Spend $447 billion, cut $1.5 trillion. Not enough, too much.
Those four phrases are all over the news lately as the president and his Republican counterparts try to get the economy going while cutting the deficit at the same time.
They have different ideas on how to get there, but they really are trying to achieve the same goals.
But there’s a problem: It’s not working. Unemployment numbers don’t look promising and long-term deficit projections, even with some of these plans, still aren’t good. The stock market doesn’t know which way is up and Europe is in trouble.
We’re in the middle of a recovery, but you can only call it that because of the state of the economy three years ago. People are anxious and most of that anxiety is justified.
This might sound a little crazy, but in the next 601 words, I’m going to do what world-renowned economists and politicians couldn’t do in the last five years: fix the American
economy. Pay close attention and call your congressman.
Plenty of Keynesian economists and Democratic politicians will tell you government spending, like the first $787 billion stimulus plan, is the way to get the economy going and to get businesses hiring.
Companies weren’t hiring, so the federal government injected money into the economy. That works to a point, but the money dries up. You can’t build a bridge forever, even if the government could pay for it without accumulating debt.
On the other hand, conservative economists and Republican lawmakers believe you can tax-cut your way to growth. Keep money in the hands of businesses and families, and they’ll expand and spend us back into prosperity. That also works to a point.
There is a very key component both sides missed. In order for either – or both – of those plans to work, we need one very important thing: confidence.
This is not to say everything will just get better with the power of positive thinking, although it would go a long way if some of our leaders displayed more faith in the economy. What businesses and families need right now in order to kick-start a real recovery is confidence in the future of the economy. They need certainty.
Much has been made of the hundreds of billions of dollars companies and banks have in reserve that they aren’t spending. That money could put people to work through hiring and loans, but no one is spending it. Why?
The reason isn’t greed; it’s a lack of confidence. Businesses are unsure of what’s going to happen next, so they are waiting out the storm and searching for calmer seas. It’s a good move on an individual basis, but it’s pretty terrible for the economy at large.
Individuals are doing the same. No one is willing to risk taking out a big loan or making a huge purchase because they are uncertain about the economic future of their own family. You can see how we’re caught in a tough spot.
No one is willing to jump off the cliff and take a chance on the economy, but it’s only going to work if we all jump at once.
The solution is actually pretty simple. Companies and individuals need long-term certainty in the tax system and the government’s role in the economy. We can’t have two years of radical Keynesian followed by two years of the “Invisible Hand.” We need a long-term, centrist approach that doesn’t fluctuate from election to election.
Everyone is waiting for the next election to see what direction we’re going, and in the process, no one is spending any money. President Clinton said this week, “Compromise is good economics, even if conflict is good politics.”
That’s the problem. The conflict is good for people trying to win elections, but it’s really bad if you have a mortgage to pay. Compromise, even if you don’t get everything you want, will put the economy on a more certain path, which is better for everyone than what we have now.
We need our leaders to get in a room and reach a deal. It doesn’t take courage to stick to your guns – it takes courage to give ground. We won’t judge you for accepting a tax cut or a spending cut, just do it for more than 600 days at a time.
Get a pen; your congressman is waiting for your letter.
