Door A or Door B?

Behind Door A we have the Economy. Behind Door B resides ideological divide: big or small government. Between those two doors is a world of difference. There may be some connective tissue among the topics, but there is also a chasm that needs to be remembered.

Door A: The Economy exists on its own. No one creates it. A culture does. A belief does. So do trust and faith. Government can have an affect on it. But government does not create the economy.

Door B: Ideology of government models is older than our nation. The history stretches back to Aristotle, Plato and Charlemagne. Americans did not invent it. Mankind did. America only developed a vital working model that remains an experiment long after 1776 and the Revolutionary War. Then it was democracy or monarchy. It was also about a confederation of states exercising their rights or a central government exacting its control over the chaos of rambunctious states. Along the way all of these ideological threads have boiled down to: big government or small?

The Problem: the two only have tangential connections. One does not control the other. On the surface it may seem they do interact and control each other. However, the more the issues are examined and understood, the clearer it becomes that ideology does not control the economy and vice versa.

They may affect each other. And that may be the primary rub in public discussion.

To get to the bottom of this discussion, however, economists are needed, and discussants need to listen closely to each other.

Here is what I think they will learn from one another:

• Economics is a social science; it is affected by and effects moods, beliefs and trusts of people
• If people are in a positive mood, the economy will improve; moody or negative feelings will dampen economic activity
• Investments create more economic activity. This is because investments pay for the creation of machinery, buildings and other tools of economic activity. Those creations make jobs. And the tools are made to be used by other workers (jobs) which in turn creates an upward spiral of economic activity (payment for cars, food, clothing, housing, entertainment, etc.).
• Businesses rely on basic infrastructure in order to operate their businesses. Roads, bridges, utility networks, water, sewer, curbs and gutters – are all examples of major public infrastructure. So too are dams, Stormwater systems, and public education.
• Public education involves basic reading, math and writing skills which build strong labor pools. Higher technology training and education improves the labor pool further. Higher education (university and college levels) expands labor pool skill sets, expertise and the discovery and creation of new learning and scientific breakthroughs.
• Most infrastructure investments are made by public bodies (federal, state, county and municipal). Very few industries pay the full price of providing the infrastructure they use. All taxpayers usually foot the bill as a common good.
• Spending public money on infrastructure reaps short, intermediate and long-term benefits for everyone. Accordingly the economy strengthens and we all benefit.
• Accumulative public debt is different from current operating budget deficits. Debt is long-term; deficits are short term and add to the long term debt.
• Debt must be paid off or down from time to time to keep its size relative to the economy’s size healthy. A percent of Gross Domestic Product is a common measure.
• Times change and debt goes up and down due to current economic conditions.
• Long term source of debt is also variable
• Infrastructure expansion or replacements
• War time expenses
• Obligations contracted for (Social Security, Medicare, etc.)
• Operating budget deficits due to out of control costs and falling revenues
• The current national debt is made up of these components since 2001:
• Debt paid down to $6 trillion by end of Bill Clinton’s term
• During George W. Bush’s terms deficit grew because of
• 9-11 recovery costs and economic downturn  - $2 trillion
• Hurricane Katrina costs and economic downturn - $500 billion
• Iraq and Afghan Wars - $1.5 trillion
• Deep recession -$1 trillion
• Unfunded tax cuts - $1 trillion annually ($2 trillion)
• During Obama’s term:
• Unfunded Bush tax cuts - $4 trillion
• Total National Debt now stands at $17 trillion by combination of the above
• Managing the debt controls economic expansions and contractions
• Pay down debt to contract the economy
• Add debt to expand the economy
• Buying infrastructure expands the economy’s ability to grow
• Allowing infrastructure to decay contracts the economy’s ability to grow
• Managing the economy also controls inflation and deflation
• Rapid expansion of economy unbalances supply and demand and inflation often occurs
• Declining economy revalues assets; downward collapse in serious recessions or depressions deflates the economy
• Cutting debt in time of recession deflates the economy
• Adding debt in a recession improves the economy 

We could continue this discussion but let’s leave that for another time. For now let’s conclude the following:

1. Now is the time to boost the economy and create new jobs. Federal expenditures for replacement or expanded infrastructure will boost economic projections
2. Paying attention to the health of the nation’s economy will create sustainable means to eventually pay down the debt and rebalance the federal government’s operating budget
3. Paying down the debt now would eliminate jobs, worsen the economy and cause increased recession costs to the government (public aid assistance, unemployment benefits, underfunded Medicare and Social Security premiums)
4. The ‘spending spree’ that created the debt was caused by two wars, a national act of terror, and storms of Mother Nature. And unfunded tax cuts which fundamentally unbalanced the federal government’s operating budget 

We can talk about the ideology issues another time. For now, however, the ABC’s of economics should drive our discussion and string of public decisions. Not politics!

Will we choose Door A?  Or will we opt for Door B?

March 1, 2013