Personally, I’ve never been very passionate about politics.  I do enjoy watching Jon Stewart, but outside of satire there are a lot of things that repel me from political debate in the United States.   Chiefly, I don’t like the constant use of hyperbole by pundits, I don’t like negative television campaign ads, and I don’t like those political news programs where everyone talks at the same time.

Despite my aversion to many hallmarks of the American political system, I have been thinking more about the direction of the country as we approach the general election this November.  Additionally, one of my friends from high school recently co-authored an article (featured in shortened form here on Politico) that got me thinking a bit about the future of our economy.

Generally, it seems to me that everyone (Republicans and Democrats) think that things are going pretty crappy with our economy.  Unemployment is high, job growth is slow, home prices are stagnant and our national debt is very high and climbing.  If I’m interpreting the world correctly, both sides of our political landscape are proposing a plan to turn around our economy, however there is vast disagreement about how to accomplish this goal.

On one side (let’s call it “the red side”) the first step to economic recovery is cutting taxes and finding ways for our government to spend less money.  This will keep more money in the pockets of our citizens and allow individuals to do things with their extra money that will stimulate our economy.

On the other side (the blue side) the first step to economic recovery is to invest in roads, infrastructure, education, first responders, etc.  By having the government invest in these things (and spend more money), it will give more people jobs and help us lay the groundwork for a more prosperous future.

The source of the problem here is that, generally, both of these plans make a lot of sense! Both could lead us to economic recovery, but only if they’re executed correctly.

For instance, if we collectively decided to head in a more “red” direction, what programs would be cut to save our tax revenue?  No matter what we cut, it’s going to disappoint someone – I think it’s important that we all decide what programs are really the most important and what programs can be let go.  Also, who gets the money that is saved by cutting programs?  I have a hard time with the notion of giving more money to the extremely wealthy, but I also don’t like the idea that some people pay very little taxes.

If we were to collectively decide to go the other direction (the “blue” direction), how much money should we “invest” in the short term to get the long-term benefits of economic recovery?  If we don’t spend enough money, we may not get any of the benefits at all.  If we spend too much money, we may put ourselves in so much debt that it’s impossible to dig ourselves out.

By focusing our national political debate on high-level general arguments, rather than details and specifics, we position our citizens to prematurely take sides and engage in unwinnable debates over what general direction is best for our country.  The real way for us to fix our economy is to start working together.  We need to start discussing the details and specifics of each plan and everyone needs to be ready to accept the decision of our national election.  No matter which direction we choose, we will likely fail if only half of the country is committed to making it a success.

How to Fix the US Economy
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  • So, you were pretty impartial until you got to:

    >The real way for us to fix our economy is to start working together.

    Alas, that’s a Democratic conceit.

    ___

    In any event, I broadly agree, though less so in specifics. Some nitpicks follow.

    A non-trivial problem with the current political climate is that people are focused less on solving the problem and more of winning points against the other side – and you can’t win points if you agree 90%, but disagree about small parts.

    So discussion about our economy tends to become divorced from reality. It’s fun to watch.

    Also, this didn’t make much sense:

    > how much money should we “invest” in the short term to get the long-term benefits of economic recovery?

    Well, anything that has a positive ROI over some time horizon (e.g. 30 or 50 years) would be a great investment. Given how low interest rates are, it would be financially healthy to borrow an essentially unlimited amount of money if there was a positive ROI greater than the interest rate.

    You could easily drop > $5 trillion into projects with those characteristics, and probably (much) more.

    Another minor issue –

    >We need to start discussing the details and specifics of each plan and everyone needs to be ready to accept the decision of our national election.

    The idea that a national election between two parties constitutes a particular policy mandate is, I think, very misguided. People aren’t voting on specific policies; they are voting for a candidate and a party. For some reason; but surveys and polls suggest that actual policy distinctions have almost nothing to do with it (in the USA).

    Oh, one final note –

    >On one side (let’s call it “the red side”) the first step to economic recovery is cutting taxes and finding ways for our government to spend less money. This will keep more money in the pockets of our citizens and allow individuals to do things with their extra money that will stimulate our economy.

    I strongly recommend you read this book:

    http://www.amazon.com/The-Holy-Grail-Macroeconomics-Recession/dp/0470824948/ref=sr_1_1?ie=UTF8&qid=1344214352&sr=8-1

    The argument is that in a financial crisis that has, as a characteristic, a large accumulation of debt, then after the crisis people will focus first of repairing their balance sheets, and second on spending money.

    In other words, money will be sucked out of the economy (and velocity will decrease). This occurs because consumers and businesses push money towards banks, who are then free to loan it – but if interests rates are already touching the zero lower bound, then there’s effectively no demand for money / credit anyway. So banks end up with large financial reserves and no one to loan money to.

    I’m somewhat skeptical of the idea that reducing taxation (by how much?) can actually stimulate the economy. That’s only true if you’re sufficiently far up the Laffer curve, and I don’t think that’s the case, e.g.

    http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-of-gdp/