Wednesday, April 13, 2011

An Inconvenient Truth About the Economic Environment - Part II

This post is largely in response to a claim made by a reader, Michael. He is a soon to be fellow Miami University alumnus, who pointed out his perception that politicians (particularly speaker John Boehner) tend to oversimplify their assesments of the economy (See response to Feb 17th post). Michael is a bright guy, has the benefit of the education from an ABSOLUTELY first rate academic institution (Go Hawks!), and no doubt has a bright future as an economist should he choose that path, despite his misguided views in some areas - I mean, heck... Krugman hardly ever knows what he's talking about... and the guy won the Nobel Prize! I kid, I kid, Micheal. I do have to say, however, as a supplemental instructor in his introductory macroeconomics course, I did catch him sleeping on many occasions... this may explain some of the holes in his thought process on the matter - but I will attempt do my best to fill them here. So stay awake, Michael!
I think that the perception about politicians’ tendency to generalize complex problems is a fair one. We live in a day and age in which Speaker Boehner knows if he says something that lasts more than ten seconds, the media is going to pick out just a piece of it that will be aired on the evening news, and that’s all the American people will hear. I’m not faulting the media for that, but it just the way things go. Whether or not that means Boehner is ignorant of the complex economics and gray areas which accompany his statements, I don’t know – but if he were to go into a complex explanation of the components of GDP, what role government spending plays in all of it, and how that may or may not contribute to growth, he would probably find most reporters in the room YouTubing piano playing cats on their I-phones rather than listening to his response.
What I believe the Speaker is bringing light to is the fundamental difference in the fiscal ideas between the political right and left. In the age of sound-byte politics and hyper partisanship, Democrats and Republicans seem to retreat in to the corners and be less likely to admit there is a middle ground in these matters.  I’m sure the Speaker knows this, but at the end of the day, he is a politician, not an economist – and moreover, he’s the voice of the republican house majority, as well as the millions of Americans who put the majority there. When push comes to shove, the American people voted in these Republicans based on two observations : (1) They saw spending dramatically increase under the Obama administration (2) They did not see a dramatic recovery.  Simplistic? Yes. Rash? Maybe. Wrongheaded? No – or at least not if there is any truth to all this crowding out stuff we’ve been talking about, or if it’s true that running yearly deficits can have real effects on the economy. Boehner is a conservative first, a politician second, and economist last – so I’m not necessarily faulting him for his over-simplified claims, especially given he will be in the next crate thrown into the Boston Harbor if the Partiers in congress think for one second he advocates increased federal spending (on anything but defense that is).
Sometimes Washington is a place where great ideas go to die. Good policy instead becomes the policy that works best for your viewpont. I’m not being cynical, just realistic about the way things work. But the decision we have to make is do we really want to always give the benefit of the doubt to the government  that  it  will lead us to prosperity? Or should we leave more money in the hands of firms and individuals and hope that consumption, investment spending, and international trade will grow our economy. There’s not a simple story being told here – there is so much at play that politicians will never heed, and probably don’t care about, but there is a clear divide between what the right and the left believe when it comes to this matter.  Perhaps each side believing that there is no middle ground will in and of itself lead us to that middle ground… either that or shutdown the government. Oh democracy, how beautiful.

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