Wednesday, February 17, 2016

The Importance of Understanding Economics

   Like most of you, my life has been influenced and impacted by the economy, both adversely and beneficially. However, truth be told, I possess only a rudimentary understanding of how it functions.

     I’m aware that economic policies and strategies are used by the Federal Reserve Board, the President and Congress, and our Governor and Legislature with the intent of causing certain desired outcomes. These include monetary policy, job creation, trade agreements, taxation, tax credits, budgets, regulations, and much more.

   I’m aware as well that the free market, with all its vagaries, with its legions of different producers making calculated risks and risky gambles coupled with a vast array of consumers and customers satisfying their multiple of needs and wants, is very much like the weather—open to forecast or educated guesses, but always prone to being unpredictable. Hence we have the two-handed economist, starting every prediction with the words “on one hand” and then qualifying it with “on the other hand.”

    I’ve been around long enough to know that there are overarching philosophies (also known as economic systems) that inform these decisions and policies and are used to categorize the overall activity. They serve as explanations, justifications, and guiding stars for what’s happening. In past centuries as well as more recent times, we’ve had a variety of theories and carefully constructed models. Some evolved as a response to necessities and needs or to fix a problem, others sprung up as an reaction against the prevailing doctrine that was seen as wrong-headed, and a few were intended to force the unbelieving or unimpressed into accepting the creed… or else.

     Among these (in no special order or implied importance) have been the Mercantilism of the British Empire, Adam Smith’s Wealth of Nations that helped launched Capitalism, Karl Marx’s reaction to Capitalism and to the Industrial Revolution with his writings, the safety-net agendas of the Socialist parties in the Western European democracies, and the Communist theory as practiced in the one-party dictatorships of the Soviet Union and mainland China.

     Here in the United States we started out with our own form of Mercantilism with the National Bank, protective tariffs, and government works projects like the Erie Canal being examples of that sort of philosophy.

    We morphed into a laissez faire Capitalism during the mid-and-late 1800s that went hand-in-glove with the Industrial Revolution. This private-market approach, designed to encourage competition, created an economic juggernaut, but eventually resulted in the excesses of the Gilded Age with its proliferation of trusts and monopolies and constant cycle of booms, busts, and panics.

     Governmental reforms and regulations (economic, political and social) were instituted during the Progressive Era that lasted from the early 1900s up to World War I, designed to temper these excesses and as a reaction to the excessive accumulation of wealth and political power by a handful of wealthy industrialists. Additional reforms and regulations as well as government initiatives occurred during the Great Depression, designed both to pull the nation out of this pit and to prevent the catastrophe from happening again. Certain causes have been judged as responsible, although like any such judgment there’s debate.

    This economic model—a hybrid of the free market and government involvement--is described as Controlled Capitalism.

    The amount and degree of control and oversight has varied, gone back and forth like a pendulum, during the past 100-plus years. As part of this back-and-forth, we’ve had differing opinions on how active government should be, if at all, in controlling the supply of money and using government spending to jump start the economy. For instance, there is the Keynesian theory that advocates a role for government intervention, particularly during recessions and unstable business cycles, and a countering belief championed by the late Milton Friedman and other like-minded economists who favored a more free-market oriented, hands off approach by government.

     We have the historical record of Franklin Roosevelt’s New Deal programs, designed to put people back to work and stimulate business activity by funding various public works projects that were designed to put people back to work.

    More recently we witnessed Ronald Regan’s embrace of Supply Side Economics. This theory (described by its critics as ‘trickle down economics’) contended that by substantially cutting taxes, growth would occur because wealthy investors and businesses would pour the available money into investments and expanded production. It also claimed that by lessening and removing government regulation, entrepreneurship and innovation would be unleashed, further stimulating the economy. The result would be a rising tide that raised all ships.

       Both strategies had the same ends in mind--more jobs, higher wages, and an improved quality of life—but the means of accomplishing those goals were much different. But, of course, the devil is always in the details and it is the differences that make all the difference in the world.

      While in college it never occurred to me to take a course in Economics. I can’t say that I’ve put a lot of effort in since then to better understand all the gears and interconnections that make the economic engine purr or sputter. Nor have I read Smith’s Wealth of Nations or any of the other weighty treatises devoted to this subject to better grasp the ‘Big Picture.’
  
  What I do know on this subject has been gained mainly from newspaper and magazine articles, experts being interviewed on radio and television, and a haphazard study of history books and reference materials.

    I bring this up because a host of issues involving the economy, economic policies, and which economic model should guide us are very much a part of the current public dialogue and, interestingly, of the Presidential Campaign. These issues include--but are not limited to--income inequality (also known as the growing gap of wealth between a handful of the very rich haves and a growing number of have nots), stagnant wages in the midst of increased productivity and corporate profit, and the merits of free trade versus trade protection.

    The discussion and political talk includes the specter of  a shrinking middle class, of diminishing confidence by many people in their own prospects and in their children’s future well being,  of more and more families needing both dad and mom’s paychecks to make ends meet and that not always being enough, of the actual or imagined effect of immigration (legal and illegal) on jobs and wages, of the shift from manufacturing durable goods to a service-based economy, of the automation and technological advances that have resulted in fewer manual-type jobs and more demand for workers with a high level of skills,  of college graduates not finding occupations commiserate with their knowledge and monetary investments, and of many of these graduates being saddled with enormous student debt.

    The discussion and political talk also covers such topics as the national debt, taxes, government spending, outsourcing jobs and factories out-of-the-country, and America’s future as the economic powerhouse.

     It’s been pretty well noted that there is fear and anger and uncertainty in the air. These emotions darken the sky like ominous thunderheads. But even in the midst of what seems like a gathering and damaging storm, there exist, if you care to see, glimmers of hope and inspiration streaking through the dark clouds.

      Depending on your viewpoint, we have political candidates, advocacy groups, pundits, media and others who are stirring up the darker impulses—pitting Americans against each other and targeting scapegoats--or else are offering a vision of a better and brighter and of making America “even greater” or “great again.”

     Labels and code words are bandied about; intended to gain support, articulate a position, or demonize the opponent. Among the more frequently-used ones have been Muslim Jihadists, Wall Street Investors, Religious Freedom (in regard to same-sex marriage), Billionaire Donors and their Super PACs, Working Families, Main Street, Democratic Progressivism, the GOP Establishment, a wall on the Mexican border, Black Lives Matter, Liberal Media, the Tea Party, the Far Left, and the Far Right.

     Each and all have a broader context and, and in some instances, depending on the source, can be viewed as either a compliment or an insult.

    While not all of the current discussion and rhetoric, and not all of the code words and labels fall neatly within the economic realm, I think it could be argued that economic anxiety has underscored, heightened, and intensified the overall consideration; fueled the emotional fire.

     By better understanding the broader context, by educating ourselves on the current situation and the historical background, by trying to figure out where we’ve been, where we’re at, and where we ought to be heading (or wish to head), perhaps we can help relieve the fear, anxiety, and uncertainty—in ourselves and in others.

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