Whiting column: Political strategies can’t be isolated from economics
Economics may seem complex, but it’s actually common sense, which explains why politicians have difficulty considering the economic effects of their legislation.
Regardless, economics always wins; it dictates results and ramifications of legislative actions regardless of political postulation.
Newton’s third law “for every action there is an equal and opposite reaction” equally applies to economics. If supply goes down, price goes up. If taxes increase, disposable income decreases. If interest rates rise, business declines. Demand goes up, price goes up; may not seem opposite, but it is given consumers’ desires.
Consequently, economics requires determining the desired result and then developing the strategy facilitating occurrence. If strategy is developed first, desired result may not occur. The actions aren’t independent. One causes the other.
The supply-side vs. demand-side economics debate is an example. They aren’t mutually exclusive. Economically, one can’t occur without the other. Neither is better; they facilitate different results. But neither is sustainable without the other. It’s a Catch-22, chicken-and-egg concept.
Historically, consumer need began the economic process. Without it, neither demand nor supply exists. Supply-side is initially necessary to provide the product/service meeting consumer need. One might argue people grew and hunted their own food, made their own clothes and shelter. But in the 17th century, supply-side made available the necessary seed, plows, weapons, axes, livestock etc. living required.
Supply-side provided the markets necessary to sell or trade the goods people (demand-side) produced. However, the supply-side couldn’t continue without the dollars the demand-side delivered with their purchases. As supply-side grew, the employment aspect of economics emerged out of necessity. With demand-side spending more, the supply-side could provide additional goods and hire more people, further facilitating increased demand-side production and sales. Neither sustainable without the other.
The process occurs independently of governmental action. If desired, boosting demand-side tends to provide short-term economic benefit, while boosting supply-side facilitates long-term economic health. A simplistic explanation but nevertheless valid.
Reducing poverty is a political goal. One chosen strategy is raising minimum wage. It may work in the short-term, but the only way to grow income in the long-term is to increase educational and skill level, which stabilizes employment and amplifies desirability as an employee. The approach of raising minimum wage and/or unemployment compensation does not motivate in this regard.
Economics necessitates considering the status quo when developing legislation regardless of its merit. National gasoline price has risen 33% from May 2020($1.90) to April 2021($3.05). The genesis of the increase was reduced OPEC production which decreased supply. Unusual freezing temperatures shutting down Texas and Gulf coast refineries exacerbated the decrease resulting in $2.42/gallon. The Suez Canal blockage further reduced supply. A post-election political goal was slowing climate change. A chosen strategy was reducing domestic oil production and halting pipelines, further reducing supply when summer travel demand was increasing resulting in $3.05.
Regardless of opinion about climate change, the short-term effect was an additional increase in gas prices because the strategy didn’t consider the status quo and obvious ramifications. In 2020, the average family spent $260 per month on gasoline. A 50% price increase boosts the monthly gasoline bill toward $400, reducing spending in other areas. If economics had been considered, postponing the oil and pipeline reduction until supply and demand had a chance to normalize would have been a better choice.
The negative employment effects of the pandemic necessitated “stimulus” to the demand-side and hence the economy in the short-term. However, continued stimulus beyond immediate need discourages some from rejoining the workforce, harming the economy in the long-term by increasing taxes and reducing disposable income. This promotes a dependency and entitled environment instead of one based on incentive and achievement, especially when increased unemployment benefits extend for 18 months (March 2020 to September 2021).
Statistics and human nature support this concern. Jobs are there, but employers cannot find people interested in working. Garfield County had 1,621 people on unemployment in March; Colorado 121,000. Indeed, government and newspapers listed 1,423 and 101,000 available positions, respectively, not considering non-listing employers.
Passing additional stimulus packages beyond the short-term doesn’t consider the long-term ramification of impending recession. People continue to spend their stimulus and unemployment bonus checks, which helps the economy as intended. But when checks inevitably end, purchasing will cease not only because of reduced funds but because recent purchases reduced their need.
With each passing day, employers are downsizing or realizing they can function with fewer employees. Neither forecasts optimism for an unemployed person or new graduate deciding they desire a career. Not good for either the demand or supply side.
The inevitable tax increases reduce purchasing. Politicians argue taxes on corporations will pay for it, but that demonstrates economic naivete’. Corporations or any business only have money they earn through sales. They can’t create money from good intentions like the government. Corporations only get it from their customers.
If the corporate tax rate goes from 21% to 28%, the money will come from us, the consumer, requiring price increase to replace the money. If the market will not allow the increase, costs must be reduced. The quickest way to cut costs is to reduce employees; not good for the employee or the economy.
It is the personal responsibility of politicians to consider long-term economic ramifications rather than political expediency in their legislation.
Bryan Whiting feels most of our issues are best solved by personal responsibility and an understanding of non-partisan economics rather than government intervention. Comments and column suggestions to: firstname.lastname@example.org.
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