Scales of Economy

The world economy is suffering, and I wish I had more background in economics to understand what is going on.

I didn't take an economics course in college and have often regretted it. So I listen to Marketplace, and recently I bought a book, Economics: The User's Guide, by Ha-Joon Chang. It helps some. For one thing, it introduces a whole roomful of schools of economic thought. It also warns against thinking that any one school is superior.

I admit, though, there's much I don't understand. Why do many economists believe we will bounce back more quickly from this dip in the economy than from the last recession? Was the economy not strong before earlier crashes? Or is it that the government has done more this time to offset the dip? If that's true, then why didn't we do that last time?

I also don't understand why some economists don't worry about government debt. Most of us agree that debt can be a good thing if it is invested in things that improve a financial position. And with interest rates low, I suspect these are good times to invest. But eventually you have to pay up, right? What are the effects of incurring more and more debt?

There's something else I'm trying to understand: a recent analysis in the Washington Post cites a poll that gives Trump an edge over Biden on handling the economy. In the article, Aaron Blake suggests that Trump may weather our economic downturn.

Trump inherited a steadily growing economy that was recovering from the financial crisis that began during the last Republican administration. When the country was suffering from the mistakes of our banking industry, Republicans in Congress were reluctant to increase the deficit to help us get out of the slump. This was consistent with traditional Republican policy, so we gave them a pass (for better or worse) as they bailed out the bankers and then tightened their fists.

Then, in 2017, a tax cut provided a tax exemption primarily for the richest people in America. Argue about what's fair, but our annual deficit spiked under Trump even before this emergency. The growing debt was not only tolerated but cheered by so-called fiscal conservatives. Mitch McConnell pushed the cut, knowing we would need to borrow money, so that he and his richest supporters could collect financial benefits. He now races to install judges who support inevitable inequity by siding with the rich whenever they can get away with it. I imagine that some of the money from the tax cut (borrowed from our children and grandchildren) did flow into the economy, and it made Wall Street happy. But Republicans have come clean: they no longer make a pretense of concern over the deficit or the national debt.

Or do they? As more stimulus money in response to the corona virus goes to people of modest means, concern over the deficit begins to grow once again. If Biden is elected, I expect Republicans will continue to defend the tax cuts but shift back to being fiscal conservatives, except in the sectors that benefit their richest constituents, which include:

• The military-industrial complex that Eisenhower warned against
• The prison industrial complex, in which for-profit prisons benefit from higher rates of incarceration
• The fossil fuel industry, which in the past century has been a key stimulant of our economy and way of life, but now seriously threatens both these and the planet.

It is an old economic principle, now out-of-fashion, that a robust economy provides an opportunity to prepare for hard times. But it seems we couldn't be bothered. While boasting about a fantastic economy, we went further in debt. We badgered the Fed to lower interest rates and whined about not going even farther out on a limb. Now our luck may have run out. Unemployment statistics for April jumped higher, faster than they have since being tracked. This would be a good time to tap into some savings. But the cupboard is bare, so we borrow.

Unlike in 2017, now is a time to borrow, given the low interest rates and dire need. But financially we sure were unprepared, so we'll have to borrow more than if we had behaved responsibly when we had the chance.

Never mind. In another puzzle, the stock market doesn't much seem to care. That is a scale important to Mitch Uncle Pennybags. McConnel begins to show concern over the deficit again, advocating to let pensioners languish so he and his gilded ilk can avoid contributing to pay the piper. He'll protect those with the most money from being tapped and maybe even argue for giving them more breaks. He takes his responsibility seriously to provide a crutch to the least crippled Americans.

As our economy flounders, like a lot of people I'm trying to figure out what is happening, what is likely to happen, what we should do. I also wonder what economic soap box our political leaders are going to jump onto next. I don't trust the Administration or the Senate Majority Leader to act in our best interest.

Since initially writing this, I read an article by Marilynne Robinson, in which she says this about the American economy:

As adapted for what was recently the present, this wealth is still a product of national policies—favorable taxation, imaginative banking regulations, and low production costs, including depressed wages and lowered safety and environmental standards. The cinch that tightens such slack as remains in the lives of the underpaid is called “austerity” or “fiscal discipline.” Austerity has not touched the beneficiaries of these arrangements, nor has fiscal discipline."

 It's a slow read, but worth the effort.