Some draw backs but there's no other way.
They are part of our political DNA
Whigs, No Nothings, Bull Mooses come and go
But GOP's and Demo's run the show.
People gather, goals are set
But without structure they can't be met.
So up with Parties is what I say
Bottom line--there's no other way.
Credit for that limerick goes to a friend whose career with the U.S. State Department took him around the world a few times. He offered it after reading my August 28 posting "Would we be better off without political parties?"
The Democratic and Republican parties have held their conventions, their respective presidential candidates are officially nominated (no surprises were unveiled), the campaigns are fully underway, the polls indicate that jobs and the economy are the top issues in voters' minds, and yet nobody in the political limelight has ventured to state the obvious fact about these issues.
Let's get this out in the open right now. That way, at least we will know this, even if nobody else does.
This is what is obvious, but it is being ignored: The reality of the jobs and economy equation is this--it cannot be solved by manipulating the variables in the ways that are being proposed by the campaigns.
There's no complex or arcane economic theory being offered here. I'm not qualified as an economist. This is not a politically-partisan harangue, although my political affiliation and preferences are clear. This is only a statement of facts and observations that could be made by anybody.
It's really pretty simple. There will be more jobs only when businesses make decisions to hire more workers, and they will make these decisions only when they believe that demand is increasing for whatever it is that they are producing and delivering. It's the whole supply-and-demand thing that is at the basis of a market economy.
The fly in the ointment is that demand will increase only when American consumers decide that the time has come to consume more, or when other countries want to import more of what American businesses produce here in the good ol' USA.
Since conventional wisdom--for whatever it is worth--holds that 70% of the American economy is the result of domestic consumer demand, then domestic consumption is the big lever that will bump up demand, thereby providing justification for businesses to hire more workers.
But that 70% was hurt pretty badly by that pesky Financial Crisis back in 2008, and they--we--are still healing from that hurt. Much of that pain is the product of too much in the way of home mortgages and other such consumer debt.
As a result, an increase in domestic consumer demand will occur only when American households in the aggregate have decided that they have reduced their debt loads enough so that they are at the point where they will want to spend money on things other than reducing their debt loads.
Spending money on reducing household debt levels does nothing to increase consumer demand. In fact, the result is just the opposite: it reduces demand whenever money that might be spent elsewhere is instead being spent on retiring debt. And that is what has been going on since the so-called Great Recession began in 2008; Americans have been financially-focused on reducing their household debt levels.
Forget about causing economic expansion and creating jobs by reducing tax rates. It won't happen. It has never happened, and there's no evidence to suggest that this time could be any different from the past. Consider this graphic which I found on Zack's Investment Research web site:
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| Sources: Tax Policy Center, Federal Reserve |
That's a plot of the relationship between all of the top marginal tax rates and annual economic growth over the last century. In this case, the last century is the time period that coincides with the adoption of U.S. income taxation through the 16th Amendment to the Constitution.
If you can see any kind of trending relationship between lower tax rates and higher economic growth--or, for that matter, between higher tax rates and lower growth--then you have a better imagination that do I.
Removing or reducing government regulations on business won't solve the jobs equation, either, because such an action does nothing to increase consumer demand. Some regulations probably deserve to be taken off the books, but generally for reasons other than job creation.
And let's not have an increase in taxation of consumers that would make it more difficult for households to complete their debt reduction process and delay the eventual recovery in domestic consumption. Instead, use government policy to encourage faster household debt retirement and a more expeditious return to growth in domestic consumption.
There's one more thing that neither campaign is brave enough to tell us: The size of the national debt ought to be thought of as beside the point, because it is. What matters is the annual debt service; in other words, the annual interest payments. Even with a growing amount of national debt, the hyper-reduction in interest rates keeps a lid on the interest payments, most of which gets paid right back into the United States, anyway.
Don't waste your time on thinking about ways to pay off the national debt. It's never going to happen. More importantly, it never should happen. The U.S. dollar is the world's most popular currency because people feel that it's the safest. Safety comes from liquidity, transparency and supporting economic growth. U.S. Treasury debt is highly-liquid, totally transparent, and American economic growth, though currently modest, is real. Also, our economy is the world's largest (by far) and is supported by a mature and well-known legal system
Instead of fretting about the government's debt, aim your creativity at ways to increase the growth and size of the American economy, because the concern about the national debt will rightfully fade away once the nation's GDP is growing faster than is the size of the debt. The country had a relatively much higher debt load after World War II, and it was American economic growth, more than anything else, that neutralized any negative effects caused by the debt. Perhaps at some point it will turn out to be prudent to pay down a portion of the national debt, but if that ever appears to be so then everybody had better take a time-out and think again about how such an action could absorb money that would otherwise be used in consumption, and how that would cost jobs again.
Which brings us back to the American consumer, the demand from domestic consumption, and 70% of the nation's economy.
Our politics need to do something to make households comfortable with their debt loads so that they can consume more. That will increase demand for goods and services, which will give businesses a justification to spend at least some of that horde of money that they have on hand by hiring more workers.
The devil, as they say, is in the details, and I'm not smart enough to figure out those details. At this point, it does not appear that the party campaigns have people who can figure them out, either. It's good to know that the problem isn't just with yours truly.
Somewhere along the line before the election, we deserve to be hearing an economic campaign theme that is devilishly different from what we have heard so far.
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