Before continuing, let me say that in some ways I regret that this post is grouped in the category, “Politics and Economics,” because the central thesis is that we need to remove political labels from legitimate economic tools.
There are three major tools that the U.S. government uses to help the economy, either to stimulate it when more jobs are needed or to slow it down when inflation is too high. One of those tools, monetary policy, is a constant that is controlled by the Federal Reserve Board, which acts autonomously. While it has its critics, its autonomy places it beyond the reach of partisan politics and, therefore, is not subject to analysis in this post.
The first tool, historically, is called Fiscal Policy, first applied by Franklin D. Roosevelt during the Great Depression. In a nutshell, it means having the government create programs that directly or indirectly put people back to work by spending money. We often hear people proclaim that, “government would work better if it were run more like a business;” however, this attitude contradicts fiscal policy. In times when more jobs are needed, it is unfair to place a burden on businesses to hire more workers and, since the government is not profit-driven, it can create jobs when conditions discourage businesses.
The most recent of the tools is called Supply-Side, first applied by Ronald Reagan. It works by cutting taxes imposed on corporations and the most wealthy. We often hear people proclaim that, “it is unfair to give tax cuts to the people who are already well off;” however, this ignores the basic reality of income. When wealthier people get tax cuts, they don’t need the money to survive, so they can afford to put the money into savings. When lending institutions have more money in savings, they have more money to lend to investors who can create new jobs in the private sector.
Unfortunately, both of these tools are weakened by politics. Democrats, for the most part, are fiercely loyal to fiscal policy, remembering that it was used by the Democratic President Roosevelt to take us out of the Great Depression. But this loyalty makes the economy more and more dependent upon the government to keep it running, at the expense of private companies.
Republicans are correspondingly loyal to supply-side policy, remembering the job creation under Republican President Reagan that came without heavy government involvement. But this loyalty leads to a strong distrust of government regulation, which means that many of the jobs that are created are created outside the United States, plus there is no guarantee that the taxes saved won’t be spent on luxury goods that create few new jobs.
In summary, then, both of the major parties need to stop looking at these economic policies in partisan terms. There are politicians who argue that, if corporations are given tax cuts, they should be forced to invest the money in creating American jobs. There are also politicians who have formulated ways to gradually convert government-created jobs into private sector jobs. The time has come for all politicians to cross partisan lines, follow the aforementioned trend-setters, and do what is best for the country.