Thursday, March 29, 2012

Ok, sorry it has been a week. Here are some thoughts. No it's not on the Trayvon Martin case in Florida.

Economics. Does any one person know what will solve an economic crisis? No. Term: Voodoo Economics. Some of you may know what that was originally meant for. I am applying a different doctrine here.

By and large, no one person can anticipate what the economy will do for more than 3 months at a time (most estimates are reliant on quarterly data). But here is a general rule of thumb for how the government should/needs to act in certain economic situations.

Run deficits in times of recession and depression to try and stimulate growth, run surpluses in times or growth and expansion.

Point 1: Why ever run a deficit? Many people believe that the current model of government is simply there to spend and spend and not consider the future implications of constant borrowing. To certain extent they are right to be concerned. However, those who advocate for an inflated budget are also right. Things to consider: when government employees travel, where do they stay? Where do they buy gas? Where are government offices located? Where do government employees live? These are all factors that stimulate the economy. When the government spends when others will not, it at the very least acts as a stop loss that prevents further economic downturn. You can't very well expect to cut half or even a quarter of the government budget in a time like this, and expect the economy to immediately rebound. Cutting the budget by that much that quickly is that much withdrawn from the economy at a time when businesses can least afford it.

Point 2: That being said, the government cannot always have an exorbitant amount of debt and expect to constantly be solvent. When the economy experiences growth the government should decrease spending (and increase revenue if required) in order to create that proverbial "rainy day fund". This is so debt can be minimized in times of recession. History has shown that those who rise to far to quickly ultimately fall quicker than they rose.

So, where does that leave us today? I believe, the government needs to begin cutting its yearly deficit. I am not saying the government cuts a quarter or half of the budget. I think the government needs to cut the yearly deficit by 10% to 15%. For perspective, in 2011 the government budget deficit was forecast to be $1.56 trillion.  That means a cut of $156 billion to roughly $240 billion off of the deficit. That is considerably less than the supposed "bipartisan" comprise.

Be honest with yourself, can you reasonably see the economy rebounding from $3.5 Trillion to $7.5 Trillion cut from it almost overnight?

Imagine yourself $10,000 in debt to pay for your mortgage, then you tell your bank you're only going pay for you family and the bank gets nothing. What implications would that have?

Small cuts, small increases, at small intervals.

1 comment:

  1. I agree 100%. Er... how come you are not a Reform Party member? :-)