The politics of economic armageddon

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Published: July 17,2011

Tags: economy, taxes

Here we are again — staring into the economic abyss. Compromise, that old tried and true concept of America’s republican form of government, has been taken off of the table.

The American brand of compromise has fallen victim to campaign promises never to do it, signed pledges that taxes could never be a part of it and the demands by the respective Democratic and Republican “bases” that either of them never cut a deal with the opposition. And to think, this is a nation that would probably have never existed at all without compromise at every turn of its founding.

Perhaps it is time for you to do as I have done and draw a line down the middle of a blank sheet of paper. This can be our proverbial line in the sand. Of course, to avoid confusion place the “Democratic” label at the top of the left side of the page and “Republican” on the right. You apparently will have until Aug. 2 to complete your lists of intractable positions on both sides of this line.

For you economists (of which I decidedly am not one) you may wish to place the name of John Maynard Keynes on the left and that of Adam Smith on the right. There are others that you might add for support. For instance, British political and economic thinker Herbert Spencer would add a hard edge on the right. Clinton-era economist Robert Reich could add some currency on the left. Adam Smith is the most often quoted economist in support of unfettered free market capitalism. His writings often caution against allowing the damage of government intervention in any way. In short, according to Smith, there is nothing that government can do to in any way to assist the “invisible hand” of capitalism in doing its job. The individual and his inner motivation for success is thus the engine of wealth creation. Herbert Spencer would add the notion of mutual self -interest. Every person, regardless of how competitive the environment might be, is driven by his/her own desire for success, often in intense competition with others. There will be winners and there will be losers, but that is the nature of the market place. You can place the pure capitalism label on the right.

On the left, Keynes maintains that government could be used as a powerful tool to make adjustments when economic conditions are warranted. His position holds that it is an appropriate role of government to intervene in various monetary ways to improve conditions and thwart problems, and furthermore it is appropriate for government to run deficits when necessary in order to solve problems. Keynes believed in capitalism as the engine, and that government should take care not to overextend itself. This allowance for an activist or interventionist role for government has promoted a more egalitarian philosophy for democratic governance. Thus, when laid side-by-side the right embraces a more purely individualistic philosophy while on the left the possibilities of selective collective approaches become available. It is interesting to observe the left struggle to avoid the “socialist” label while the right defends itself against charges of greed and selfishness.

Where the Democrats dig in on behalf of social programs like Social Security, Medicare and Medicaid that they created decades ago and have guarded ever since, Republicans champion an economic environment that is as free from any government role as possible, maintaining that the success of the individual will redound positively to the livelihoods of those who may benefit from that success. Hence the fight to the death over tinkering with taxes in order to increase revenue versus cutting government programs for social programs in behalf of those who need them. Thus, collectivist approaches to governance compared to individualist guarantees can be added to the Democratic and Republican columns, respectively.

This ushers in the increasingly heated debate of which is more important: A “democratization” of wealth or wealth created by and for pure “free market capitalism.” By stating it this way we are opening the door to the current white hot political debate. When politics enters the discussion then the questions that you have been hearing become possible. These are the ones that pit Medicare, Social Security and school lunch recipients on the left and the “job creators” on the right. Most of all, these are the voters, and they are striking fear in the hearts of the elected as to which side they might choose.

What are the stakes hinging on the outcome of this philosophical debate that in many respects has been running since the dawning of last century’s Great Depression? The predictions run from an earthquake-like impact on the stock market to a jump in interest rates to Carter-era levels. To underscore the realities of such predictions many are being reminded of the hesitation by Congress in September 2008 in passing the TARP legislation. At that time a 777-point drop in the stock market was enough to cure that delay.

The ideological line in the sand has been drawn. The question now is whether the two parties, having pledged “in blood” to their respective bases that they will not yield, will indeed embrace compromise for a solution. Nobody wins if we cannot find the middle ground once again. We should know the outcome on Aug. 2.

Now back to your list.

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