A Philosopher's Blog

Reviving the Economy

Posted in Business, Politics by Michael LaBossiere on February 20, 2009

Not surprisingly, people are comparing the current economic situation to the Great Depression. While there are some similarities, there are critical differences that make the comparison somewhat inaccurate. The distinction is, of course, the extent of the economic woes. For example, unemployment today is not even close to what it was during the great depression. However, the same basic question that was asked in the Great Depression is still being asked today: how do we get out of this mess?

While a popular view is that FDR’s policies helped America out of the Great Depression. However, that view is countered by the almost equally popular view that WWII was primarily responsible. After all, the war certainly put people to work. There is even a fairly recent view that contends FDR actually prolonged the Great Depression. Naturally, it is useful and important to determine what worked and what did not work during the Great Depression-both as a matter of academic interest and practical necessity.

The war solution does not seem to be a viable option. After all, we have two of those going now and they do not seem to be sufficient. Of course, these wars are not on the scale of WWII in terms of mobilizing the population and the economy. As such, perhaps a really big war (or a larger number of small wars) would do the trick. Obviously, starting wars just to revitalize the economy might be regarded as morally problematic and there is still the question of whether it would work or not.

One aspect of the current approach is to pour money into troubled companies in the hopes of stabilizing the economy. Of course, the money has to come from somewhere and in this case it comes from the taxpayers. One obvious concern is that this seems to be more of a shuffle of money and not a real infusion of new money. One might suspect that using tax payer money to do this is like trying to repair a hole in your roof by cutting out another section of the roof and nailing it over the hole. This just moves the hole rather than fixing it. In order for the roof to be properly repaired, all the holes have to be patched and this requires material that does not come from the roof.

Another aspect of the current approach is to use tax dollars to hire people to work. While this seems better than dumping money on failing companies (after all, they have a record of failure that tends to indicate future performance), it is still taking tax money to shore up the economy. In short, tax payers are being taxed to pay other tax payers to work. This can work to a certain extent-provided that there is enough tax income to support the workers hired using tax dollars (directly or indirectly). As such, repairing the economy using taxpayer money will require getting at least part of the economy in good enough shape to support the cost of these repairs.

Of course, the government can get money from other sources than taxpayers. For example, the government can continue to take out loans and dump some of that money into the economy. Of course, this will tend to be more wasteful than having those in need take out loans directly (after all, the government is not known for its efficiency). Further, such loans merely move the problem to the near future. After all, those who make the loans will expect to be paid back (and make a profit) and this money will need to ultimately come from the taxpayers. But, perhaps such loans can buy enough time for something to work. Then again, perhaps not.


6 Responses

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  1. James Dudley said, on February 20, 2009 at 4:48 pm

    Why don’t we have a incentive package that partners the real estate market and the auto industry??

    I’m a realtor in the Atlanta,GA area and many first time buyers are taking advantage of the first time home buyer tax credit. This credit was annoced as a $15K credit a few weeks ago and has since been reduced to $8K. In my opinion if the credit could be doubled if used towards a purchase of a new car it could have a huge impact on the economy. This way we would be helping out the real estate and automotive industry at the same time!

    I would think someone in Washington has thought of this!


    • kernunos said, on February 21, 2009 at 7:36 pm

      The cutting of spending and reducing taxes is the only sure-fire way to stimulate the economy. Tax credits require spending.

  2. kernunos said, on February 21, 2009 at 7:49 pm

    There was virtually no unemployment during WWII. Also important to note is that the economy did not rebound until three or four years after the war was over. this was during a time of massive contraction in government spending.

  3. kernunos said, on February 21, 2009 at 7:53 pm

    It is simple math though. Every government dollar spent MUST be paid for with tax money from private industry. It is the same problem we are having with Social Security. The pool of retirees is getting too large for the social security taxes of private industry jobs to pay for it.

  4. kernunos said, on February 21, 2009 at 7:59 pm

    My point is that government spending makes the situation worse. I cannot understand why this is not obvious to people. Well, I do have hope though. No matter how they put the lipstick on the pig of a stimulus bill the American people by 60%-70% knew better and didn’t like it. When you get those kinds of numbers in polls with the major media outlets not being critical of the bill then you know it must be a failure. The Dow Jones has dropped 40% since the Democrats have had power in Congress(they control spending) and it has been down 20% since Obama took office. The stock market has no confidence in the stimulus bill and people are not investing. This does not look good. All I see are Neros on Capitol Hill fiddling while the economy burns.

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