I flew home to San Diego from visiting family in Baltimore last week. The view out my window over Houston, my connecting city, was crystal clear. The picture reminded me of my first plane ride late in my teenage years. How, I wondered at the time, did everything work together to create what, from the air, looked so harmonious? I had not the faintest idea. The question led me to study economics, first at Penn State and then at MIT, where I earned a doctorate after mastering, among other concepts, Adam Smith’s “invisible hand.” It explains the order I sought to understand. As I observed Houston from the air, my age now decades older, the importance of interstate roads was obvious. Without them, I’d see the minor roads jam-packed. The private airport we flew over could never handle the traffic at Houston’s IAH,…
Bidenomics vs Trickle Down – It Depends
US President Joe Biden and his team are traveling the country spouting the success of his economic policies. The package is called “Bidenomics.” It’s best understood as a contrast (which I’ll get to shortly) to traditional GOP economic policy recommendations. The latter argues for lower taxes, less government regulation, and minimizing social welfare spending. The fear underlying GOP dismissal of Bidenomics is that we will become a “socialist” nation. Think of Scandinavian nations with high taxes and high social spending. (The fact that these nations do not engage in socialism – a system where the government owns the means of production, distribution, and exchange – is beside the point. But discussing that would be a digression here.) The GOP policy prescription is based on core assumptions such as: The private sector can spend money more efficiently than the government. Low taxes on corporations…
Effective policy demands flexibility that politicians lack
Our two political parties each champion a set of recommended economic policies. For the GOP, tax cuts are always helpful. For the Democrats, not so much—but government spending can solve a lot of problems. As an economist, the rigidity of political views – not just among the politicians but their distinct tribes of voters – dismays me. Why? Because different contexts demand different solutions. In early 2009, Captain Sullenberger went against traditional thinking when he safely landed an Airbus A320 on the Hudson Bay after it hit a flock of birds, cutting off all engine power. He didn’t follow standard procedures because he and co-pilot, Jeffrey Skiles, recognized the uniqueness of the situation. An economy is a far more complex system than a plane and its interaction with air. With any complex system, physics proves that starting conditions matter for what you do…
Build ??? Back Better
With a COVID vaccine in sight, economic recovery in 2021 is a reasonable expectation. But is there a way to build a better economy, not merely a larger one? It is a promise of the incoming Biden administration. Some elements economists would include in creating a better economy are listed below. Raise the standard of living for non-college-educated workers. It’s fallen by a lot. The result is worsening health statistics and growing family food insecurity, issues that existed even before the pandemic. Raising the minimum wage, rural development strategies and investments, and more affordable healthcare and housing are critical strategies for accomplishing this objective. Democrats propose changes to the tax system as the best way to achieve this aim. CEOs like Mark Benioff of Salesforce, on the other hand, argue that business and job creation is a better strategy, and there is truth…
Why we should all be depressed, not just Michelle Obama
Michelle Obama is experiencing mild depression. If she can feel depressed, I feel better about my own malaise, especially about the state of the US economy. Without additional fiscal stimulus, we will experience an economic depression, a situation where the economy lacks its own ability to recover. There are other things to feel terrible about – unnecessary deaths, inequality, school-age children falling behind, and another generation likely to incur long-term effects from sustained, high unemployment. All these painful experiences are worsened as the economy tanks further. It’s helpful to remember Macroeconomics 101. The level of our nation’s Gross Domestic Product (essentially our national income) depends on the addition of four terms. Consumption of disposable goods like food, entertainment, and clothing. It is the dominant majority of our GDP, coming in at about 69% in Q2 of 2020 GDP. Government spending on things like…
Markets vs. governments: An economist’s view
It’s not possible to resolve political debates such as “Should we raise taxes to revitalize our aging transportation infrastructure?” without first achieving consensus on the role of government. The role debate, at least in my mind, is far less divisive than “how.” So, as we enter elections to determine the next US President and Congress, I thought it would be a good time to share an economist’s perspective on the role of government. There would be no role for government in our economy if – in our roles as citizens, business owners, shareholders, employees, and consumers – we acted in the best interests of society as a whole. Rather, we act out of real or perceived self-interest. There is nevertheless a huge advantage to individuals acting in their self-interest. It creates an invisible hand enabling a market-based economy. Adam Smith argued (correctly) that…
What Obama missed in his economic assessment
Great strategy requires a solid grip on the situation. Here are five situational facts Obama missed in today’s economic address at Knox College. Urgency is needed to prevent a second recession. China is slowing. Europe is imploding. Rising interest rates are slowing the housing recovery, with continued government cutbacks strengthening the headwinds against US private sector recovery. We risk a double dip recession like the US Great Depression or the triple dips being observed in Europe. Therefore infrastructure investments, retraining of workers, and revitalization of manufacturing and aging cities are a necessity, not an option. Overseas job creation is the new reality. With the middle class growing across the globe, US companies should be investing in jobs abroad. Therefore our economic strategy should be to maintain US headquarters and create new companies – not prevent overseas job expansion. Corporate tax reform and incentives…