Monday, November 5, 2012

What's wrong with Bush/Romney economics

Less then  hours before the polls open, I want to take a moment to address the most prevalent myth in American  politics today:  that cutting government deficit spending is somehow good for job creation and the average American's wallet.

The fallacy generally employed in this argument is the seeming common sense rule,"we as a society are hurting so we as a society must tighten our belts."  If there is one thing I have seen in life it is that common sense, while often common, is seldom actually sensical.  This is no exception.

The problem with this logic is that it confuses two totally opposite sides of the economic system; the private sector and the public sector.  The private sector includes all the money you and I spend.  The public sector is government spending.  And they aren't the same, not unless you force a balanced governmental budget, which is precisely the wrong thing to do because it eliminates all the power of the public sector to help the private sector.

The clearest explanation I have seen is this:

Imagine for a moment an economy of just two people-- Joe Public and Jane Private.  Joe Public takes money from Jane Private and spends money on Jane Private.

What happens, then, if Joe Public takes more money from Jane Private then he spends  on her?  Jane has less money to spend on herself.  Thats pretty obvious right?  Thats what our government does to us when it taxes more then it spends, it takes money out of our pockets.

What about the reverse?  What happens when Joe Public takes less money from Jane Private then he spends on her?  The answer should also be plain and obvious, Jane has more money to spend then before.  Thats what our government does when it deficit spends, it puts money into our pockets.  Its effectively a large interest-free loan from the government directly to the private sector in the form of government jobs and purchased goods and services.

Now, the government cannot deficit spend forever.  It must make that money up eventually, but the time to do that is when the people can afford to have some extra money come out of their pockets-- not when they can't.

Deficit spending does have one other effect-- it stimulates inflation.  Inflation however, is not necessarily a bad thing for the American people.  Inflation is only bad for the working class when it rises faster then income, and the whole point of this exercise is that it will create job growth and raise income.

Inflation IS bad for people who are sitting on piles of cash doing nothing-- which currently describes major corporations and the so called 1%.   This is one of the big reasons they are against anything that might be inflationary.  But, again, that inflation is actually good for the working and middle class because it forces those large money reserve holders to put their reserves back to work into the general money supply creating jobs and again raising salaries.

So, when you go to the polls, ask yourself how more massive cutting of government spending will really help any of us?  Its not like there isn't already a practical example.  We've seen how much it has "helped" Greece...

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