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.