Cyclical and structural issues
Date posted: March 9, 2012
It’s easy to get confused over proposals to fix the economy. Some say the answer is more government spending, while others say government spending is the problem. Is there an easy resolution? N.C. State University economist Mike Walden weighs in.
“One reason, I think, for these for these different views, particularly in government spending, is we really have two sets of economic issues: We have one set that economists call the cyclical, which relates to the irregular ups and downs in the economy. For example, we go through growth periods and recession. We’ve had 12 of these cycles since World War II. That’s one set of problems.
“Another set of problems have to do with long-run issues in the economy that span these cycles. We call those structural issues. And each of these sets of issues sometimes (has) different solutions, or at least different approaches. And more interestingly, sometimes the approaches are exactly contrary. For example, a very good example is that recently the Congress renewed the reduction of the payroll tax, which will result in the average person getting about $40 more a week in their paycheck. Now that’s designed to deal with the cyclical issue we have in the economy of the economy growing slowly, notion being, Put more money in people’s pockets, they’ll spend it. That’ll help grow the economy.
“But from a structural point of view, you have to realize that payroll tax funds Social Security and Medicare. And one of the long-run structural problems we have in the economy is we’re going to run out of money for Social Security and Medicare. So that payroll tax, although it may help people in the short run and help the cyclical problem, it’s going to hurt this long-run structural problem related to Social Security and Medicare.
“So, I think this is one reason … why economics and these public issues are not easy to solve and why there are big, big disagreements.”
Category: Economic Perspective