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THE VIEW FROM HERE - Because both the GOP and DEM know they gain voters by feeding more red meat to its core, they insist on phrasing economic policy for their extremists. While Trump is more flamboyant than Harris, both parties propose economic policies which are absurd. Educating voters about all the absurd economic nonsense would require decades. There are, however, a few memes which the public should realize are dead wrong.
Meme #1: the Government Should Be Run like a Business
There are two types of economics: micro-economics and macro-economics. Businesses and households thrive or dive according to micro-economics, but the government’s policy is different. Because the government operates according to macro-economics its goals are NOT to balance the budget or to make a profit. Since the public is clueless about macro-economics, almost everyone falls for sheer nonsense.
Meme #2: Each Year, the Government Should Have a Balanced Budget
Yikes! This idea is nonsense; it transgresses basic government macro-economic policy which often requires a deficit. The considerations when to have a deficit are complicated and comprise the major portion of macro-economics. One cannot explain it while standing on one foot, but voters want simplistic answers even if they are one thousand percent wrong.
Meme #3: Economic Policy Acts Instantaneously
With virtually no exceptions, economic policies operate slowly. Thus, the state of the economy when a President takes office has nothing to do with his proposed economic policies. Other times, the state of the economy is beyond the control of the President. Inflation was low when Trump left office, but the forces of inflation had been set in motion. Due to covid and so many people suffering financially, the government had to dump billions of dollars into the government to avoid an economic meltdown. Due to supply chain problems, consumers could not buy a lot. The Trump tax cuts for businesses, however, were the wrong policy at for the times since businesses did not use their tax cuts to increase production, but to bolster their profit margin by buying back their own stock. As a result, businesses had not prepared for when people went back to work and were earning money so that consumers have more money to spend. Had Trump followed a different policy which only rewarded businesses for expanding production and penalized self-aggrandizements like higher salaries for management, there would have been no inflation under Biden.
Meme #4: Monetary Policy Can Replace Fiscal Policy
This area of economics is so confused that it may never be unraveled. Monetary policy is not under the control of the President. The independent Federal Reserve Bank (The Fed) sets money policy, e.g. interest rates. The more the Fed charges large banks to rent money from it, the more they will in turn charge others to rent their money. As long as one pays the rent on the money, they can keep it, but if a homeowner stops paying the rent (interest) on the borrowed funds, then the lender wants the money back. That is what happens when the bank forecloses on a house. The lending bank says: “You own us $1,000 per month to rent the money to buy you house. Since you cannot pay interest (i.e. the rent on the money), we will take your house and sell it and repay ourselves from the sale proceeds. (Mortgage payments are part interest and part repayment the principle sum which was borrowed.) The higher the Fed raises interest rates, the higher the rent (interest) for businesses and home buyers. (BTW, high housing prices are not a supply and demand problem, but due to massive decades long Wall Street frauds.)
It would be nice to explain the folly of relying too heaving on the Fed to regulate the economy, but a 500-page treatise would be too short. Suffice to say, if we had a centrist government, sane fiscal policy would prevail, and the Fed would not be forced to attempt to save the entire economy.
Meme #5: We are a Capitalist Country
Adam Smith published Wealth of Nations in 1776. The political philosophy of the time expressed in the Declaration of Independence was compatible with Adam Smith. Adam Smith used an unfortunate term, The Invisible Hand, as core to a free marketplace and a free society. Far, far too many people misunderstood the invisible hand to be God who operated in mysterious ways. Thus, the government should never interfere in private businesses. Adam Smith’s invisible hand did not mean God. He meant that billions of daily decisions to pay or sell products or services set the fair market value of everything – all other things being equal. But wait it is more complicated.
Meme #6: We Use Keynesian Economics
Between 1936 and 2000, one could describe our economy as Keynesian, but after the repeal of the Glass-Steagall Act in 1999 and the promotion of Credit Default Swaps (CDSs) in 2000, a better name for our economy is Corruptionism.
Adam Smith’s Capitalism had an unanticipated flaw – due to human nature, a capitalist economy has Boom and Bust Business Cycles. When times are good for producers, they believe the good times will continue. Their exuberant myopia believes that the god times will never end. It’s as if when you mark you kid’s height on the kitchen wall each year, you then conclude that by the time he is 20, he will be 9 feet tall. Consumer demand has its limits and the fact that demand grew by 10% in the prior year does not mean it will grow by 10% the next year. Yet, many businesses will borrow money and hire more employees as if demand will grow by 20%. When consumer demand only increases by 1%, businesses panic, fire employees, and slash their own orders, which then touches off the Bust cycle.
In 1936 John Maynard Keynes published his General Theory of Employment, Interest and Money, explaining how the government can modulate the boom - bust business cycle. After WW II, the centrist federal government was more or less followed the Keynesian path. Key to stopping the boom cycle was the Glass Steagall Act of 1932 which prevented Wall Street investment firms from owing banks were the Average Joe deposited his money. Under Glass Steagall, Wall Street investment firms had to raise money by convincing wealthy people and institutions to allow the firm to invest their money in various enterprises. Without Glass-Steagall, Wall Street investment firms bought banks with billions of deposits’ money, they did not need to convince any institutions that they would prudently invest the money. The investment firms just used the billions in bank deposits.
Without Glass Steagall, there was no third-party oversight how the money was spent. Thus, Wall Street Firms concocted numerous fraudulent scams since cheating tended to bring in more profits. Thus, we had the Crash of 2008 due to the massive Subprime Frauds.
Because we no longer have the safeguards of a Keynesian System, the crooks rule, inventing more scams and frauds than we can count. That is why the cash of average Americans constantly flows upward to the 1%. The fact, which neither political party will admit, is that both are owned lock, stock, and barrel by Wall Street. The public will embrace heart and soul nonsensical political memes in the same way that they once believed that the sun revolves the earth.
(Richard Lee Abrams has been an attorney, a Realtor and community relations consultant as well as a CityWatch contributor. You may email him at [email protected].)
