YOU DECIDE: Can we agree on the economy?
Date posted: August 15, 2012
Media Contact: Dr. Mike Walden, 919.515.4671 or firstname.lastname@example.org
By Dr. Mike Walden
North Carolina Cooperative Extension
Is there any agreement about the economy? You wouldn’t think so by listening to various campaign ads, news debate programs or lunch discussions at work. It seems like rather than coming together on solutions and approaches, we’re pulling farther apart.
One conclusion is that this is just the nature of our discourse. Especially in an election year, candidates want to set themselves apart from their opponents, and this is usually done not by agreeing but by disagreeing.
But what if I told you that behind the scenes there actually is substantial agreement about what’s needed in the economy, especially from our public policy makers? Well, the good news is there is agreement in at least six areas (by my count) that span the economic and political divides. Here they are.
1. The increased borrowing and growing debt of the federal government is a problem that must eventually be addressed.
Under virtually all scenarios, the national debt is expected to increase, not only in dollar amount but more importantly as a proportion of the economy. Numerous economic studies show this situation will lead to slower economic growth and more modest improvements in living standards. So the debt growth curve must be bent downward.
While there’s agreement over this conclusion, there’s disagreement about how soon action should be taken. Some economists think the national debt problem needs to be addressed immediately, arguing such actions will create confidence about the future and lead to a spike in business investments. But others say that with the jobless rate so high, so much money sitting idle in banks’ vaults and interest rates for borrowing so low, now is the time for government to borrow and spend money on big projects (infrastructure, highways, energy) that will create jobs today.
So, yes, there’s agreement about the problem, but disagreement about the timing of a solution.
2. Certainty about economic policy is good.
Although surprises are sometimes fun, in the business world, unpredictable events create confusion, questions and a reluctance to take risks that can lead to economic growth. While uncertainty can’t be removed from all decisions, government can do its part by laying out a clear policy path and sticking to it. Continuing shifts in policy over taxes, spending, regulations and programs can motivate investors and entrepreneurs to do the equivalent of putting their money in a mattress rather than building and expanding companies and ventures.
3. Simple taxes are better than complicated taxes.
If taxes are a necessity, then it’s better to have those that are easy to understand, transparent and clear in their calculation. Hidden and complicated taxes lead to distortions, misunderstandings and, quite frankly, concern by individuals that they are being treated unfairly. But although most recognize this principle, changing from a complicated tax system to a simple one is a task worthy of an Olympic medal!
4. A long-run fiscal plan is needed for the country.
The federal government, in particular, faces immense challenges in the next 50 years with respect to taxes, spending and debt. Rather than making decisions on the fly, most economists and policy analysts agree an adopted long-term plan addressing these issues would be enormously helpful. Several such plans have been presented in great detail. Obtaining consensus over the details is, of course, the issue.
5. Low and predictable inflation is preferred to high and variable inflation.
Successful people and businesses plan. Importantly, they plan where their income is coming from, and they plan where their spending goes. Rapidly rising prices — and even worse — prices that are rising at erratic rates make this financial planning harder. It increases the likelihood we’ll miss our targets and overspend, or it means we’ll have to cut back in areas that will ultimately harm us. In short, high and variable inflation rates add stress to our financial lives.
6. Government is needed.
Few would disagree with the notion that government is needed. Instead, the disagreement is over what government should do. Those espousing limited government see the public sector’s actions focused on protection (including the military), enforcement of contracts through the courts, the regulation of monopolies and the encouragement of competition, and certain regulations related to public safety and public health. Those seeing a broader role for government would add roles for income support and income redistribution. Much of the debate about government in the last 70 years has been about where the pendulum lies between these narrower and wider roles.
So in the midst of all the contention we hear, there is some common ground, but there’s also some disagreement over details. You decide if this is enough for a solid future!
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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide
Related audio files are at http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective/
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