Economics and common sense

I’d like to talk a little bit about economic philosophy. It seems that by just using a little common sense and logic, the average person can figure out what apparently every person in the government can’t: the wrong way to fix an economy. I’ll start with trickle down economics.

The prevailing idea behind this theory is that if you give money to the “job creators” i.e. the wealthy, that they’ll use the money to invest in business and the results will be the hiring of employees. This theory fails to take into account two important things. The first being demand. If there’s no demand for the product a business creates, there’s zero incentive for them to hire new employees, no matter how much free money you shower on them. Why would they take that money and hire someone to sit around and essentially do nothing? It would serve them better to just sit on the money until demand picks up again. So we end up getting caught up in this vicious cycle of “consumers don’t have enough money to purchase the goods and services businesses produce, ergo businesses don’t hire people, ergo people don’t have enough money to buy goods…” ad infinitum.

The second issue I take with this theory is that the definition of “job creators” is often quite skewed. I can’t tell you how many people I hear say crap like, “I’ve never been hired by a poor person.” Well duh. But unless you’re a babysitter, personal chef, or work directly for a self-employed individual, chances are you were hired by a BUSINESS. There’s this abstract idea floating around that “millionaires create jobs.” Businesses create jobs. Millionaires quite often own or run businesses. But the government doesn’t differentiate that. I can understand giving free money to a business, since you know, the majority of the hiring in this country is done by businesses and not private individuals. But giving tax breaks to individual millionaires? How many business owners do you know that hire workers with their own personal money? My guess is zero.

Now, to be fair, let’s examine the other side of the coin. The idea of using government money for stimulus projects. In general, the idea of repairing roads, bridges, and improving utilities sounds like a no-brainer. You pump money into the pockets of the lower and middle classes, the people who drive the majority of the economy, and you get the added bonus of an improved infrastructure. The big problem with this is that most lower and middle classes won’t use free money or a bonus to take a vacation or buy a new flat screen TV. They’ll go get that dental work that they’ve been putting off. Or they’ll pay off that late car payment. Or they’ll save it for a rainy day because, hey, the economy is in shambles and who knows what’ll happen.

I also find it ridiculous that conservatives are against government “stimulus spending.” What the hell do you think a tax break for businesses and millionaires is? It’s a stimulus. From the government. I’m not trying to make an indictment of conservatives. Liberal fear-mongering about how the rich spend all their time hoarding money so that they can eat caviar on gold toilets is just as inane.

I guess my overall point is that, like most things in life, the true answer lies somewhere in that middle gray zone. And also, like most things, politicians totally manage to screw this up. Neither liberal nor conservative economic theory addresses the main problem during a recession: demand. I’m not an economist, and I won’t pretend to know what the correct answer is. I’d imagine that it’s a hybrid of both ideas executed at the right times. I just know that it seems that neither idea working alone ever seems to solve anything.

Thoughts?

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