Daily Archives: August 5, 2010

“It’s the economy, stupid!” Part I

If you truly want to confuse the Hell out of your friends and foes alike, start talking about the economy using actual “facts and figures.” Truthfully, most folks don’t understand economics very well at all, and a good portion have no understanding greater than the mantra of  “cut taxes, cut spending, yada, yada!”

Keynesian?

I would venture to say that 9 out of 10 Americans would not know what that meant, even though we have basically employed a Keynesian economic model since 1932. In very raw, basic terms, Keynesian theory prescribes that in an economic downturn, the government needs to pump money into the economy to keep it from further contraction which would lead to recession or even depression.

Economics is not a subject near and dear to my black little heart, but in recent years, I have forced myself to learn more, in an effort to be able to debate the subject with some level of knowledge.

Although many on the Right would be loathed to admit it, without TARP and the Stimulus act, America could have fallen into a second Great Depression, dragging the rest of the world with us.

Much has been made of deficits and the National Debt, with many calling for balancing the Federal budget NOW!

Well, that sounds nice on paper, but this is what would happen if miraculously the Federal government balanced the budget today:

Instantly, the GDP (Gross Domestic Product) would contract by $1.4 trillion, putting thousands of Federal workers on the unemployment rolls and laying off thousands of others dependent on indirect government spending, and bring the economy to a screeching halt, possibly launching a Depression.

Simple rule – in times of recession, don’t cut spending.

GDP = private consumption + gross investment + government spending + (exports – imports) or………………..

“GDP = C + Inv + G + (eX – i)”

Eliminating the current Federal deficit right now would be a $1.4 trillion hit to a $14 trillion economy – a ten percent bang to the bottom line.

Simple? Well, not really, but for a thread column, that is about as simple as can be made of a complex issue.

Tomorrow: The economy isn’t as bad as you might think.

(Stay tuned!)


William Stephenson Clark

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Filed under Economics

Thursday, 8/5/10, Public Square

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Filed under The Public Square