Election Year Economics Are Stupid

I am no economist, but elections aren’t about economics, they are about rhetoric, which I know a little bit about. Political rhetoric is about narratives. In an election year, the narrative of fiscal policy is about reinterpreting the basic principles of macroeconomics in order to garner votes. The problem, as I see it, is that these narratives, these talking points, are passed off as solid leadership. All politicians lie, but this is different. These are carefully crafted messages that people follow. Messages that people believe.

Both liberals and conservatives are establishing the same narrative: that their side has all of the answers, and the other side is ignorantly wrecking the country. Both sides do this, make no mistake. This is why I don’t care for either. It doesn’t matter which side you fall on politically. If you give that premise one ounce of rational thought, you can see that that idea is -in a word- stupid. Why would a group, backed [presumably] by half the country, back a plan that would doom the very nation that they want to control? This isn’t about good vs. evil, or smart vs. stupid. This is about two essential pieces of a natural process: the need for business to make profits, and the need for a social safety net. Not only are these great ideas, they are also essential components of a healthy economy. They may actually help each other in the process: good social safety nets could mean more freedom for businesses.

Conservatives are pushing tax cuts at every turn in order to stimulate private industry. Liberals are looking to implement government programs to help people that they believe are being ignored by private industry. LOL/JK they’re just lining the pockets of their corporate cronies 🙂

Private industry and social stability are both good ideas; there is nothing wrong with either idea. The problem is that both ideas are postured in such a way as to appear mutually exclusive. Tax cuts are inherently plutocratic, while programs to help those who need it are the fast track to communism. This has nothing to do with actual plutocracy or communism and everything to do with political posturing.

Presenting your set of goals, however noble, as superior to those of the other side is deliberately ignoring half of the problems that our nation faces. We face a need for employment, which comes from businesses, and a need for a strong social safety net, which comes from taxes. People need to work so that they can pay taxes. Businesses need to profit so that they can employ workers and pay taxes. What’s more, pitting the interests of business against the interests of the population is at best a waste of already finite resources, and at worst a recipe for societal collapse.

Economies rely on two forces: supply and demand. These forces are often represented in the political narrative as business and consumers. The problem with this narrative is that consumers are also labor. The market is actually made up of two interdependent cycles where businesses and consumers fulfill the roles of supply and demand at various stages. These cycles depend on each other to keep repeating. The people who participate in these processes perform different functions in the cycle. Even if you own a company, you still have to go home and buy things. Even if you earn only minimum wage, you are still selling your time and energy for a wage.

In the graphic above, you can see where businesses and consumers are both buying and selling to each other. There are different markets where consumers supply and businesses demand, only to have the roles reverse. This is a good representation of the interdependence of these two cycles. If you are a business, you are working to turn your resources (raw materials, production capacity, energy) into profits. If you are a consumer, you are looking to turn resources (land, labor and capital) into income. If consumers don’t have income, they can’t buy stuff from businesses and they cannot invest in businesses. If businesses cannot make profits, they cannot make products and employ people. If this balance is upset, no one can pay taxes. Conservatives would have you believe that Americans sacrificing in order to keep private industry going is the way to keep the country going. Liberals would have you believe that government programs financed by corporate taxes will keep the country going. Both parties are right at some point in the economic cycle, and they’re both wrong at the opposite end.

Capitalism works when everyone acts in their own rational self interest. Political rhetoric focuses on “self interest” at the expense of rationality. Election Year Economics is the antithesis of rationality. Pitting consumers against businesses is irrational. Businesses are employers. Employees are customers. If people can’t work, they can’t buy your crap. If you aren’t buying crap, there are no jobs. Expecting the government to care for you is irrational. Subverting the democratic process to avoid taxes is irrational. The politics of fiscal policy is the politics of irrationality.

You see, while markets cycle clockwise and counterclockwise, the economy itself cycles up and down. Things go well, the economy grows, and then it runs out of steam and contracts. This is natural. The contraction not often pleasant, but it is natural. Expansion and contraction is unavoidable. The purpose of the government in this process is not to keep the cycle perpetually expanding. That is impossible, and believing it to be possible is irrational.

The role of government in the business cycle is to even out these natural ups and downs. This is where Monetary Policy should come into effect. It should keep things from expanding out of control, and then soften the blow of recession. The government does this during expansion by limiting the money supply (Federal Reserve conspiracies notwithstanding) and during contraction by providing a social safety net. During times of recession, the government increases spending, cuts taxes, and programs like unemployment benefits and other forms of assistance keep people buying until things pick up again. These are good things that get people votes on both sides.

During times of expansion, however, conflict arises. At the other end of the business cycle, the government needs to control the supply of money to keep the economy from overheating and then crashing. It does this by raising interest rates, raising taxes, and by reducing government spending. Higher interest rates encourage saving and discourage risky investing, lending, and borrowing. Higher taxes create a budget surplus that can later be used for benefits programs. Reduced government spending encourages maximum employment in the private sector and efficient allocation of funds. These are good economic decisions, but they are bad political moves. High taxes and interest rates draw the ire of Wall Street and its conservative votes. Reduced spending affects public institutions and their liberal votes. The goal is for the government should be to create a budget surplus and then use it to jumpstart the economy during downturns. This is politically painful for both the left and the right, and it costs votes. That means no one on either side wants to do it. When you run a business one fiscal quarter at a time, and when you run a nation one election at a time, good fiscal  and monetary policy become a sort of leaky roof problem. You can’t raise the funds you need when everyone is unemployed and broke, but you don’t need social safety nets when everyone is employed.

All-tax-cuts-all-the-time is bad fiscal policy. All-government-spending-all-the-time is also bad fiscal policy. If the government can’t raise funds by taxing, it has to raise them by borrowing (from China!) which is also bad fiscal policy. In this process, we as the electorate have to understand where we are -as a nation- in the economic cycle. I guess this would be a good place for the media or the education system to help the process, but media is a private industry where celeb gossip is more profitable than macroeconomics, and education is a money pit for taxpayers.

Unfortunately, you can’t fit that message on a bumper sticker, and my Facebook feed seems to only have enough attention span for clicktivism.

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