Commentary by Rich DeColibus: A Simple Version of Economics

From Rich DeColibus, September 8, 2011

As we near the next big Presidential election, there's lots of noise about which basic economic theory should prevail. The Republicans are big on supply-side economics where you cut taxes, eliminate regulations, and do everything possible to encourage businesses to succeed. Keynesian economists believe government, in slow economic times, should create (or, at least, preserve) jobs with stimulus packages. The more jobs created or preserved, the higher the tax revenue will be and the more the economy will prosper because more people will be buying goods and services.

I think I've got all this economic theory figured out. Neither Keynesian nor supply-side works most of the time, leading me to think some combination of the two is the best we can do, and that's another conclusion: the government can only do so much because, huge though it be, it's a relatively small fraction of the whole economic scene. The housing bubble was a good example. Lack of any kind of effective regulation (along with bad public policy concentrating on the idea everyone should own a home) allowed the housing bubble to grow and grow and grow and when it finally burst, it was such a huge bust nothing the government could do in terms of scale could match the debacle the financial parasites on Wall Street created.

The Keynesians believe this was a clarion call for massive government regulation, and I'm kind of in their camp on this one since it is crystal clear things got out of hand because of the lack of regulation. But, regulation has limits; supply-siders don't philosophically like any kind of government "interference" (their alternate word for regulation); it "interferes" with their ideological purity. My conclusion: some regulation is necessary, too much is a drag on the economy, and too little is an invitation for crooks and the greedy to run amok. The housing bubble is an example of too little, and the government red tape necessary to start and maintain a small business is an example of too much. And, it's a dynamic battle; the hour the ink is dry on new regulation, somebody's trying to figure out a way around it.

Supply-siders categorize any kind of government action like a stimulus package a basic "wealth distribution," from the hard-working rich and middle class to the lazy deadbeats who feed off the government like leeches. And, to some degree, they are correct since, in fact, anything the government gives to someone for any reason has to come from someone else; the government doesn't have anything of its own to give.

Supply-siders claim Obama's stimulus package was a failure, but I disagree. I would have made it smaller; but the goal was to reduce the number of people who were becoming unemployed, and it did that, mainly for construction and government workers. Those jobs are now being shed, but the fact remains a lot of these people would have been out of a job two years earlier if there hadn't been a stimulus package and what the package bought was time for the economy to recover. Which it may or may not have, depending on who you talk to.

Keynesians believe supply-side economics is simply another version of "the rich need to get richer." The fundamental cant of the supply-siders is everyone will benefit as wealth is created and some will trickle down to the little people (the trusty old "A rising tide raises all ships"). Unfortunately, that ideological purity is as flawed as the Keynesian belief government can spend its way out of a recession. We tried supply-side: the Bush tax cuts were classic supply-side economic theory. And, it didn't work; during the Bush eight years, the economy created about 1 million jobs, a pathetic job-creation rate. The rich got richer and nobody else in any large numbers got any better off. The rising tide raised the cabin cruisers and left the dingys and rowboats no better off.

The facts, then, as I see them, is that neither economic theory works all the time or even most of the time, and the only thing that will work is some dynamic, adjustable economic response by the Feds and the government to what economists think is going to happen short-term or long-term. That brings up another problem because economic predictions by economists are about as reliable as a hot tip on the next race at Thistledown. Might another stimulus package work? Maybe, if configured right. Would tax cuts work? Maybe, if configured right. But, it's not an on-off switch for either action; it's more like a dimmer and it's hard to get the light level right.

What doesn't work is Washington because the principal players are focused on their reelection (first and foremost) and power. Like Mitch McConnell said, the number one goal of this country, from his point of view, was making sure Obama wasn't President next term. Well, excuse me Senator, but that's not the top priority of most Americans, nor of the residents of your state, it's how to deal with the deficit and create jobs in a moribund economy. Obama's not the problem all by himself; indeed, his failure to inject himself into some of the current events is more of a problem than anything he's done. He may or may not be President for another term but it's hard to imagine that it even matters much economically.

The economy is controlled by 300 million Americans who, every day, make tens of thousands of decisions about economic matters, large and small, all of which are totally unpredictable. I offer as proof a simple question: If someone else had been President the last three years, what, economically, would have changed? My answer to that is straightforward: Not Much, for the simple reason the President and the government can only do so much. Sometimes, as the Bible says, you simply have to wait for natural cycles in the economy to play out: This, too, shall pass.

Rich is a Cleveland retiree (former chemistry teacher) and was president of the Cleveland Teachers Union for his last 16 years.