Economics of 2009 – Part I

I have been pondering this question for… well 2 and a half months now, wondering if the decisions made by the current congress and president Obama are going to help us get out of a recession or kick us while we are down. If you are looking for a quick answer: I don’t know. If you are looking for my train of thought, what do I think about the decisions being made and what do I think they should do, and then make a decision for your self, read on, but be aware that I will probably provide more questions than answers.

First I would like to present two very basic ideas behind economics, ideas that have been debated ever since they came into practice, with die-hard fans on both sides. Trickle down and trickle up economics. Trickle down means that we give businesses tax incentives and in a lack of a better term “money” and let them provide jobs and salaries, thus trickling the wealth down to the common man. Trickle up thinks that we should give money to the common man, let them spend it in businesses this creating wealth for both. Which one do I like? In a short answer: both. In a longer version I think that there is a need for both to work simultaneously in order to provide the greatest impact on the broadest amount of people. The problem is that we do not make decisions base solely on economics, we have developed a need for being fair and ethical, and that is where most of the arguments happen. 

Please be aware that I am about to give you my opinion, meaning that in todays politically correct world it will probably offend someone, so if you are easily offended please stop reading now.

If you are still moving your eyes over this sentence, I am glad that you can read some ones opinion and take from it what you will and make your own decisions. So here is the basic dilemma: do we save all of the poor and unfortunate people or do we let the economic course achieve the separation naturally? In my opinion there will always be poor people. There will always be poor people because there will always be people who work harder than others, who are smarter than others, who have better social skills than others and who are luckier than others, and we should not try to fix that, because we can’t. I think that we have made people too soft and too reliant on entitlements. If any of those people are still reading: nobody owes you anything. I know that this might be a unpopular point of view and might seem that I am unwilling to help others, but that is not the case at all. I am willing to help. I am, however, unwilling to be forced to help.

I do not think that if you decide that you need to have 14 children that I should be forced to provide you healthcare, a house and any sort of standard of living. I do not think that if you dropped out of school that I should be forced to use my reward for my hours spent studying to help you out. I do not think that if you were negligent in your personal finances that I, as a financially responsible person, should be forced to solve your problems for you. Any of these can be used in real life examples.We have come up with a generation of people who believe that they have no real responsibilities, and that if they screw up that someone will come in and rescue them. I do believe that there should be a safety net provided, but it should not be a way of life, as it is for oh so many. 

Now taking the ethics out of it, meaning nobody is obligated to do any kind of favors to anyone else, what is the path that we should take? The economy needs a circulating mean of exchange that is readily available to be swapped for goods and services, to  be invest and to be accepted by everyone. The economy needs money. Now how we push that money into the economy is the real debate. We can let the government do it, which is surprisingly the quickest method, by creating government jobs and projects. The problem is that, to me, those jobs and projects are temporary and while they provide goods and services, those goods and services are not exactly what the people might need or want. For example, we could set up 100,000 new hair salons then hire workers to design and build them, and then hire and train people to work there. This would cause a massive infusion of cash into the system, the problem is in that, well it’s not needed or wanted, and it’s temporary. What happens to all of the construction workers who worked on those projects after they are done? Do they go back to being unemployed or does the government decide that we then need 100,000 new car service places. Also, we can continue to pay all of those hair stylists, thus infusing cash into the economy, but we do not need that many hair salons, meaning most of them will stay empty and loose money. 

Now those are of course extreme cases, what they will usually do is create projects such as road building, trail building homeless shelters, or as they like to call it “investing”. Since “investing” sounds a whole lot better than “blowing money” we will go along with the idea. Sure it is a good thing to have light railways from LA to Las Vegas, and sure it is a good idea to have a new major highway go through downtown Atlanta. Well maybe not the later, but you get the point. The question that nobody seems to want to answer is: who exactly is paying for all of this? Are we doing this on borrowed money? Because that means that we will have to pay it back, with interest, and will these projects create enough cash generation to provide that. Are we just printing money? Because due to supply and demand that would cause inflation, thus making the wages earned actually a lot smaller than they really are. Are we taxing people to get that money? Because that seems a little redundant, get a paycheck for building a road, from which government takes out money to pay more workers to build more roads. The scary part is that we are doing all three, with complete disregard as to how this might affect future generations. Government spending is necessary, but at whose expense, and at what point do you draw the line?

To be continued…