Fiscal Policy Archives -

This just in: I haven’t been blogging for a while. I’m not exactly sure why but “futility” comes to mind. I’m just one person shouting into the wind. However, I think the time has come for me to post a few times; at least enough to clear my head.

Today, I’m going to talk about economics and the coming recession. A recession can have a few definitions but generally, it is a fall in Gross Domestic Product for 2 successive quarters. In short, we become less productive for about 6 months or more.

The two options available are Monetary and Fiscal.

Monetary refers to the abundance or scarcity of money. When there is more money in circulation, we tend to spend it. When we spend it, companies have to produce more. Jobs are created etc. To put more money into circulation, the Federal Reserve lowers interest rates. Lower rates mean we can borrow money cheaply. We buy houses and then fill those houses with stuff. Historically, the FED will take a 6.5% interest rate and maybe lower it to 2% or something like that. However, right now, money is already cheap (2.25%) so there is not much room to lower it even more. So, monetary policy is basically neutralized…not available to make a big impact.

Fiscal refers to government spending and taxation. The government can raise taxes that will take money out of consumer pockets and thus, cut spending. So, doing the opposite – cutting taxes, will put more money into people’s pockets and increase spending and thus, get the economy moving. However, we have already cut taxes more than we can afford to (see skyrocketing national debt). But wait, the government can increase spending and that will put money back into the economy. This works! However, if we are already spending more than we have, this should be kept as a last-ditch effort. For example, deficit spending is considered one of the best ways to get yourself out of a recession, once you are already there.

Tariffs are a form of taxation. In spite of what you are hearing from the White House, Americans are paying the taxes we are imposing on Chinese goods in the form of tariffs. There is no economic justification for the current tariffs. Yes, there seems to be some political justification but that is more of a Trump Personality issue. If we remove the tariffs, that gives us immediate relief from one of the biggest taxes out there.

Immigration, or lack of it, is a real problem. If we don’t allow immigration, we will not be able to sustain any real economic growth. This is because our population growth without immigration is dropping every year. If we have a fixed population and we want to have economic growth, then those that are working, have to be more productive year after year. Imagine how much you contribute to our economy right now. Next year, you must do even more, then more again. Immigration is not an economic burden. Immigration is an Economic Necessity if we are to avoid a recession. It is an Economic Necessity if we find ourselves in a recession and want to get out of it.

Green Energy is the next big economic driver in the world. If we want to be a part of it, we need to start playing. Economically, I am progressive. I’m looking forward and all I see is Green. Someone that is conservative is holding on to a past that is fading in our rearview mirror. Yes, you can invest in coal…but I wouldn’t recommend it and it is an industry in decline.

Trade opens more markets for our goods. Trade deals help amplify the benefits of trade. For us to make these agreements, we need to do two things: (1) make sure the interests of the other parties are also satisfied or they will not play and (2) make sure that people entering trade deals with us are confident that we will hold up our side of the deal. Right now, the entire world is side-stepping the United States on economic issues because we satisfy neither of these two requirements.

That’s enough for now. Time to save the world.

Up, up and away…

Jim

This just in: Among Trump’s many, many problems, the fact that he is an uneducated child is one of the biggest.

I suspect that a lot of presidents have not been good at economics. I don’t know this for a fact because they could appear knowledgeable by leaning on the expertise of others.

Trump has shrugged off this idea. “He speaks his mind” is somehow seen as a strength even if what he says is babble.

For example, trade agreements are often seen as a good deal. Sure, there is some give and take but in the end, we lock in a trading partner instead of losing them to say…China. Trump, doesn’t agree with this. He thinks agreements need to be one-sided where he gets all of the gains and the other gets the “privilege” of trading with us. He is alone in this as country after country turns away from us in search of other partners.

Another example is the Executive use of tariffs. Tariffs are a tax on ourselves. Because Trump is trying to bully China or Canada or the EU, we will pay much more for products from those countries. He’s pretending that if we make Chinese steel more expensive, we will buy steel from the United States. It’s as if he thinks there are steel mills that are currently idle and just waiting for prices to change in their favor. Of course, this is pure nonsense. But, there is a “being a bully” component that seems to give Trump a woodie.

Now he is picking on the Fed. To talk about this, I need to clarify a couple of terms.

Fiscal Policy is that policy that covers government expenditures. The government can choose to put more money into the economy, or take it out, based on what they want to do. A tax cut is a fiscal policy. It puts more money into the economy and thus stokes the fires of growth.

Monetary Policy is controlled by the Federal Reserve. This is the policy of raising and lowering interest rates to control how much money is in the economy. The Fed acts to “cool down” an overheated economy or to keep inflation in check.

From the late 1980’s to the mid-2000’s, the U.S. economy didn’t experience huge swings between growth and recession. This period, known as the Great Moderation, is in large part due to the active role the Federal Reserve played using Monetary Policy. They raised interest rates when inflation started to rise and they lowered interest rates if a recession started to look likely.

The tax break is causing inflation. The Fed is controlling this inflation by raising the interest rates. Higher interest rates increase savings and decreases borrowing and thus…takes money out of the economy. Money is more scarce so it is more valuable therefore, the buying power of a dollar is greater and thus…inflation is stopped.

Now, if you read and understand everything I just wrote, you know ten times more about economics than Trump.

Today, Trump is trying to pick a fight with the Fed. This is like a beaver arguing with NASA about the design of a rocket.

Vote in 2018. Pick a candidate that knows how to use the talent around him or her to make sound choices. Or, vote Republican and support the uneducated child that is running our country.

Time to save the world.

Up, up and away…

Jim

Tag Archives: Fiscal Policy

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