“It’s the Economy Stupid”

ForeclosureWell we’re not stupid but the economy is extremely complex. The one thing we all know is that the economy is the one thing, politicians talk about, that has an ever present influence on our lives. A precise understanding of the economy requires advanced chaos theory and super computers to even attempt the building of a scientific model. The basics, nonetheless, still come down to how much we spend compared to how much we earn.

We all know the economy is in horrible shape. Our housing market is in the tank and unemployment is between 8 and 21% depending on which metric you use. Consumer confidence is near an all time low and people are afraid to spend their money.

Anyone who has managed a household, however, can tell you how to cope with a weak economy. If you consistently spend more then you make, you are headed for big trouble. The household economist knows that if one of the household income earners loses their job, household spending will have to be substantially reduced to save the household.

So when millions of people lost their jobs in our country, our government went on a spending binge in an attempt to spend our way out of the biggest economic bust since the great depression.

Without understanding the complex subtleties of our economy, it still makes sense to believe that reducing our national spending while increasing our revenue would be a good strategy to restore the nation to economic health.

On the revenue side, we need to pick an industry with the largest potential market and dramatically expand this industry. This industry needs to be a known and understood present day market an not a gamble on some presupposed future market. See: U.S. Energy Policy: Fossil Fuels

We need dramatic cuts in spending. Inefficient government programs, including redundant departments, frivolous programs and numerous ear mark programs should be eliminated. We should also consider a moratorium on non-essential programs and entitlement spending, so that more near term revenue gains can be used to trim the nation’s crushing debt.

Increasing taxes on any sector of the economy has the effect of producing a drag on that economy. It is better to produce more government revenue by expanding the economy and not by raising the tax rates. Inequities in taxation would be better addressed by reworking and simplifying the tax code which can be addressed after we are out of the crisis.

 

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