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Political Economy: Cops or Accountants?

April 2nd, 2013
in Op Ed, syndication

Thoughts on Governance: Good Cops, Bad Cops, Economic Euthanasia and Accountancy

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This essay was inspired by reading Joe Firestone's article "A Plague on All Your Budgets".

If you can master the accounting relationships, on which, by the way, all economists agree, it is fairly clear that the U.S. becomes Europe if the National Deficit is reduced below 3% and private sector growth is slowed as the deficit approaches 3%.  If the private sector is basically borrowing 3% of GDP from foreign entities, it must borrow 3% from the Government to repay or shrink .... survive by selling off assets to the foreign holders of our currency.  It is fairly simple.

cop-and-accountant

Follow up:

Good Cops and Bad Cops

So, we have a situation now where the Republicans are in the lead to make disaster happen by taking what they consider to be the Good Cop Role and encouraging the reduction of Federal Government Expenditures and the Democrats are performing the Bad Cop Role by demanding additional extraction of income from the private sector via taxes.

This deadly duo of economy murderers have plans to destroy the U.S. economy as we know it.

Fortunately, the best laid plans of vermin and people oft do not come to pass so Congress and the President will be unsuccessful at destroying the economy.

Both devout Republicans and Democrats will be disappointed but for different reasons.

Failure to destroy the economy is not equivalent to improving the economy. That requires more than incompetence in implementing a plan for euthanasia. It requires:

A. Ways to make our economy more productive

B Ways to reduce income inequality and

C. Ways to utilize resources rather than having them sit idle.

These goals are somewhat in conflict with each other so it is not surprising that our elected officials can't figure it out and they can are not able to sell their constituencies on what needs to be done if they figure it out. So in the end, it is the constituencies that are the cause of the problem since elected officials are pretty much followers of the will of the electorate.

Economic Euthanasia

So a basic question becomes why does the electorate demand "austerity" and hence economic euthanasia during one of the worst recessions ever...a recession that I believe is a full fledged depression?

I understand the emotional attractiveness of the concept. But we have many years of experience with the results of austerity. So that is why I consider the current thinking of both Republicans and Democrats to be:
ECONOMIC EUTHANASIA

Fortunately people want their benefits and don't like paying taxes so the suicidal instincts of the American People are likely to be trumped by their desire to receive, spend, and not be taxed.

It is an interesting process to watch.

Some things are fairly simple but apparently not simple enough for most people to figure out.

Hopefully we will avoid ECONOMIC EUTHANASIA.

Self-Inflicted Disaster

Bad economic times are tough but when self-inflicted they are even harder to take.

It will not be easy to solve our problems, but time is on our side if we do not induce a coma and then apply leeches to deal with a self-inflicted downshift in aggregate demand.

But there is a lot of support for punishing different groups. If all who are believed to deserve to be punished are punished, there would not be much left. The list of those to be punished is very long and includes (I hope I did not leave anyone out...if so I apologize):

  • The wealthy
  • High earners
  • Those on Social Security
  • Those on disability SS or SSDI
  • Those receiving Medicare
  • Those on food stamps
  • Union employees
  • Governmental employees
  • Those in the energy business
  • Medical providers
  • Non-profits
  • Bankers
  • Anyone who owns a gun
  • Those who believe in the right to love whomever they happen to fall in love with
  • Illegal immigrants
  • Women who wish not to get pregnant
  • Any one or any enterprise that receives a government subsidy
  • Any activity that releases greenhouse gases
  • Defense
  • Receivers of government "waste" as if those folks are not consumers.

There are a lot of people that one group or another wishes to be punished. Punishment for the purposes of these comments is defined as actions designed to reduce their income or removing more of it. There is not much economic activity that no one wishes to punish. So if the full punishment program were implemented there would not be much left.

So, perhaps the good cops and the bad cops should leave politics and get replaced by accountants.

Conclusion

So, perhaps the good cops and the bad cops need to better understand the implications of their policies and recognize that what might seem moral and fair may not actually lead to a positive result. Europe may provide some lessons in how austerity works in a less than full employment economy . What works for an individual, a family, a city, or a State may not work for a nation. If the annual flow of funds in the economy is a zero sum game and we are running a trade deficit, we can't have a balanced budget without funding the trade deficit out of the private sector.

What Firestone was describing is not the total picture as there are other reasons (described by Lord Keynes) why a Federal Budget deficit on average is required for a healthy economy. But he has illustrated one very important reason and we ignore that balancing equation at our peril.









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