Obamanomics

I always get a kick out of the commentators and pundits who tell us how simple the economic solution is and how idiotic the rest of the world who doesn’t agree must be. Then they produce a tally of 8 Nobel-prize-winning economists who support their argument; proving that the opposing argument which only has 5 supporting Nobel laureates must be sheer folly.

I don’t doubt that the answer seems obvious to these people. Neither do I doubt that they have failed to grasp all the subtleties of the US and global economies. I won’t pretend to have the ultimate answer. The more I learn about economic policy, the more convinced I am that it is far more complex than we understand. Sure enough, if someone models a fixed set of variables long enough a pattern emerges. But rarely do we consider all of the variables that affect the decisions of consumers, investors, employers, and producers. It’s like putting your foot in a stream in the same place twice: It may look the same, but it really isn’t.

Obama wants us to believe that the current economic trough was created by the policies of cutting taxes and limiting government control. I read today a letter to the WSJ that claimed the prosperity of the Clinton presidency was due to his raising of the upper income tax bracket. I could find even more letters claiming the prosperity of the Reagan years was due to the exact opposite: lowering of the upper income tax bracket. Clearly the answer has to be in some other variables.

One thing I am convinced of as fact: The US economy will only recover when investors, consumers and employers truly believe that the future will bring a better business/financial environment than they see today. As long as people are pessimistic or even uncertain about the next 12 months; they won’t want to invest their money, finance more purchases, or hire more people. The real question is how to create this optimism.

The November elections bring us a rare opportunity to choose between two diametrically opposite approaches to economic policy. Obama believes that extending tax cuts and reducing government spending is exactly the recipe that got us into this economic crisis. The republicans believe that whatever situation we are in has not been helped by the first 2 years of Obama policies, and we cannot afford 2 more years of the same. The tea party is unabashedly opposed to any new taxes or even allowing the existing tax cuts to expire. Although most tea party candidates are historically conservative, they have no qualms about ousting republicans who have not exercised their version of fiscal responsibility.

No doubt - we have idiots on both sides. Likewise, both sides also have some pretty smart people who are convinced they are right and have some arguments to support them. The only foolish decision is to presume that the answer is obvious.