WEBCommentary(tm) - What To Do About the Economy

Which is better, to grow the economy or cut the deficit by cutting spending and or raising taxes? How does anyone, let alone economists, know, what the future holds? Is all the talk on Capitol Hill sophistry? What is the real deal? What can the American people really expect in the next several years in terms of debt and jobs? Will either become manageable? Is it better to save than to invest? Is Washington D.C. really working to reduce the consistent accumulated federal budget and trade deficits and a bulging national debt? Why aren’t Americans worried about what’s going on in Europe and Asia? This last question I believe will be our downfall if we don’t align our interests with the interests of Europe and Asia.

First let me state, there were 3.1 million job openings on the last business day of February 2011, that was an increase from 2.7 million in January. The hire's rate (3.0 percent) and separation's rate (2.9 percent) were little changed over the month. Even if, 3.0 minus 2.9 equals 0.1 percent or real jobs fulfilled, consider the jobs that had been lost before Bush left office. (Bureau of Labor Statistics) This meager 0.1 percent in new hire's is a sign that the economy has changed course in April 2011 and is attempting to generate some upward momentum. Maybe not as fast as Americans would like to see it, but from this phenomenon it is safe to posit we could be on the verge of a sustainable upswing, unless the high prices in oil and gasoline offset this generative paradigm.

I would posit the above top aforementioned types of economic indicators, ceteris paribus, tell us we need to remain optimistic. To wait patiently without disruption of the mechanism that is driving the economic pump, but focus on an end to the two major wars in the Middle East; as well as curb the growing civil strife in the region such as Bahrain, Yemen, and Libya. Albeit, these forces, i.e., those which seem to drive the unrest in the Middle East, are socioeconomic and moral fundamentally, and might be unstoppable in both the short and long term, nevertheless, U.S. officials should be hesitant to do anything that would cause these forces in these countries to wane, even at the risk of our own economic recovery for the short term.

Another indicator important to my argument is the productivity, i.e., output per hour, and cost index. Looking at a ten year table of productivity from 2000 to 2010 output per hour often fluctuated. So I took an average of the annual percentage of the four quarters for the ten years and came up with this figure: a mean of 3.0 percent. And although the graph showed wild swings in productivity over time, with numbers that reached 4.6% in productivity for one year and 0.9 in another, it nevertheless appeared to be moving toward more output for the future at last in 2011. At least from 2008 when the recession took off, productivity output was a mere 1.0%. The following year 2009 productivity grew by 3.7% and in 2010 it grew another 3.9%.

If this is true than that is every reason for politicians, both Republicans and Democrats, to reconsider their harsh budgetary proposals for FY 2011 and 2012, at least for the moment anyway.

Lets turn to savings at this point in the discussion, because it is after all key to government borrowing, without which spending would dry up unless a federal tax hike is implemented.

As everyone knows the asset bubble of 2008, in the housing industry burst, then the stock market nose-dived, all because of deregulation and wild speculation in the banking industry.

At the time the savings rate was very low. Americans bought into the first time home owner scheme, mortgage lenders were offering to consumers, with credit scores below 600. Rather than save their money, first time home buyers, the lower middle class, used their savings to invest in a new home. What they failed to intuit was homes are not liquid. And unless they got a fixed interest rate, rather than a floating interest rate on their mortgage they would incur added cost if rates went up. But who could foretell a decline in productivity in the private sector, along with an eventual sell-off on the stock market in 2008?

Where were analysts and government regulators in all this? If they were there amidst the impending hurricane why weren’t they being heard? I believe the answer is because of a deregulated banking system and greed, both publically and privately.

Moreover, a low savings rate meant one of three things had to change, either domestic savings had to increase or government borrowing had to decrease or inflows of foreign capital had to increase. What occurred was the increase in the inflows of foreign capital. Further the trade deficit widened and the budget deficit increased during the Bush administration. Which plainly meant the short term debt created during the Bush administration carried over and added itself to the debt of the Obama administration, meaning four trillion dollars from the Bush years, were now under the administration of President Obama in 2009 and his sole responsibility to manage or mismanage. This obligated the Obama administration to borrow at least two to four trillion dollars additionally to operate for fiscal year 2009-2010. With the savings rate low and weak due to deregulation and speculation investment stalled on the supply side, and affected demand side jobs both union and nonunion along with a possible reduction in worker’s wages.

It is quite understandable how and why the federal budget deficit and trade deficit has gotten out of hand. To bring it down does not necessarily permit us to reverse the process as Republicans would have us believe.

Private investment must itself increase for tomorrow’s technologies. Savings itself has to increase equally upward in order for investment in both domestic and foreign assets to occur, which means there is a relationship between investment and savings.

For the President or Republicans to claim they can cut the federal deficit and debt by some amount over some period of time is like saying they control both time and the future. This is hardly the truth. What needs to occur is consumption and savings need to improve nationwide. Government borrowing needs to decline. Both public and private investment in new technologies needs to increase and again all buttressed by a strong savings rate, in addition to the reforming of a badly needed educational system. Further, Americans need to be made more aware of the rest of the world that surrounds them. Simply put, we don’t exist in a vacuum anymore, competitively.

Let me trumpet a factor of major importance, to raise the debt ceiling is iffy and dangerous. In the short term it will raise the national debt, which is compounding every second. But if the debt ceiling is raised, than steps to bring down the federal budget and trade deficits should be first priority. Again inflows of foreign capital must decline; increases in private and public investment must increase but only when savings has itself risen, and consumption needs to likewise rise. Yet the prior functions can only take place if oil and subsequently gasoline prices are brought down for the nation as a whole. In addition to this, with the Central bank, spearheaded by Chairman Bernanke, mindful of inflation, and ready to raise interests rates if necessary, to prevent an excess of money in the economy, to offset a weakening of the dollar and a possible inflationary environment nationally, the economy should begin to pick up speed at some point so long as jobs are being created and productivity, output per hour, in the private sector is strengthening.

Such an economic plan can’t be done any other way other than on a bipartisan bases. After all, it is the American people stupid who is going to pay the cost of more division in Washington D.C. if something unanimous isn’t done and done soon in the federal legislature and the executive office.

Finally, to raise taxes should be a last resort. If federal revenues can’t be raised any other way but by a tax hike, then it should be regressive for the very poor and progressive for the very wealthy as well as the multinationals. This might anger shareholders but the move by the federal government would be a short term move and should spur economic growth in time, theoretically, so long as efforts are being made concomitantly to reduce oil and gasoline prices and end the two major wars the U.S. is involved in abroad.

In addition to writing commentaries, poetry and novels, I am one half of the macbrothers, Inc. We are songwriters and not artists or performers. We write music for others to perform or record. I do not do tours since I am not an artist. Like I said, we write & record our own songs and release them for purchase online. However, we are interested in nonprofessional or professional artists seeking songs. If you are an artist interested in songs for your album please email me. I will send you the demo and lyrics (and any changes to the lyrics), or you can listen online to our songs readily.