A Republican and a Democrat sit down one day and try to determine what we should do with the economy. The Republican says that we need to lower taxes and get the government out of the business’ faces because only through these acts can we really have any economic growth. The Democrat says that we need to invest more money into the economy because by doing this, more jobs will be made and that’ll result in more money being spent to flourish the economy. For hours and hours, the two argue proclaiming that their plan is the best and that the other’s sucks.
Enter the battle of Reaganomics vs. Keynesianism.
In Reaganomics, it is argued that by lowering taxes, reducing the size of the government (let’s not even go there), controlling the cash flow, and deregulating business, the economy can flourish. In Keynesianism, it is argued that have public sector regulation and monetary policy action by the government’s central bank will make things grow more. The two differ significantly because Reaganomics wants deregulation and Keynesianism wants regulation. As can be seen, these two are polar opposites.
For the economy to truly flourish there needs to be a hybrid of the two. There can’t just be one policy or the other. Taking this economy situation as an example, what we see is a case of tremendous Keynesianism taking place. The government is throwing a huge amount of money into the banking industry to try and right what happened. Does it work? The stock market is going up and there are rumors that we’ve reached the bottom of the crisis.
Wouldn’t that mean that Keynesianism is the best route? No. It requires tax payer dollars to ensure that the economy is going good and that just runs up the debt. So, let’s just throw in Reaganomics. That doesn’t work either because that suggests that the economy will right itself. Unfortunately, the free market takes too long to work so there runs the risk of an economic crisis. What I propose is the two coming together and working when they are most beneficial. By bringing the two together, the economy will go up and perhaps the debt won’t grow so atrocious.
When the economy is starting to have a downfall, what the government needed to do was throw money at the problem to try and prevent it from imploding. What this does is cause the economy to level out rather than continue on a path of implosion. For it to work, though, the government needs to put enough money in. You can’t do it with the half the effort. The government needs to be dedicated to stopping the constant deterioration of the economy.
However, once the economy starts to level off and then grow again, the government needs to step back and stop interfering. By not interfering, the free market will help determine what is good and what is bad. This will allow faster growth rather than the government throwing in huge amounts of money to the economy. If there is no problem, the government shouldn’t be getting involved.
The reason that we have so many problems is because economics has been politicized. By making it a political thing rather than an economic thing, politicians have to force their policies hard. So, Democrats continue to invest money even when it isn’t needed which just causes debt to skyrocket. Republicans constantly lower taxes which forces debt to increase and because there is no action, the economy implodes.
By having a hybrid of the both, we can invest money when it is necessary and then cut government spending when it is not. In this economic issue, I often ask myself what would have happened if we hadn’t bailed out the banks. Would the economy have crashed? I can’t tell you because I am not an economic expert. However, what I can say is that with this hybrid of both policies, we can prevent economic implosion by implementing Keynesianism and then allow for economic growth by implementing Reaganomics. Only with the best of both worlds can the economy actually become more stable. Once that happens, perhaps then we can get to the other problem: debt. That’s a topic for another time, though.
About Jacob Cohen Donnelly
Jacob: I’m a 75 year old EE retiree and totally agree with you assessment, especially since I was an eyewitness to the implementation of Reaganomics! I’ve included my own “two cents worth” as well:
SAVING DEMOCRACY
Stephen B. Miller
3/27/2009
In our democratic, capitalistic society, we’re constantly struggling to find that elusive “sweet spot” resulting in a government that satisfies most of us and that won’t disintegrate at some point for unknown reasons, the classic example being the fall of the Roman Empire. This has never been achieved, and indeed it may never be, but if we can manage to understand the problem, maybe we can find a solution.
The evidence of this struggle is all around us. In our culture, people tend to fall into one of two groups, “individualists” vs. “socialists”:
INDIVIDUALISTS: These are people who believe in the primacy of individual effort, with as minimal a government as possible. They tend to be entrepreneurial types, generally called the “haves” and lie on the political “right” (Republicans). They are typically driven to hard work and are more well-off than the masses. They are leery of extensive social programs which threaten to redistribute their hard-earned wealth to those who don’t deserve it.
SOCIALISTS: These people, on the other hand, represent the masses, ordinary working people just trying to live their lives, raise families, do as well as they can financially and hope to find happiness along the way. They need to find meaningful work throughout life and rely heavily on “safety nets” such as social security and affordable health care. They’re typically called the “have-nots” and lie on the political “left” (Democrats). In essence, maximal government and wealth redistribution are essential to this group; they can’t survive without them.
As can be seen from these definitions, there’s a built-in conflict between the two groups. It only gets worse from here: some individualists will do “whatever it takes” to preserve their political and economic dominance, including worker exploitation, while some socialists will “milk” the “system” for all they can get, with no intention of “pulling their own weight”. Workers and their unions will also fight hard for dominance in government to preserve its wealth-sharing philosophy.
Given this untenable situation, how do we manage to survive? At the very least, some level of compromise is in order. Over our history, government tends to “lean” towards one philosophy or the other, constantly looking for the “middle of the road”, but never quite finding it. The voting public tends to view all issues from the standpoint of “what’s best for me and my family?”, as opposed to “what’s best for all of us and what sacrifices will I have to make?” While this is not an unreasonable position, the concerns of the opposing philosophy must be considered if we are to succeed in the long run. To compound the problem, most people don’t even bother to vote!
In the final analysis, our ability to see the “big picture” and act accordingly depends on our attitudes and values. In other words, it’s limited by “who we are”, which I suspect is determined by our stage of development according to the evolutionary process. As a first step, simply being aware that “we are the problem” is our only hope.
Somehow we have to learn how to find the middle ground between the two opposing political ideologies. We need just enough government to do the job, but no more. This also means just enough wealth sharing to fund essential social programs, but no more. These statements are highly subjective, which is the source of the problem in the first place. The political “right” claims we have too much government, too much wealth sharing and too many huge, wasteful social programs. The “left” claims just the opposite! The problem is that if we go too far in either direction, it doesn’t work. In the usual scenario, civil unrest occurs, leading to a dismantling of the government, often by revolution, resulting in a still worse form of government! So far, this final phase hasn’t happened to America; we’re still managing to “muddle through” somehow. Apparently we’re still close enough to the “middle of the road” for now, but the warning signs persist. The combination of our social, political, environmental and economic problems seems overwhelming! Fortunately, our particular form of government allows corrections to be made. All we need is the will to “stay on track” (another subjective statement). While most people have a pretty good idea of what this means, it’s hard to define in absolute terms and there’s no guarantee that it will in fact turn out that way.
Democracy is a delicate, dicey thing at best. Our best hope for the future is an educated, enlightened citizenry which is fully aware of the consequences of it’s collective actions. We have not yet managed to attain this “elevated” state of mind; one can only hope!
Thanks a lot, Stephen, for leaving a comment on the site. You’re absolutely right that there needs to be some sort of a balance. The issue comes in when one side tries to implement too much of their agenda and vice versa. I think that a mixture of the two policies would be a fantastic way to really start correcting our economy and our debt.