Tag Archives: politics

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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A Paradox of the American Economy

A telling point of America’s economy is that the amount of stakeholders in our national debt is maybe higher than ever. Obviously, the recent Bank and Auto Bailouts, in addition to an increase in healthcare subsidies to occur, underscore this. When this combines with a large Defense budget, farm and other business subsidies, plus low corporate taxes due to loopholes, it’s obvious many have a vested interest in our debt. In addition, if more economic areas are added as stakeholders in the future, this heightens the dilemma.

America’s total debt, and the fact it’s basically doubled in ten years, is no abstraction. The stress created by it negatively affects our critical finance and government services. In addition, America’s undermined by a lack of accountability major debt stakeholders sometimes perpetuate. The serious nature of our economic situation is shown by the record low interest rates we’ve had several years. Although low interest rates hurt savers, rates are kept low to stimulate a weak economy, and make our QE Policy of buying back our own debt cheaper.

Ironically, our total debt situation is so severe some politicians now look to cutting Social Security as an answer. The odd part about this is that our nation’s popular social insurance retirement program is mostly solvent—and fixable.

America’s debt dynamic compounds a web of political-economic intrigue. As many warn, America may face another finance meltdown due to the high amount of risk the finance sector still takes on. Tellingly, many prudent voices are speaking up, saying that finance regulation erected after the crash of 2008 doesn’t really address lowering economic risk and increasing solvency. If another downturn occurs soon, the government may find it harder to restart our economy.

Although our current situation, with a high debt to GDP ratio, seems similar to post-WWII America, there are major differences between now and then. These differences highlight that it’ll be harder to achieve the economic security we had then. 

This is because in the late 1940s, fewer areas of the economy had a stake in the continuance of high debt. Compounding this is how US tax policy, through the evolution of corporate and individual tax loopholes, has reduced taxes. The high taxes we had after WWII reduced our debt.

As is well known, modern politicians realize that high taxes are radically unpopular.

Due to the evolution of our political dynamic, America may have recently entered a kind of economic no-man’s land where left and right mostly blame each other for destabilizing debt. In reality both sides are at fault. Over time, the search for rational tax policies that align with a rationally sized government has almost been given up on. In line with this, the popularization of a political media that borders at times on entertainment has made most rational economic talk unpopular.

It’s no coincidence that the subsidization of large business and increase in debt has coincided with the media explosion that occurred after the repeal of The Fairness Doctrine in 1987. In this take no prisoners media environment, an Us vs. Them mindset leads to ratings duels that result in timeworn political-economic clichés being repeated endlessly.

As many claim, the incessant use of these clichés often fails to address many current economic variables.

Although not admitted easily, many politicians now favor policies in the short term that either add to America’s total debt, or don’t do much to lower it long-term. An exception to this was the relatively modest cuts set in place by the Sequester.

Unfortunately, the economic paradox America now faces is that making budget cuts at this particular time may not really help our fiscal problems long-term. This is because politicians have become adept at adding to America’s total debt even while they make specific cuts at certain times.

Perhaps the biggest economic problem that America now faces is philosophical. If we continue to directly and indirectly subsidize many areas of the business economy as we have, it’ll be hard to create a stable America with a lower debt to GDP ratio. Although economic areas such as healthcare and defense are more vital than others, Americans need to realize that subsidizing and assisting many non-essential businesses is taking a toll.

In line with this, if a viable retirement program like Social Security is at future risk because politicians are afraid to make the tweaks needed to fix it long-term, it shows we may indeed be entering a kind of economic no-man’s land. In this new era, it seems that many politicians are starting to work more for themselves and the industries they favor, and less for the average Americans they represent.