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July 31, 2014

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Letter to the editor:

A change is needed to fix the economy

The mainstream media is inundated by discussion of both Keynesian and supply-side — trickle down — economics.

Keynesian economics proclaims that deficit spending (government expenditures that exceed revenues) will spark the economy. Supply-siders maintain that reducing taxes and easing regulations will stimulate economic activity and thus lead to a boom. This, they believe, will end up increasing federal tax revenue caused by an increase in economy-wide incomes.

Neither of these economic theories have been successful during this current economic downturn. And there is no guarantee that either of these methods will work any time soon, even though both may well have unintended consequences, such as major long-term debt and unemployment.

The debt is out of control because both of these methods combined add to the federal deficit. It would be unrealistic to increase taxes above their current levels when there is general hardship throughout the land, and people need the cash in their pockets to survive. On the other hand, taxing the “rich” — those earning over $250,000 — will only provide marginal revenue and dampen the incentive for job creators in this group.

So for the present, we remain mired in economic malaise, while Keynesians and supply siders both argue their cases in the public square.

Ultimately, it is a return to noninterventionist policies based on individual economic freedom and the market that will be needed to turn the economy around.

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  1. I agree with the letter writer up to a point. Keynesians, and Paul Krugman their loudest living proponent, would have all of us believe if more spending doesn't work, you have to spend even more. With this theory, cities, states, and even governments, like Europe, eventually topple from insolvency and bankruptcy. Once that happens [insolvency], even the turn around of businesses, markets, and economic cycles don't matter.

    CarmineD

  2. We had an experiment with supply side economics in the 1980s that was a colossal failure. Eventually tax revenues increased but not enough to offset increased spending. The net result at the end of the Reagan administration was a National Debt 2.5 times what it was at the beginning.

  3. Pimco put out a report last week in which they see anemic growth for as far as the eye can see. Why??? Restrictive lending practices, no savings, and wage growth that has barely kept up with inflation. Our economy is consumption based. The more we have to spend the stronger is the growth.
    This economy will be in the mud until businesses start paying people and medical and education costs start to moderate.
    Medical is one of the major causes of people going bust and the trillion in outstanding school loans will adversely affect wealth creation by the young.

  4. The domestic savings rate has been near zero for decades and those that have saved and invested have been hit with one severe financial dislocation after another since the 1987 stock market crash.
    This has resulted in nearly all the financial assets of the nation in the hands of a few million people. Those few can not generate the necessary consumption for vibrant growth.
    Americans are essentially bust and lining up for welfare to the tune of tens of thousands a day.
    Free market capitalism is KAPUT. On to the next big economic invention.

  5. http://www.politifact.com/florida/statem...
    Mr Heeman...The healthcare statement is bull. Domestic savings has been nil for 30 years plus. Wage growth plus robust savings leads to growth and prosperity. We have neither. Businesses have socked money away largely due to activities in areas of the world that have strong growth. They will hang on to the money because they know the domestic consumption problems will persist for decades.
    The vast majority have very little money. That is the single biggest issue in a consumption driven economy.
    http://moneyland.time.com/2011/06/01/nea...

  6. What is going on currently is a culmination of 40 years of globalization. The creation of a quadrillion worth of financial assets and derivatives. Nearly $250 trillion in financials and $700 trillion in derivatives.
    Whether the world economy can balance itself while sitting on that much paper remains to be seen.

  7. I don't think this can be seriously discussed in the Opinions site.

    There are better places to discuss economics in a serious way and without propaganda.

  8. A great part of the problem is WHAT we're spending it on. We spend little on the essential functions of the U.S. federal government and endless amounts on other nations' priorities and non-citizen concerns within the U.S. We even can't get around to refining things that are essential--fraud, waste and abuse within our state and federal welfare programs--benefit fraud, waste and abuse. The feds, and certainly no one in the state, looks at applicants defrauding us with fake birth certificates and/or ID theft AND parents claiming handicaps for normal kids. We fail to spend in a cost-effective manner: secure the border AND expel illegals that are bankrupting our schools, courts, law enforcement, UMC / health care.... We'd save trillions, literally, by expelling 15 million illegals and their anchor babies.

  9. It is hard to believe that any person in the Opinions site doesn't understand the definition of propaganda. A dictionary can bring enlightenment.

    The article was about a need for a fix. This necessitates an understanding of economic systems, which is broader and requires looking at the many subcategories involved and analyzing how they would serve our nation.

    Are there any professional economists here?

    What kind of economics is being referred to as a potential substitute for what we have now?

    What are the alternative systems we can consider, since neither mentioned satisfies everyone?

    Are we talking about supply side; classic, post, or neoKeynesian? Which?

    What kind of an economic system do we really have in the US?

    Is there any NEW economic model that offers an alternative to those previously mentioned? What are they?

    Can anyone name, describe and discuss a new model, or a new economic theory different from what we are accustomed to, without bringing in partisan propaganda?

    Or is this only about exercising a partisan gripe session, which does nothing to address a "fix" of the two old schools fluctuating in our economic system and bringing dissatisfaction to opposite sides?

    If not, can we please divide the country into 2 or 3 separate countries with different economic & political systems, that allows everyone to decide which system they prefer to live in?

    Then maybe we can have some peace and each country can focus on what they consider the 'common good' according to their particular system.

    Of course, after one decides which country they want to live in, changing their mind would require a process of legal immigration from one country to another.

  10. Mr. Heeman:

    I enjoyed reading your comments on the CBO, its scoring of Obamacare and the rose colored scenarios of the left.

    CBO won't go beyond the 10 year predictions and forecasts for obvious reasons.

    On Obamacare, CBO for the decade went from $950 B, to 1.2 T to 1.7 T. So the liberals tell us the CBO is coming out with new numbers on the week of July 23. At least they got that right from the CBO site. Do they really think the costs will go down? Duh? What a group. Take away their rose colored glasses, there's more red gov't ink, and they still think it's black.

    CarmineD

  11. Bob and Carmine: The economic theories that work(ed) don't work any more because we've gone to extremes. Stimulus could work if there was some wiggle room in our economy, but there isn't. We've taxed and taxed so that Americans live in lower life styles while we boost European life styles, African life styles, Mexican...... We keep sending much too much of our wealth overseas--via wars, military installations everywhere (despite technology advances that we can get there pronto), economic aide, medical aide, food aid, training aide, trade imbalances.... Just how much can we pull out of the economy year after year and not impact business, industry, economic fluidity? Not as much as we've been pulling out. How to fix? Stop it and do some serious things to regain what we've given away.

  12. Mr. Heeman:

    Note.. if you quote conservatives, you're too partisan. If you quote the CBO, it's not non-partisan enough. If you quote dems like Cory Booker and Clinton, it's an anomaly. Can't win with the liberals. First, they laugh. Then they scoff. Finally they agree. It takes them awhile to see the light. Usually, after they feel the heat.

    CarmineD

  13. El Lobo: WRONG again. Do the math. While the wars were and are serious drains to the economy, ILLEGAL immigration by itself is bankrupting the entire nation. Each illegal kid costs American taxpayers in excess of $200,000 just for K-12. Add in vaccines, emergency health care, food stamps, law enforcement, their share of illegal incarceration.... AND add in the constant drain on our non-profit food banks, thrift stores, school supply aide. 15 Million illegals plus as many illegal anchor babies CLAIMING to be citizens....
    The American economy cannot support what we've got now and you think ignoring an escalating problem (escalating even if borders are secure right now) is gonna help?

  14. Neither those who support Keynesian or supply-side theories take into account that our economy is not a "closed system."

    We have a huge "money leak" in the form of our balance of trade deficit. A significant portion of every dollar spend as either stimulus or tax break winds up leaving our economy, greatly reducing the multiplier effect that both class of theories depend on.

    Fix that leak and then we can see what theory really works.