Continents Apart in Economic Ideology

Henry Oliner
Obama's prescription for more deficit spending has run into the brick wall of the G-20 who has rejected that policy.  America is being lectured on fiscal restraint by the president of the European central bank. It would be hard to find a clearer example of our loss of economic leadership.

This is largely the result of the vast difference in our financial histories. America lives in the shadows of the Great Depression, a deflationary experience.  Falling prices, falling wages and high chronic unemployment scarred our psyche for generations.  We baby boomers grew up with depression stories from our parents.

Europe's tragedy of World War II was a story of runaway inflation which contributed greatly to Hitler's rise to power.  While Americans are willing to accept some inflation to avoid deflation, the Europeans have a much greater fear of inflation.

Deficit spending can have a stimulative effect, but it is limited.  Stimulus spending does not function in a vacuum; the longer it lasts the less effective it is.  What works in one quantity does not necessarily work in another much larger quantity.  If a $1 higher minimum wage is good (it isn't) , it does not follow that a $5 higher minimum wage would be better. The same is true with deficits.

Any expected benefit from deficit spending is being undone by job killing legislation and higher taxes that is freezing business investment or growth.  The more frequent and the more drastically we change the rules of the game the less likely business is to respond to any stimulus.  Frequent radical change encourages short term thinking at the expense of long term planning.

Success is knowing what worked yesterday. Knowing what actually worked is still debated and is far from clear to our current administration. But even if it was, it is not a guarantee that what worked yesterday would work today or that it would work in a drastically different size and context.

Henry Oliner

www.rebelyid.com


 
Obama's prescription for more deficit spending has run into the brick wall of the G-20 who has rejected that policy.  America is being lectured on fiscal restraint by the president of the European central bank. It would be hard to find a clearer example of our loss of economic leadership.

This is largely the result of the vast difference in our financial histories. America lives in the shadows of the Great Depression, a deflationary experience.  Falling prices, falling wages and high chronic unemployment scarred our psyche for generations.  We baby boomers grew up with depression stories from our parents.

Europe's tragedy of World War II was a story of runaway inflation which contributed greatly to Hitler's rise to power.  While Americans are willing to accept some inflation to avoid deflation, the Europeans have a much greater fear of inflation.

Deficit spending can have a stimulative effect, but it is limited.  Stimulus spending does not function in a vacuum; the longer it lasts the less effective it is.  What works in one quantity does not necessarily work in another much larger quantity.  If a $1 higher minimum wage is good (it isn't) , it does not follow that a $5 higher minimum wage would be better. The same is true with deficits.

Any expected benefit from deficit spending is being undone by job killing legislation and higher taxes that is freezing business investment or growth.  The more frequent and the more drastically we change the rules of the game the less likely business is to respond to any stimulus.  Frequent radical change encourages short term thinking at the expense of long term planning.

Success is knowing what worked yesterday. Knowing what actually worked is still debated and is far from clear to our current administration. But even if it was, it is not a guarantee that what worked yesterday would work today or that it would work in a drastically different size and context.

Henry Oliner

www.rebelyid.com