Economics: What Most Folks Don't Know

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Thumbnail image for financial-calculator-items.jpgEconomics is not intuitively grasped. Paul Siegel at WatchBlog wrote an article that prompted my considered response here. Siegel was right in stating that under the right circumstances, specific and targeted spending can increase revenues, counterbalancing that spending, both in the the near and more distant future. This same kind of non-intuitive economics applies to lowering taxes and increasing revenues, under a very specific set of circumstances, and with specific limits.

Spending which puts people to work or elevates their incomes can increase revenues equal to that spending or better, in the shorter run of 1 to 3 years. But, it is no easy trick, since government spending released into the private sector to stimulate job growth comes with no guarantees that the private sector will actually use those funds to create jobs. There has to be a consumer demand out there to mandate that the private sector hire people to meet that demand. That has not been so much the case during this recession.

Spending on infrastructure that will create new industries and services within the economy, or significantly lower the cost of living freeing up money from paycheck earnings to consume more, can have positive effects on government revenues in the longer term of 5 to 20 years or more. The Tennessee Valley Authority was a case in point, creating an enormous and diverse economic foundation for an entire region of the country, which has generated federal revenues for decades well beyond what was invested in the 1930's and 1940's. The same can be said of the interstate highway system and geometric boom to consumption and distribution it created over the decades.

Lowering taxes to increase revenues can only occur in the circumstance in which consumer demand is being frustrated by lack of supply due to a lack of capital by the private sector to expand production and services. We have not seen such a scenario since the oil embargo years of the 1970's and early 1980's. Which nullifies all Republican petitions to lower taxes now to increase revenues down the road. The consumer demand is more than being met, and cutting taxes on capital (loss of revenue to the government) will not increase government revenues one dime today.

Anyone who attempts to make an economic scenario into a one size fits all circumstances ideology is a fool, and ignorant of economics. What makes economics a Ph.D. subject is its nearly infinite number of variables in constant flux to greater or lesser degrees, and its all encompassing breadth of variables from all areas of human society playing a role in the makeup of the current economic situation. Economics is not just about money. It is about culture, psychology, and history as well, among other disciplines like math, statistical probability, and the ethos of human behavior.

Most folks in the world do not fathom this complexity of the study of economics which makes them prey to politicians proffering ideological platitudes, masquerading as economic principles. There is NOTHING exact about the field of economics, but, there are economists and economicians who are ideologically neutral, and those in government will succeed or fail to manage a positive economy on the basis of their ability to recognize these economists and seek their counsel as opposed to the ideological charlatans in the field.

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Just to clarify about the author of this article, I am not an economist. I took graduate level introductory courses to economics and undergraduate philosophy of economics courses, under a most able professor. That education is the source material for this article.

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This page contains a single entry by David R. Remer published on June 27, 2010 6:44 AM.

My Conversation with Sen. John Cornyn, Citizen's United was the previous entry in this blog.

Ted Stevens: His Time is Done. is the next entry in this blog.

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