But is economics really just a game? How can it be just a game when so much of what we do in life revolves around some kind of monetary exchange?

One of the reasons modern economic theory puzzles many is that much of it seems counter-intuitive. The abstract nature of modern economics, just like the abstract nature of modern physics, proves to be a barrier.

For instance, to the average American who’s struggling to pay down debt, the fact that our government can seem to function with a large amount of growing debt appears somewhat illogical. When politicians and economic experts talk about Debt-to-GDP ratios, and favorable levels of debt, many average Americans shrug as if it’s yet another example of political-economic gamesmanship.

In addition, to the average American that looks upon their family as a self-enclosed economic entity, the ever-present concept of globalism seems confusing. To many, the American nation is still the largest economic entity we envision. Therefore, getting used to the whole globe as an economic entity can appear abstract. Yes, most Americans understand globalist trade concepts and the importance of global trade. After all, since the days of Marco Polo and the Silk Road, individuals and countries have enriched themselves through trade. However, that’s not what creates confusion for many.

What puzzles many about globalism is how some American-based multinational corporations pursue loopholes to drastically lower their taxes. On occasion, these companies hint at the fact that such tax practices are a necessary part of globalist trade. Although the American corporate tax rate is high on paper, they often pay much less than what the official rate implies. Unfortunately, the reputation of corporations that pay taxes fairly is damaged by the tax avoidance pursued by some.

Adding to the bewilderment many have with modern economics is the fact that corporations are now viewed as people in legal terms. Therefore, many think that as people, corporations could pay a fair share for the roads, bridges, ports, and airports they use to conduct trade.

Probably the most confusing part of economic theory is how it’s used in the political arena. As is well known, both parties have economic experts and economists at their disposal who polish the rhetoric politicians employ. As most Americans attest to, there’s a tug-of-war between the Republican embrace of the more Free-Market approach of the Supply-Side revolution starting in 1980, and the more socialist Democratic approach of government-based Keynesian ideas used to maintain economic demand. 

In reality, although America has swung between Republican and Democratic directions the past 30 years, the economic dogma espoused by both seems to have resulted in the system that some call Corporatism. In a sense, Corporatism, as reflected in the political talk of Public-Private partnerships, has arisen since implementing the economic views of both parties in total has proven difficult. Therefore, the political-economic theorists that predicted Corporatism are correct to say this system could grow out of modern political rivalries. Although some say Corporatism resembles Socialism insofar as there’s a strong government hand in the economy, it differs by leaving the means of production in private hands.

As for developing a more practical economic view if indeed we’re living in the age of Corporatism, there are many proposals.

First off, since the post-Keynesian economic model has allowed for large amounts of unstable debt to accumulate in many advanced countries, there’s a need for debt limits that are achieved transitionally without imposing high levels of austerity. In line with keeping debt lower, the debt-risk posed by those wanting more finance deregulation needs to be recognized. After all, if another finance crash creates a freezing of liquidity assets similar to what we had in 2008, billions of dollars of outstanding derivatives contracts may trigger the need for another bank bailout. Obviously, another bailout would be added to our nation’s debt again.

Regarding debt reduction, we could actually increase tax revenue from corporations by both cutting their official tax rate, and then closing certain loopholes. This policy could help reduce debt, while also improving the negative public image many have of corporations due to how some pursue tax avoidance.

In addition, since many central banks have been pushing for lower interest rates the past 15 years as a means to stimulate certain areas of the business cycle, there needs to be recognition that we need to slowly allow interest rates to return to historic levels so the natural ebb and flow between saving and spending can be restored. As many economists note, such unnaturally low levels of interest rates, if continued, will make it hard for us to not only stimulate the economy for future growth, it’ll make it hard to stimulate the economy to reduce the chronically high levels of underemployment we now have.

Since chronic underemployment has become an outgrowth of globalism in many advanced countries, it’s apparent that relying on historically low interest rates as the main way to boost employment has led to a situation begging for creative solutions. As many have said, America could deal with its high level of underemployment by borrowing ideas from both right and left of the political-economic spectrum. These ideas include creating infrastructure improvement jobs and streamlining small business regulations to encourage true entrepreneurship. 

And finally, although globalism’s here to stay and has benefits, it’s obvious that although recent trade pacts reinforce large multinational entities, that the most important entity for each nation… remains that nation. Therefore, if politicians can honestly find ways to look out for all aspects of our nation more, America’s economic outlook could improve. 

Hopefully, with more involvement from ordinary citizens, economics will start to lose its reputation as a confusing line of thought, and become more an everyday part of everyone’s lives.

 

 

 

 

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11 thoughts on “Towards a More Practical View of Economics

      1. Perry have you watched any of Russell Brands “trews” you tube videos? Although many topics he brings up can become over the top the bottom line is change from our current political stance in both Europe and the United States. Corrupt government officials and big corporations need to be stopped. Our current path is headed in the wrong direction and until people come together in large numbers and become organized and well educated there can’t be change because our voices are either not being heard or simply ignored because our concerns don’t have a positive impact on the pocket books of the wealthy.

      2. Hey Marcus, great to hear from you!

        Regarding Russell Brand, I’ve seen him + admit he’s provocative. Although intense, I prefer him to someone who never takes a stand.

        As for our current political-economic climate here + in Europe, I understand why you sense something’s wrong. What you feel is echoed by many. As you know, there are frequent complaints that politicians are more spin-oriented than in the past + that they kick the can down the road when it comes to solving problems. After all…with today’s media-savvy world, a politician can become more enamored with posturing on issues as opposed to staking out complex policy analysis.

        Ironically, in today’s highly complex + legalistic world, we have some politicians working harder than ever to present very technical issues in an emotional way so they can sway the voter. Sadly…when the electorate then becomes aware of the “fine print” with many issues, they sometimes find that the emotional approach the politician used was misleading…

        As you allude to with corporations Marcus, you echo what many feel is a problem with a corporatism culture. Namely…that some large corporations have a disproportionate amount of influence. The increase in their power has arose the past 30 years.

        Ironically, since corporations seem to be our most efficient business model, we’re in a position politically where we have to become educated on corporate topics so we can intelligently talk to politicians on both sides to hold them accountable for dealing with issues that result from corporate influence. Too often, anyone who questions corporations can become branded as anti-business since they sometimes ignore the details of the business world.

        Although they’re efficient at producing many things that make modern life convenient, there are problems created by the fact that some corporations are evolving away from having a strong relationship to their nation of origin. Although this evolution away from their nation is understandable from a business standpoint, there needs to be awareness that since corporations are now “people,” that it’d be nice for them to assume the role of model citizens that the rest of us are encouraged to be.

        Interestingly, there are some corporations who are model citizens.

        Finally Marcus, I agree with you about education. In my own small way, I’m trying to get dialogue such as this going about these issues. Thx for the feedback.

  1. Well stated Perry. As you said the math is really pretty simple; income minus expences in a ratio to the whole. But as you said, theories tend to over complicate things by trying to make predictions. And the temptation to tailor those predictions to suit a political agenda is irresistible. Hence the state we’re in . A minimalist at heart I still believe in the comparitive relationship between the micro and the macro. Again, as you said, most people look at economics as it relates to them (micro economics). The People are not wrong to do this and would be right, as you suggest, to be involved in the process, the dynamics of our local, national and global economies. Like you, I too am an optimist. Keep up the great work. TE

    1. Thanx for the feedback Tom!

      Yeah…in the modern political arena, economic ideas are often presented with a nod towards political dogma first, and then the details are sometimes added in later. Being human, we’re all guilty of this somewhat.

      However, since our economic foundation has changed a bit with the times, I try as best I can, to try to look at how economic factors intersect with politics first and foremost. Then I try to look at core economic ideas that have been with mankind for centuries in an attempt to break them down with an eye towards some kind of pragmatic solution. These include ideas such as employment levels, level of debt, level of economic stability, market factors, and so forth.

      In looking ahead, it may be best if we can get more people involved with this dialogue so we can truly solve some of these problems piece by piece. As you allude to, it’d be nice to get many of us to connect micro with macro economics. If this can be done, we can hopefully work together to avoid some of the more dramatic economic issues that arise from time to time.

      1. You are the smartest and most level headed person I have ever met. The planet needs more pragmatism, less drama. Fiscal cliffs, showdowns and last ditch efforts make great story lines but are exhausting and impractical. The planet needs to look long range and think sustainably. -see, how radical I am compared to you?
        Keep up the good work.

  2. Well stated Perry. As you said the math is really pretty simple; income minus expences in a ratio to the whole. But as you said, theories tend to over complicate things by trying to make predictions. And the temptation to tailor those predictions to suit a political agenda is irresistible. Hence the state we’re in . A minimalist at heart I still believe in the comparitive relationship between the micro and the macro. Again, as you said, most people look at economics as it relates to them (micro economics). The People are not wrong to do this and would be right, as you suggest, to be involved in the process, the dynamics of our local, national and global economies. Like you, I too am an optimist. Keep up the great work. TE

    ~

    1. Tom…thx so much for the gracious compliment! I consider you quite intelligent too + really appreciate the feedback. As for drama, I’m not really averse to it. However, I personally prefer for it to be channeled more into sports and the arts. In those areas I’m all for drama since it usually has some form of structure that allows for a healthy emotional release. Also, in those areas the repercussions aren’t as strong as in political drama. And yeah…a certain amount of drama in day to day life is unavoidable + necessary.

      However…we’re now reaching a point historically where rational thought has been so downgraded in the political arena that posturing has taken the place of policy. In my own small way, I’m trying to rekindle a little more rational thought in the political-economic arena since the stakes are so high.

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