Can the economy really be "fixed?"

I've been worrying about the upcoming 2012 election a bit, and I'm concerned about Obama's chances. Sure, I'd much rather vote for another Democratic Party candidate, but there's really no chance of that happening.

It seems that Obama is unpopular now because he hasn't "fixed the economy." I personally believe that this is primarily because of two things:

• The right wing still has considerable power in the United States, and until they're brought out of the picture, the rich will continue to become richer while the poor become poorer. To fix the economy, the United States would have to make the rich pay their fair share. Until they stop getting people to buy their bullshit that "tax cuts for the rich create jobs," then this won't change. While giving tax cuts to the rich might promote economic growth in the very short term, recent history has shown that it will eventually end up hurting everyone.
• The current economic recession is a global crisis, meaning that, until every other country's economy improves, the United States economy won't improve by much. Obama can't fix the economy any more than any one man can, no matter how powerful. We'll need governments across the globe to cooperate, and that's a pretty difficult task.

edited 29th Nov '11 12:52:10 PM by Zennistrad

Plainly, no. The US economy can be "fixed" by the government. It's problem with the market, not economic policy.

If you don't like a single Frank Ocean song, you have no soul.

Oh, dear lord this is a big topic. I'd like to give it a full treatment but time constraints force me to be (somewhat) brief.

First, economies tend to be cyclical. The Austrian school postulates that we need to allow those cycles to achieve their full depth and height in order to allow the free market to evolve "naturally", whatever that means. The Keynesian school argues that it is the role of government to dampen the cycles and allow them to proceed in a smoother, more stable manner.

In short, the prevailing theory is that economies fix themselves naturally given time; the question is how bad the suffering needs to be before things get better.

As it stands, neither side in our current political climate is sticking up for principles that will actually improve things; the Republicans are stonewalling specifically in order to keep Obama from achieving any kind of political success, while the Democrats largely have their heads buried up the ass of the Cult of Centrism and won't stick their necks out for the kinds of radical policy changes we really need.

It is instructive that conservative principles say that in a downturn, the poor exist mainly to be trodden on so the rich don't have to suffer, and in an upswing, the poor will naturally benefit from the largesse of the rich. In other words, rich people are inherently better than poor people.

The Democrats would in theory be opposed to this standpoint, except that many of them are deeply beholden to big business interests as well.

In summary, I'm not sanguine that anybody in our political climate is interested in or has the political capital to actually "fix" the economy. However, I remain convinced that it can be done.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

...and it covers more than just the United States — it is, like it has been said above, a Global Crisis that will need some form of Global Solution.

And somehow, I don't think the Republicans care about that (or the world outside the borders of the USA).

Keep Rolling On

We survived the great depression, we can survive the great recession.

I'm more worried about governments making things worse than about them failing to fix things. Economics is at best a very young science, and everything is easier to smash than to fix (entropy sucks that way).

Sex, Drugs, and Rationality

The short answer is "Yes, but there is no political will in the US to do it." Massive 1940's style direct government spending would do it, rather quickly. Subcontracting rather than direct spending would also probably get the job done, though not as quickly. Offering massive low interest loans and tax credits to foreign businesses to invest here would help a lot as well. Large scale debt forgiveness, mostly in the form of re-writing mortgages for houses underwater, would provide the middle class with a lot more spending power. Simply maintaining entitlement programs at their current level provides the most basic level of economic maintenance, but I wonder if we can even hold the line on that...

My biggest fear is that nobody knows how to fix, or even start to fix, the Global Economy — it might be too complicated even to sort out one country or group of countries, due to mixed national interests and the needs and desires of their people (or peoples).

And even above that, nobody seems to agree...

It might just come down to the individual person to work their own way forward, out of this, something which might help drag their country and hopefully the world out of the hole.

That might take a Generation, probably longer.

Otherwise, it's down to...

Events, dear boy, events.

Keep Rolling On

I would disagree that economics is a young science. We pretty well know what the general effects of policy have, IE spend money during recession to fix it, save money during a boom to pay off the debt.

What we do have a problem with is the smaller details, such as what industry will remain profitable.

I would instead argue that there is a vested interest that some groups have in keeping things bad or making things worse.

Very big Daydream Believer. "That's not knowledge, that's a crapshoot!" -Al Murray "Welcome to QI" -Stephen Fry

Economics is a young science because it ages slower than other sciences. It's much harder to do controlled experiments in Macroecon.

"Spend money in a recession to fix it", the way to spend money contested, there are models about multipliers etc. but those are likely wrong. How wrong is up in the air, but I don't believe you can really measure the GDP boost per dollar of spending on road construction to three significant figures with congress' bill writing procedure and the department of the interior's current bureaucracy. Too much noise. It's also really hard to tease out the results after the fact. I've seen enough studies where the title doesn't agree with the abstract or the abstract doesn't agree with the actual study.

I also assume you mean that the government should spend more money in a recession, but how does a government "save money"? Run a surplus and do what with the extra cash (assume outstanding debt has been paid)? Sitting on a pile of cash (paradox of thrift)? Buy foreign bonds (makes the money hard to get if global problem strikes)? Invest in a diversified portfolio of private and public stocks and bonds (you think that would pass congress)?

Sex, Drugs, and Rationality

Not to worry, this seems to be the ultimate agenda.

I'm a skeptical squirrel

IE in a surplus, raise taxes to pay off the debt, then try to keep the debt low and let inflation make it small.

As for the span of time part, Ah.

On that point, I agree.

Though frankly, I don't really give a crap about the GDP. Its a relatively useless measure of prosperity, and its relatively useless now that a huge portion of the economy is based on information. Back in the late 90's, there was a report that the GDP of america was actually a very large amount bigger per year than expected. But so what? There were still problems present which could've been fixed easily, but were not due to fears of inflation or other such problems.

Very big Daydream Believer. "That's not knowledge, that's a crapshoot!" -Al Murray "Welcome to QI" -Stephen Fry

Borrow profligately at the astonishingly low current interest rates and fund social programs and infrastructure. Increase taxes massively on the very rich. As the economy picks up, social spending inherently drops, and you keep taxation high rather than relaxing it. Your budget eventually runs a surplus, all other things being equal, and you pay down the debt with that surplus.

Social and national prosperity comes from full employment of people earning a living wage. That is your ultimate goal.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

The problem as a whole is that the knowledgeable people (including myself, to be honest) are more or less fumbling around in the dark. The models that economics are based around may or may not apply to current situations. We simply do not know.

I happen to agree with Fighteer. In the short term, all the focus should be on getting back to full employment. Everything else that happens after that can be dealt with.

Democracy is the process in which we determine the government that we deserve

3: conservative principles say that [...] rich people are inherently better than poor people.

No prizes for guessing which ideology Fighteer ascribes to.

*

Seriously though, this isn't how it works. Conservative principles actually say that legislation needs to protect the rich more than the poor, because success for the rich correlates with success for the poor. "Reaganomics", "trickle-down economy", call it what you will, its goal is to help the poor, not tread on them. And it works. It really does.

Remember back, before World War I, Upton Sinclair's The Jungle era, when the whole lower class worked in factories with awful wages and worse working conditions? Everyone thought that meant capitalism was inherently evil. It's no coincidence that American Socialists had their heyday in this time.

But then what happened? Demand for workers increased past the supply, and to meet their need, rich employers had to increase wages and better their working conditions, and the United States' economy and manufacturing capability entered a golden age, just in time for WWII.

In other words, the best time for the American economy was ushered in by the needs of the rich, not the work ethic of the poor, regardless of what people may have thought at the time. This is how economics work: For a successful economy, you need to have a well-off upper class. It follows that legislation which helps the rich strengthens the economy, and thus betters the situation of the lower class. It isn't that rich people are "inherently better", it's that they actually have the capability to make things better.

Edit: Oh, and to link this back to the OP (it probably was obvious, but I want to be clear), I do believe that the economy can be "fixed" by a government, by enacting legislation to protect the wealthy, and the wealthy, in turn, doing what is best for themselves, the invisible hand will strengthen the economy.

edited 29th Nov '11 5:50:58 PM by TheEarthSheep

Still Sheepin'

I'm pretty certain that it was WWII itself that caused demand for workers to exceed supply, what with a significant portion of the workforce going to war (it's what opened the door to women in the workforce, demand for work due to lack of male workers overruling Stay in the Kitchen). The Great Depression was still going in America right up until Pearl Harbor, just not as bad as it was in the early 30's.

In order to replicate the conditions for the "golden age" we'd have to mobilize for WWIII.

edited 29th Nov '11 6:24:15 PM by TheRichSheik

Byte Me

@Earth's last sentence...

I do not believe a word of this. Currently, corporate profits are up, the stock market is at record highs, surpassing the high we had before the recession, the current tax cuts on the wealthy cause the top 1% to, on average, get more savings than the mean gross income of the lower 99%. The majority of businesses, of actual small businesses, are very concerned with the lack of aggregate demand for things. People are not buying things. They are unable to, because they are not making enough money to. Larger businesses are not hiring, because the cost of another worker cannot be justified by the current profits. They can get the workers they already employ to work more instead.

If people had more money, they would buy more. If they bought more, the businesses could pay people more, or hire more people. If more people had more money, they could buy more.

The spending done by the top percentages of the population are less, proportionately, than that of the bottom percentages. The top save, the bottom spend, because the top can afford to do so while the bottom has to spend on food or necessities. IE Give a poor person $100, they spend it on food or comforts. Give a rich person $100, they put it away for a while.

Very big Daydream Believer. "That's not knowledge, that's a crapshoot!" -Al Murray "Welcome to QI" -Stephen Fry

@The Earth: "Conservative" is a broad term.

Both of you are correct: there are Randist-Objectivists, there are Bush-Reaganists. There are liberterians, theocons, paleocons... it's a diverse term with many conflicting ideas.

edited 29th Nov '11 6:46:23 PM by Erock

If you don't like a single Frank Ocean song, you have no soul.

Well, in that case you have a situation where there were massive capital requirements for things such as building factories, distribution facilities, stores, etc. As such, supply side investment can be truly effective.

The situation today is one where there's lots of capital but little demand. So things that spawn additional capital are probably not going to work. Now, you can have policies that spawn demand for additional capital, and they might, things like a green energy boom or interstellar exploration or something like that. Like the Internet boom did, to be honest.

But generally speaking, in terms of the status quo, the economy is ridiculously overloaded with capital and underloaded with demand. The see-saw is all the way on one side.

Democracy is the process in which we determine the government that we deserve

Bullshit. The Dow Jones Industrial Average closed around 11,550 today. It's highest was over 14,400. Nasdaq 200's highest was in excess of 5000 (in 1999/2000), it closed today at roughly 2500.

So that's one major index off by about 18% and the other by over 50%. (S&P 500's record is I think 1800 and it traded at 858 today.)

Well, first of all, your entire first paragraph is just describing "bad economy". What are you trying to prove by saying "it sucks right now, 'mkay?"

Second, re: your "people aren't spending money" thing, tell that to the booming entertainment industry that continues to sell novelties for three times more than the actual art costs. Seriously, $15 for a 3D movie, when you can see a matinee for $3? Average Joe isn't in poverty, he just makes bad decisions.

Third, you continue to mention "the poor". That's meaningless, especially because the lowest class in the United States is barely even part of the economy anymore. We're a service economy, we hire people with college degrees. I'm not talking about Highest/High Middle/Middle/Low Middle/Lowest, I'm talking about Employer/Employee. Bourgeoisie/Proletariat.

Still Sheepin'

@Earth sheep: I'm trying to prove, if you read the first part of my first paragraph, that the rich having money doesn't raise the poor, as you claimed.

Second, one industry is not indicative of the entire economy.

Third, I have no clue what you mean by your last paragraph.

EDIT: @Tom: my apologies on that. I remember reading somewhere that a major yardstick for the financial sector had recovered to the numbers they had before the recession.

edited 29th Nov '11 7:38:21 PM by Enkufka

Very big Daydream Believer. "That's not knowledge, that's a crapshoot!" -Al Murray "Welcome to QI" -Stephen Fry

Well yes, so much was clear. My point was you were doing it badly.

2) How people spend their disposable income is very indicative of the entire economy, thank you. Especially entertainment. Impoverished people don't buy the latest Battlefield game.

3) I mean that you seem to be talking about the lowest of the lower class, when I'm arguing from a much more diametric standpoint.

Still Sheepin'

1) your statement made it sound like I had no point except to say that the economy is shit.

2) People with little money do spend on entertainment. Kaschei, I believe, has statistics on it. Conspicuous consumption still occurs.

3)I see. I think. However, The rich is also a very nebulous concept. The fact remains that the less money you have, the more of your income you have to spend.

A point I have not made well, if at all, is that I find it hard to believe that those with power should be protected at the expense of those without power. A higher tax on those with more still leaves them with more, due to the way the tax system is set up.

edited 29th Nov '11 7:51:54 PM by Enkufka

Very big Daydream Believer. "That's not knowledge, that's a crapshoot!" -Al Murray "Welcome to QI" -Stephen Fry

Saying "Statistics that back me up exist, and I'm not even kidding" isn't exactly an unassailable logical standpoint, to be quite honest.

Also, as I said (implied really, but whatever) before, my definition of 'rich' is 'employer' and that of 'poor' is 'employee'.

Still Sheepin'