My view on this economy -- SPEAK UP

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Date Posted: 19:38:51 03/09/03 Sun
Author: Arkady (reposted by Richard)
Author Host/IP: cpe-gan-68-101-88-174-cmcpe.ncf.coxexpress.com / 68.101.88.174
Subject:

My view on this economy

[This essay by Arakady reprinted from another board.]

My view on this economy is that there are oodles of factors at work, but you're probably right that Iraq and Oil are some of the biggest. What I wish, though, is this would finally put Ivory Tower Republican economic theories to bed. What has always frustrated me is the impermiability of those theories to any real world evidence.

Think of it this way. Imagine it's around 1920 and you and I don't know anything that's going to happen over the next few decades. You're trying to argue that laissez-faire policies, low taxes, and small government work the best, while I'm trying to argue in favor of a kind of capitalist/socialist hybrid system, with progressive taxation, and significant government intervention in the economy.

As today, we'd both be limited, to some extent, by the abstract nature of the argument. How could either of us prove to the other that he was right? So, let's say I made a bet. I wagered that, over the next decade, back to back to back Republican presidents, with their overzealous respect for laissez-faire dogma, would lead this country over an economic cliff. We'd end up in the worst and longest recession in our history, which would only evaporate immediately after the country made a 180-degree turn, totally reworking the tax system to a progressive one, and absolutely exploding the size of the federal government.

That 180-degree, I wagered, would lead to about four decades of unprecedented growth, mostly dominated by Democratic presidents who emphasized a big, strong federal government and ever-increasing intervention in economic and social issues (you know: WPA, minimum wage, GI Bill, Federal troops enforcing desegregation, War on Poverty, etc.) In that time, I wagered, poverty would drop from the 25%-50% range we were used to in the early 20th century, to somewhere around an unthinkable 12% rate.

Sitting back at 1920, wouldn't you have told me that my commie utopian dreams were absurd, and that the kind of government changes I wanted would lead to nothing but wreck and ruin? Yet, when you saw all those things play out in front of your eyes, would you have changed your mind about the economic theories?

OK, fast forward. Same situation, you and I are sitting down and arguing economics, but now it's 1970. You insist that the startling, sustained, almost uninterrupted economic growth we've had for nearly four decades has been IN SPITE OF, not because of the massive expansion of the federal government and the growing liberalization of government economic policy, under the New Deal and Great Society. It had more to do, no doubt, with the lead-up to WWII, and our unusual and advantageous position since then, not to mention the sweeping technological changes of the era.

To show your confidence in this idea, you wager that now that the government is in the hands of a more laissez-faire Republican president, and if the Republicans manage to hold it for most of the next couple decades, we'll REALLY see some growth. With all those modern advantages, this country's going to take off once you remove the socialistic shackles imposed by decades or liberal thinking. If only we can get some deregulation, some upper-bracket tax cuts, and some capital gains tax relief, unemployment will drop, poverty will all but vanish, and GDP would take off like a rocket.

Alrighty then, fast forward again. It's 1992. The Republicans are just finishing their 20th year in the Oval Office in the last 24 years. The capitalist utopia, sadly, didn't materialize. Crime's through the roof, unemployment has been flirting with 10%, off and on, throughout the last two decades, poverty has risen from around 12% to around 15%. The economy is addicted to massive deficit spending. Real wages for most Americans have actually been sliding. People are talking about the first generation of Americans in history who will end up worse off than their parents' generation. Others are talking about the imminent loss of the US's position as the world's economic superpower, with Japan buying up half our country and Germany quickly narrowing the productivity advantage we've held since the end of WWII.

Sitting there, in 1992, you and I talk about what went wrong. I say this awful situation is because the Republicans used their executive power to push through consistently poor economic policies. Rather than focusing on helping those most in need, or investing in programs that will seed the economy for growth, they wasted our economic output on the diminishing returns of making the rich richer, vainly hoping for some trickle-down effect that never really materialized. Looking forward to 1993, I wager that, now that things have changed and a Democrat is coming to power, we'll see better days. If only he can hold onto office for two terms, we're going to close out the decade with shocking improvements. It won't just be a return to robust GDP growth, after fairly mediocre growth for 12 years. It'll be declining crime, declining deficits, declining poverty. Real wages will be up, too, and unemployment will return to levels last seen during those nearly 4 decades of growth, so long ago.

You'd have said I was cracked, with those rose-colored predictions. You'd probably have laughed your butt off at the idea that somehow deep, chronic, across-the-board economic problems (which, in your mind, had nothing to do with Republican policies), would change just because some Dem was calling the shots now. If anything, a Dem is bound to hike taxes (as Clinton, in fact, did... the "biggest tax hike in the history of the world", according to Dole), and to burden business with new rules (as Clinton, in fact, did... the biggest minimum wage increase ever, the FMLA, new environmental rules). These higher taxes and business burdens not only wouldn't fix the economy, they'd make it much, much worse, you would have predicted.

Fast foward again. It's late 2000 now. The last eight years have been arguably the best years in the life of the nation. Great growth, widespread prosperity, an alleviation of crime and other social problems, and a return to fiscal responsibility. Once again, we're putting our money where our mouths are, betting on what's going to happen to the country now that a Republican has won the election. What are 2001, 2002, and 2003 going to be like? Cautious as I am, I'm reluctant to chime in with the more radical predictions of the loony lefties (who are insisting we'll go back to the days of the first Bush administration, with massive deficits and a war in Iraq). I don't go quite that far, but I'm betting things will take a turn for the worse. I'm betting that, within a couple short years, the record economy of 2000 will have vanished into higher poverty and unemployment, resurgent crime... maybe even a prolonged recession.

My point in this whole hypothetical exercise is to explain why I get so frustrated trying to argue economics. It's bad enough that the field, by its very nature, makes it difficult to make any definitive statements. Things are always arguable, and thats just unfortunately something we need to deal with. But, it's made worse when people willfully ignore what few facts we ahve to work with. History does provide an opportunity to test theories, over time. None of the tests can ever be perfect, since this isn't a laboratory experiment where we can control for every possible variable. But, with many samples, we should at least have convincing enough real-world evidence that it might influence our belief in our theories, one way or the other.

The 80s, 90s, and 00s, for example, provide a nice little test of the Reaganomic principals of tax cuts being a significant economic stimulus. When Reagan's massive tax cuts were followed by a massive recession, that might have just been random. When the next few years continued with sub-par growth and an overall decline in social situations, hey, maybe it was a coincidence. When things turned around to eight years of improvement once we got away from treating tax cuts as a panacea, maybe that was just another coincidence... but, when we tried the tax cut policy again and eight years of growth turned to over two years of economic hell, isn't "coincidence" starting to be a pretty worn explanation?

Eventually, in science, when reality refuses to match the predictions of a theory, the theory gets modified or abandoned. But Republican economic idealogy has the hallmarks of faith, not science -- no lack of real-world confirmation can shake it. Not being a man of faith, I just don't know where to go from there.

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