GEORGE TEMPLETON
COMMENTARY
By George Templeton
Gazette Columnist
Economics
The New Testament states that the “love of money is the
root of all evil.” George Bernard Shaw claims that “Lack of
money is the root of all evil.”
Collapse
Michael Lewis in his book Boomerang
claims “… when everyone is guilty no one is… It isn’t
a problem with government; it’s a problem with the entire society.”
But what came first, the chicken or the egg?
“A phantom is something that appears to be but has no
real or physical existence. Like an apparition, a shadow, a dream, or a
vision, a phantom is not what it seems to be.” Phantom wealth
caused the Great Depression and the Great Recession. Economists describe
the appearance of this phantom in detail but sometimes it is more propaganda than
science. Will economic policy create prosperity and jobs?
Classical
Classical economics holds that the forces of supply and
demand will solve all problems. Rational man forces free markets to make
the right things, at the right price, the right way, in the right proportions,
for the right people. The dark clouds of recession and creative
destruction have a silver lining because they encourage necessary adaptations
in lifestyle. There can be no government intervention. It is
all up to Adam Smith’s unseen hand to steer the course of national wealth.
Government’s only responsibility is to balance the budget.
Keynes
John Maynard Keynes came to the rescue when classical
economics could neither explain nor solve the Great Depression. He
believed that recessions resulted primarily from investor confidence and
expectations. His theory claimed that the free market could not be
counted on to provide full employment and that it resulted in an
“arbitrary and inequitable distribution of wealth and income”. Keynes,
an avid capitalist, focused on demand and emphasized fiscal policy (spending
and taxes).
Keynes provided the rational for temporary, large scale
government action such as Roosevelt’s public
works program to make jobs. These reversed the Depression and grew the
GDP but a decade later had not completely restored the economy. That required
WWII military-industrial spending, proving that government can make jobs that
don’t go away.
Conservatives don’t believe in stimulus. They
claim that Keynes knew nothing about economics. They look at the speck of
sawdust in their brother’s eye and ignore the plank in their own.
Modern economics is not about a world that used to be. Cutting
government, taxes, and regulations won’t do the trick. Right wing
ideology replaces common sense when it refuses to deal with real, concrete
problems because it would destroy incentives to those winners who don’t
need help.
Friedman
Milton Friedman’s demand side theory is called monetarism.
It focuses on how policies influence the stock of money and the rate at which
it circulates in the economy. Friedman followed a different path
than Keynes but was mostly in agreement with him. He emphasized monetary
policy (money supply, interest rates) and introduced the idea that employment could
be temporarily increased by lowering interest rates, taxes, and increasing the
money supply. Profit increases when prices rise faster than wages.
Kept too long into boom times, this policy leads to simultaneous high inflation
and unemployment called stagflation, forcing the government to choose between
raising interest rates to fight inflation and lowering them to restore growth.
An effective stimulus depends on the dynamic state of the
economy. Debates about delays in getting data, the efficacy of monetary
versus fiscal policy, the types of taxes and their short and long term consequences
are irrelevant when ideological disagreement results in stalemate and inaction.
Supply-Side
No economic theory is complete without consideration of the
forces of both supply and demand. There are thousands of variables that affect
the economy in the complex computer models used by economists.
The supply side “field of dreams” is what every
entrepreneur wants to portray to potential venture capital investors, but we
must remember it is high risk and slow acting. It took 35 years for Apple
to grow to a company with one million employees in China.
Republiconomy
Supply side magic is based on the idea that economic
performance depends almost totally on tax cuts provided to wealthy investors
and entrepreneurs who can afford to make contributions. The tremendous
growth of the business lobby and super packs is because of their “no
taxes” ideology. Republicans have incorporated big business political
power into government, outsourcing legislative tasks (immigrant detention
prisons, and gun legislation) to them. The price paid by lobbyists is to
support party dogma.
If the Clinton
budget surplus was a tax surplus caused by over-charging the public, then a
budget deficit must be a tax deficit. David Stockman and Alan Greenspan
saw how tax cuts lead to budget deficits and that economic growth does not pay
for the cuts. When times are uncertain the public saves instead of
spending their tax refund.
Politicians announce tax cuts and implement sneaky tax
increases such as Governor Brewer’s leap in the tax rate for second
homes. Higher taxes on the wealthy existed during extended periods of
American growth. Few predicted the economic expansion following the Great
Depression when the top marginal tax rate was 79 to 94%. Under Eisenhower
the rate was 91% and 77% when Nixon became president. Will Bunch’s
book Tear Down This Myth
documents how a pragmatic Reagan cut taxes when he came into office but had to
raise them in 1982, 1983, and 1984 to control the deficit. His 1986 Tax
Reform Act cut the top tax rate but raised corporate tax and abolished
preferential treatment for income from capital gains and investments. The
internet boom came after Clinton’s
90’s increase.
We suspect that taxes are not the strong variable that
Republicans claim it is, or that they are not independent of interactions with
other variables.
Democonomy
The Democratic demand-side economics holds that economic
performance depends almost totally on the purchasing power of the masses.
The demand for services can be increased by a reverse income tax where the
government gives money to citizens to make certain that they can afford to
spend. This is the economics practiced when Bush gave us a tax refund.
Class war is any policy that impacts groups differently.
The “No Amnesty” battle prevents integrating twelve million
immigrants into the economy and hurts us. The claim that democracy can
only be preserved by preventing wealth redistribution reveals jealousy and a
distrust of majority rule. Wealth redistribution exists whenever a
creditor makes a loan. If inflation rises above the interest rate of the
loan, the debtor wins and if it is less the creditor wins.
Common Sense
Civilizations have to adapt to changing circumstances.
Job opportunities must address:
(1)
Behaviors that are not sustainable
and the belief that the distant future will resemble the past
It’s not out of control spending. It’s out
of control trade-deficit that kills jobs and magnifies the national debt.
We have to make things in America
and sell to other nations. When we borrow to support a life-style we
can’t afford, buying from other nations instead of selling to them, we
are feeding the phantom and gradually draining our wealth away. Climate
change and world growth guarantee jobs implementing renewable energy
efficiency. Denial is a failing strategy.
(2)
A world of growing complexity, and
interdependence
Robert Shiller’s book The New Financial Order lays the
foundation for risk avoidance using computer data mining, psychology, and mathematics
to create financial instruments such as futures, options, and swaps. Who
understands the tax code, variable annuities, investments, and health care?
Many Americans need help to plan for retirement. Government can nurture
private financial planners. Health care can shift from disease management
to prevention, requiring nurses, technicians, counselors, and the gym.In the old days, modernization meant giving up neighborhood,
family, and friends for the job. In a world flattened by global business,
jet airplanes and the internet, we give up country and culture as well.
Foreign language skills and higher education are necessary for the jobs of the
future. Forget about “made in America”. Today’s
manufacturing problems are all international incidents. Interdependence
includes the benefits of cheap Chinese imports and the severe erosion of the
American economy caused by outsourcing of high-technology well paying manufacturing
jobs. Cheap goods will not make your mortgage payment.
(3) A short-term outlook that precludes investment in
the future
Young companies, not small ones create jobs. TV, the
transistor, and home computer have shown how government and big business
enables small business to change the life-styles of everyone and grow jobs.
National policy for competitiveness should promote venture capital and
technology such as the computing cloud and high-speed internet to better market
American products to the world.
Conservative policy is about corporate profit creation, not
job creation. Regulations are about workers and the community, not just
business and finance. Disease, water, and air pollution know no
boundaries. Political and financial fads leading to lasting damage are
not the lifestyle changes we seek.
Government can help by taking steps to gradually reduce the
trade deficit with caps and tariffs. Corporate tax breaks have proven
ineffective in keeping American jobs and growing exports. Now is the time
to simplify the tax code and to adjust subsidies to focus on bio-tech and the
new creation. The time to repair our broken infrastructure, repair
bridges and roads, and build high speed rail, is now, while things are cheap
and labor is plentiful.
Family Values
Liberals question the feasibility of continuous growth in consumption
at the expense of quality of life. Do you agree with economists who hold
that the gross national product is a proxy for happiness? Our general
welfare does not always mesh with business interests and cheap goods from China.
What companies want and countries need are different. Profit should not
be the only goal. Universal maternity leave, early education, and child
care are examples of family values.
Because of Tea-Party obstruction, President Obama’s
record represents only 2 years following 30 years of dominant conservative
policies. (Alan Greenspan’s book The
Age of Turbulence claims that Clinton
was a fiscal conservative.) Their accomplishments left us with economic
discontent, unemployment, torture claimed moral and patriotic, and a Jesus who
with the help of the Cornwall Alliance condemns the ASU Global Institute of
Sustainability for doing more than picking up beer cans and trash.
Responsibilities
Taxes are not an erosion of freedom. They come
from a sense of responsibility and a desire to preserve domestic tranquility.
Shiller says to ask “… What kind of world would we like to live in
if we could choose before we were born, assuming we had an equal probability of
being born as anyone?"
