Op-Eds Speaking Truth to the Powers-That-Be
The average Joe has zip, zero, nada understanding of what the hell is going on with the economy. Don’t feel bad, many economists aren’t far behind you.
Online video producer Emergent Order and George Mason University put together a couple of rap music videos that do for economics what School House Rock did for basic math and English concepts in the 1970s.
The big argument that has been going on for decades is which is better: A top-down world where the government runs everything, or the lone wolf theory, where everyone is out there for themselves and all things economic should be free to work themselves out.
The economy is going through a reaction to the huge contraction of 2008 and 2009. The way we look at solving that problem boils down to the thinking of two early 20th century economists, the English John Maynard Keynes, and German Frederich August Hayek. That’s where the video makes the complex world of economic theory a little more understandable for you and me.
Keynes argument is being borne out. We have gone through most of the financial shock, unless Europe tanks. Banks and major corporations are scoring record profits. Yet unemployment is at 9%. Hayek would have us believe that corporations should have sorted this all out, and, after the last two years of record profits for most of them, they should be turning on the gas and powering up the free market.
Yet it’s not happening. The Republicans blame “uncertainty” about what that evil socialist Mr. Obama might do, but one could argue that they have him pretty effectively gridlocked. So what is the rationale now?
Keynes would say that this is the problem. Individuals and private enterprise don’t want to be the lead dogs in the recovery. Everyone holds on to their money. What is “saved” sits uninvested and unspent.
If you stop buying cheeseburgers at McDonalds, they need fewer restaurant staff, and less beef, buns, and cheese. That means decreases in cattle production, cheese consumption, and even demand for raw commodities like wheat for the buns, diesel for the trucks, uniform, paper napkins, etc.
If people who run those businesses likewise belt tighten, the economy starts to seize up without any buying or selling.
Now comes the tricky part: How do you deal with kick starting that enthusiasm to go out and make things and buy stuff with the money made?
Ask Republicans, and the answer is closer to Hayek’s. His theory is that individuals who are free in a market as free of regulation as possible make individual choices that, collectively, become economic trends.
He argued against central banks, saying that they had neither the crystal ball to make good calls, or the wisdom to sell money wisely to the right people and at the right time. Just let things be, he reasoned, and the market will work itself out in time.
Time is a luxury, though that many people who are out of a job and in jeopardy of losing their home do not have though.
John Maynard Keynes saw Great Britain through two world wars, and the Great Depression in-between. A founder of macroeconomics, he had a much different idea of how things go. He believed that there are times when the only institutions large enough and bold enough to kick start the economy is the government.
When the government launches projects, from building roads and bridges to putting more teachers in schools, it is spending. Spending puts free flow money back into the system, and gets more people, from the ones directly employed by the government, to all of the other businesses that serve them and their families, back into the pattern of building the economy.
Keynes disagreed with Hayek. Individuals may collectively amount to some movement in the economy, but they usually looked for some overarching signal from a greater collective power, usually their government, before risking their own capital in new investments or in hiring new workers.
Righties counter with the fact that such spending, particularly in a tight economy, is deficit spending. Keynesians say that for short periods of time, deficit spending is essential, and that it is made up as the employment picture brightens and more and more Americans return to contributing to the tax base through everything from income tax to payroll tax to sales tax to capital gains taxes for the investing that returns.
Free markets need regulation. The same greed that drives a free-market economy and overheats it in bubbles of growth turns into fear and hoarding when the economy busts and contracts. At those times, the government is the sole source of a big jolt of spending by the to kick start the economy when everyone from individuals to big companies develop fear levels that have them hoarding money and not keeping it moving around the economy.
Keynes work influenced many solutions to the Great Depression. It influenced both the latter days of George W. Bush’s reign and President Obama’s administration which kept the crash of Wall Street from creating a second Great Depression.
Top down or bottom up? Which is the way to go? Check out Round Two of the Music Videos:
The answer, really, is a little from column A, and a little from column B. We need to reign in government spending, but we need to maintain regulation and control of the economy and functions of public safety, from food inspection to pollution control.
We also need to raise revenue. Most modern economists agree that the road ahead requires both cuts in the federal budget and a return of the income flow from the 3% tax break that the richest members of society received from the George W. Bush Administration.
The major block in the road ahead are the blockheads of the Tea Party who infect the Congress. Their slavish devotion to the misguided principles of Grover Norquist, the lobbyist who now controls the Republican Congress by way of his required pledge not to raise taxes by every Republican in the Congress. Fail to sign up, and Norquist may sick the Tea Party zombies on you in your primary.
It has been enough that the Teahadis have terrorized every economic process and caused gridlock that has extended the economic suffering of every American. Something, which they want for political reasons:
Even though they were philosophic opposites, both Keynes and Hayek respected each other’s work. If only the people who have followed in their footsteps in the Congress could get along as well.
My shiny two.
Want to learn more? See EconStories for videos that explain what’s going on.