Global Connect

Generally I don’t really want to touch on domestic issues because frankly I’m more interested in things that are on the international level, but this time I will digress. Recently I read an article by Alan Blinder regarding American political intervention in economic affairs. In short, he suggests that we tend to have soft heads and hard hearts in formulating policy. Like him, I too believe that we should have soft hearts and hard heads.

Its not too difficult to have hard heads when it comes to economic policy. In theory that is. However, as Americans, we do tend to create policies that can be explained in 10-second sound bites and in turn bankrupt the economy. Take for example, the Reagan administration. He proposed tax cuts and deregulation, but never a balanced budget (George W. Bush as well). Tax cuts were promoted on the basis of the infamous Laffer curve, that cutting taxes will over time raise revenues. However, people tend to forget or neglect that there is no factual base to this. If you know, where is the threshold where cutting taxes raise revenue. I must say that cutting taxes for ideological reasons has more basis than the Laffer curve. Deregulation in the 80s occurred in certain sectors, except the government actual grew in others. Not to mention, the deregulation through the 2000s (including with Clinton, to be fair) in no doubt contributed in some way to the current crisis we can only hope we are [getting] out of.

No one really understands that as Americans we pay some of the lowest amount of taxes in the developed world, but we also have run persistent budget deficits since the 1980s (except for a 3-year period at the end of the Clinton years). Yes, we are proud of our liberal (little l) upbringings, because any tax is too high. No one can politically run on the platform to raise taxes. That is suicide. However, there are things we as Americans do need to take responsibility for- and the first thing should be to ourselves. We can cut spending in certain areas and tax in others and still cut the budget. I know I’ll get a lot of flack for this, but let’s say that it is proven that the liklihood (not that it won’t happen, as 9/11 showed us) of getting killed in a terrorist attack is nil. However, we subsidize corn farmers and there is a obesity problem that is exasperating the healthcare crisis (i.e. corn syrup, look at your ingredients). It doesn’t mean some spending is important, but we should spend more wisely. I might add that if you are going to complain about socialism, government handouts to farmers is redistribution of social resources for the “good of the country.”

Did we forget about Keynes? I think he has some new-found importance now that we are in the Great Recession.