Part 3 — A nation at risk of Bipolar Economic Disorder

Bipo­lar eco­nomic dis­or­der, whether related to an over­all eco­nomic area (such as the euro-zone) or indi­vid­u­als within a spe­cific econ­omy (as described last week for the U.S.) can be debil­i­tat­ing and indis­crim­i­nate. For a col­lec­tion of nations like the euro-zone — or for one state ver­sus another in the U.S. — attempts to bail out one nation (Greece) must come from a will­ing­ness of other nations (such as Ger­many) to sac­ri­fice their eco­nomic strength, vital­ity and stan­dards of liv­ing in the hope of fore­stalling finan­cial dis­as­ter from years of fis­cal incom­pe­tence. In this process, there are not likely to be any true win­ners. Even the nations receiv­ing a bailout must endure years of depri­va­tion to hope­fully cor­rect a trag­i­cally unbal­anced economy.

While the impact of bipo­lar eco­nomic dis­or­der among nations is one that is “earned” by poor eco­nomic man­age­ment, in the case of indi­vid­u­als, the impact can be highly indis­crim­i­nate. To be sure, some peo­ple will be among those who are unem­ployed, highly indebted or badly under­wa­ter in their mort­gages sim­ply because poor choices were made. But just as surely, among the mil­lions of Amer­i­cans now expe­ri­enc­ing this eco­nomic mal­ady, many are among those who (as described in last week’s col­umn) were unwit­tingly caught in the grip of this eco­nomic disease.

While such a dis­cus­sion may be use­ful, a log­i­cal and very impor­tant ques­tion is how those adversely impacted here in the U.S. can best be helped to recover. With this ques­tion, it is crit­i­cal to real­ize there is no quick answer. Any pro­posed solu­tions are going to take years to favor­ably impact some sig­nif­i­cant por­tion of those suffering.

First and fore­most, the answer must come in the form of sig­nif­i­cantly bet­ter eco­nomic growth. In no way will gov­ern­ment efforts to “redis­trib­ute” income, wealth or oppor­tu­ni­ties pro­duce a long-lasting solu­tion. Redis­tri­b­u­tion efforts will be just as fraught with dan­ger — and likely fail­ure or ago­niz­ingly slow eco­nomic decay — as attempts to help coun­tries such as Greece by ask­ing oth­ers such as Ger­many to mort­gage their future. To the degree that redis­tri­b­u­tion is desir­able — and that could be sub­stan­tial — such efforts are far bet­ter under­taken through pri­vate means such as from churches, syn­a­gogues and char­i­ta­ble orga­ni­za­tions than by a bureaucratic-laden government.

In my opin­ion, much of the cur­rent polit­i­cal dis­course in the pres­i­den­tial elec­tion deals with this issue with­out label­ing the prob­lem as being bipo­lar eco­nomic dis­or­der. So, how would I advise can­di­dates to change some of their basic positions?

First, select poli­cies that pro­vide some economic/financial cer­tainty to both peo­ple and busi­nesses. To Pres­i­dent Obama: Give up the “fair share” non­sense about tax­ing the rich and per­ma­nently cement in place the mar­ginal tax rates passed dur­ing the Bush admin­is­tra­tion. After all, you extended those tax rates two years ago and said that taxes should not be raised in a weak econ­omy. Well, growth has gen­er­ally slowed since 2010 and so the case for main­tain­ing cur­rent tax rates has not changed.

To Mitt Rom­ney: Enough talk about cut­ting tax rates another 20 per­cent­age points. While pro­vid­ing the low­est pos­si­ble tax rates to sup­port essen­tial gov­ern­ment spend­ing is cer­tainly desir­able, even supply-side econ­o­mists seem unable to deter­mine the “per­fect” tax rate. One has to won­der, why did you chose the fig­ure 20 per­cent? Because it’s nice and round? Is that a good rea­son? Why not 17.87 per­cent? Or 21.45 percent?

Right now there seems to be no great out­cry for lower tax rates. Amer­i­cans seem far more con­cerned about bet­ter eco­nomic growth, more jobs and con­trol­ling the deficit/debt. Per­haps, Mr. Rom­ney, you can exam­ine the recent record of gov­ern­ment here in Ohio and learn a valu­able les­son. Pre­vi­ously post­poned tax rate reduc­tions were allowed to occur, but the desire to lower rates fur­ther was tem­porar­ily aban­doned. In just a cou­ple of years, job growth accel­er­ated, the state’s pro­jected deficit was elim­i­nated and the rainy day fund was reju­ve­nated. While prob­lems may still exist, all-in-all, the eco­nomic envi­ron­ment has improved dra­mat­i­cally. Some­times, set­ting aside eco­nomic the­ory for the sake of bud­getary real­i­ties can be a won­der­ful thing.

And to both can­di­dates: Give us your road map toward a bal­anced bud­get, includ­ing spe­cific increases and decreases in gov­ern­ment spend­ing you favor. Don’t treat us like chil­dren. Most of us rec­og­nize the need for sac­ri­fice; so just tell us pre­cisely what to expect. We’re all deadly tired of hear­ing “take two polit­i­cal plat­i­tudes and call me in the morn­ing” as your sug­gested cure for our eco­nomic ailments.

Dr. James New­ton serves as chief eco­nomic advi­sor to Com­merce National Bank and is an aux­il­iary fac­ulty mem­ber in eco­nom­ics and sta­tis­tics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not nec­es­sar­ily reflect those of Com­merce National Bank or OSU-Marion/Newark.

Posted by Jim Newton on Sep 25 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.