Kate, re: "Macroeconomic theory such as Keynes, Austrian, and whatever else is out there seems to me to be pretty useless when it comes to the actual governance of a particular economy. Microeconomics rule the day. A government that is NOT idealogically driven, that is flexible and nimble will, I believe, have better aggregate results. It takes smart people who can think outside the box, and this seems to be lacking in our elected officials."
I think I know what you mean but we shouldn't be dismissive of the power of the macroeconomic tools that are available to the feds.
While it may be accurate to state that; "Microeconomics rule the day" because, of course, it's the sum total of microeconomics that constitute macroeconomics, in a true policy tool sense the feds can influence and alter microeconomic trends through macro supply or demand side tools such as gov. spending, interest rate changes, money supply changes, tax policy changes and other factors.
In that sense it is truly macroeconomics that rule the day. Both informed sides of the partisan divide understand that, it's their choice of preferred macro policies that divides them.
Many conservatives have close ties to the corporate and high income world and they advocate the trickle down theory of using the tax code to create a better environment for those same corporations and wealthy individuals. Their argument is that to have their favored constituents paying less taxes and keeping more profits will somehow mean more investment and more jobs while paying more taxes and keeping less profits will mean less investment and less jobs.
That argument has some logical appeal and in some economic conditions it makes sense but as a general rule it is too simplistic. It is not just the amount the wealthy and big business will pay in taxes or the amount of profits they will make that will determine their decisions on job creation and investment. Those decisions will turn on a variety of factors including the profitability of alternative investments that don't involve job creation, or don't involve job creation in America, and the current available production capacity balanced against their current and projected future demand for their goods or services. In times like these where there is often a huge overhang of unused supply capacity NO ONE is going to invest in new capacity and it's a joke for the trickle down theorists to argue for tax breaks as a fix for the unemployment problem.
Some on the other side advocate for a fix using demand side tools such as increasing the money supply, lowering interest rates, increasing government spending and, or, lowering taxes on the less wealthy. Their argument is that such policies will create more spending thus pushing up demand and ultimately encouraging more investment. In times like these where we have so much unused capacity and so much unemployment those arguments are more sound but it takes a lot demand to offset the tremendous overhang of unused or underutilized capacity in our economy.
Once again, however, even if it might work it is not that simple. Many private market decision makers are concerned that the fed's ability to continue to manipulate the economy is decreasing. The feds have kept taxes low, increased spending, increased borrowing and expanded the money supply to the point of exhaustion. At some point we're going to face increased taxes, inflation, and, or, a debt level that's unsustainable. Those are problems that will ensue if the underlying problems in the economy are fundamental as opposed to glitches.
I think they're fundamental problems. As I've said before, the age of mechanization, the creation of a more open-door, world wide economy, the increased world wide demands for energy and metals, the increased relative tech savvy of Europe and Asia and the progress of so many Asians toward a higher standard of living is eroding the premium that Americans used to enjoy in terms of employment, profits and, ultimately, our standard of living.
And we can't keep borrowing to keep our aggregate level of employment and standard of living artificially high.
I guess what I'm saying is that the ugly truth is that macro tools are very powerful and that's the problem. They're so powerful that we can fool ourselves into thinking we're ok when we're not. I think we're one upsurge away from figuring that out. We'll weather this storm but the next decade will, unless we find some new real economic energy generator that is labor intensive and moves America back to the front of the worldwide economic race, force us to accept some very hard facts and take some very bitter medicine.
On a hopeful note, if we can figure out how to keep all the workers we don't need fed and busy at something, who cares if we live a little lower standard of living. Who needs the biggest defense budget in the world many times over, so much money in the fed that stupid, corrupt and laughable politicians can give it away in buckets to rich and poor without regard to efficiency or fairness, 1,000 feet per person of living space, one car on the road for every 1.2 people traveling, so much food that we're fat and still throwing away a bunch of leftovers, and, worst of all, stretch pants.
Losing some of that won't mean our kids will have a worse life, just a different one. Ed |
