- Jun 30, 2001
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I posted this in another thread, but since not everyone will look in that thread, I thought it would be wise to make a new one.
Here are some general facts about economics. The first set are things everyone should know. I tried to make them as simple and non-political as possible. The second set get a bit more into politics, but I tried to remain neutral and only give facts, but I know that I didn't succeed at times. Please be forgiving and look at the general point I'm trying to get across. I tried to not assign any blame or ponit the finger at anyone. If you object to anything, please quote the specific problem and give me a specific reason why you think I'm wrong. This is intended to straighten out some things that I think most people don't know (or I would assume they don't know based on their comments). Please review this carefully so we can have better discussions on subjects that deal with our economy.
I should also mention that these are not actually facts. They are the most commonly viewed theories. Economics is not an exact science and changes all the time. It is also impossible to prove or disprove any of this.
1. The economy moves in cycles. The 1990's were not typical. 10 years w/o a recession was unheard of. Typically, you have approx 4 years of good economy, then a short recessions, then things start to pick up again for another 4 years. It's called the Business Cycle. The number of years of good/bad economy doesn't matter, just that recession is normal and occurs on a regular basis.
2. During periods of economic growth, our gov't typically gets more $$$ and with proper spending controls, we should be able to have some surpluses.
3. During recessions, our gov't gets less $$$ and typically runs into debt. Usually we have longer periods of growth than recession, so technically, we should be making up the debt during our growths (which we do not because of deficit spending during growth).
4. Our economy is said to be going up when GDP is rising. GDP is Gross Domestic Product and it measures how much money is spent on new item purchases. Buying a new car increases GDP. Buying a used car does not. Our economy is said to go down (recession) when the GDP goes down.
(These next two are theoretical. That means this is what SHOULD happen according to economists)
5. If people have more money, they will spend more money. When people spend more money, GDP goes up.
6. If a business has more money (because people spend more), they will be able to increase production and hire more workers or pay their existing workers more. When they hire more workers or pay existing workers more, more people have more money to spend. See item 5.
This is all stuff you would learn about in your first couple WEEKS of introductory economics. I don't think anyone could argue with what I just said. Learn this stuff before you say another word on anything having to do with our economy.
Here is the more controversial stuff, but it's all simply fact...
7. The economy started going downhill in 1999, during Clinton's term.
8. We fell into a recession approx one month after Bush took office. This means that there is no way that Bush could be in any way responsible for the recession. First because recession is normal and can't be stopped anyway. Second, he also can't possibly be directly or indirectly responsible for it because nothing he could have done would have such a quick impact on the economy.
9. Cutting taxes is one major way to fight recessions. Usually, one of the first things to do when faced with a recessions is to cut taxes. This will leave more money in individual's pockets, thus they will be willing to spend more. Bush implemented round the board tax cuts which means that everyone got a tax break, not just the rich. Please don't bring up that old rhetoric about the rich getting an unfair share of the cuts. That is another issue that I will not discuss because it's too lengthy. Suffice to say, it is not a good arguement.
10. Another way to fight a recession (which I do not personally agree with) is to increase gov't spending. This will send more money to business' as the gov't buys stuff from them. Once the business' have more money, they will hire more people which means that people will have more money to spend, and yadda yadda yadda (if you don't get it, take an economics class). I don't like this method because our gov't is spend happy and I feel like they are just bypassing the system when the do this. Limited increases in gov't spending is ok, but it shouldn't be major.
11. Another way to fight recession is to lower interest rates. Only the prime interest rate can be directly controlled (the rate banks charge each other for overnight loans). This means that people can borrow more (for less) and thus they will have more money and they will spend more, etc...
12. Bush has used all 3 of these tools to fight this recession. Technically, the recession ended long ago, but no one can figure out why unemployment has not risen. Normally, when business' get more money, they will hire more workers, but they have not. One oppinion is that our jobs are going overseas or that immigrants are coming in and taking all our jobs. There is no concrete evidence one way or the other. (my oppinoin: Since no one knows why unemployment has not risen, it is unfair to blame Bush for this.)
I'm sure there is more, but hopefully after reading this you will be more informed and we can stop all this nonsensical bickering.
Here are some general facts about economics. The first set are things everyone should know. I tried to make them as simple and non-political as possible. The second set get a bit more into politics, but I tried to remain neutral and only give facts, but I know that I didn't succeed at times. Please be forgiving and look at the general point I'm trying to get across. I tried to not assign any blame or ponit the finger at anyone. If you object to anything, please quote the specific problem and give me a specific reason why you think I'm wrong. This is intended to straighten out some things that I think most people don't know (or I would assume they don't know based on their comments). Please review this carefully so we can have better discussions on subjects that deal with our economy.
I should also mention that these are not actually facts. They are the most commonly viewed theories. Economics is not an exact science and changes all the time. It is also impossible to prove or disprove any of this.
1. The economy moves in cycles. The 1990's were not typical. 10 years w/o a recession was unheard of. Typically, you have approx 4 years of good economy, then a short recessions, then things start to pick up again for another 4 years. It's called the Business Cycle. The number of years of good/bad economy doesn't matter, just that recession is normal and occurs on a regular basis.
2. During periods of economic growth, our gov't typically gets more $$$ and with proper spending controls, we should be able to have some surpluses.
3. During recessions, our gov't gets less $$$ and typically runs into debt. Usually we have longer periods of growth than recession, so technically, we should be making up the debt during our growths (which we do not because of deficit spending during growth).
4. Our economy is said to be going up when GDP is rising. GDP is Gross Domestic Product and it measures how much money is spent on new item purchases. Buying a new car increases GDP. Buying a used car does not. Our economy is said to go down (recession) when the GDP goes down.
(These next two are theoretical. That means this is what SHOULD happen according to economists)
5. If people have more money, they will spend more money. When people spend more money, GDP goes up.
6. If a business has more money (because people spend more), they will be able to increase production and hire more workers or pay their existing workers more. When they hire more workers or pay existing workers more, more people have more money to spend. See item 5.
This is all stuff you would learn about in your first couple WEEKS of introductory economics. I don't think anyone could argue with what I just said. Learn this stuff before you say another word on anything having to do with our economy.
Here is the more controversial stuff, but it's all simply fact...
7. The economy started going downhill in 1999, during Clinton's term.
8. We fell into a recession approx one month after Bush took office. This means that there is no way that Bush could be in any way responsible for the recession. First because recession is normal and can't be stopped anyway. Second, he also can't possibly be directly or indirectly responsible for it because nothing he could have done would have such a quick impact on the economy.
9. Cutting taxes is one major way to fight recessions. Usually, one of the first things to do when faced with a recessions is to cut taxes. This will leave more money in individual's pockets, thus they will be willing to spend more. Bush implemented round the board tax cuts which means that everyone got a tax break, not just the rich. Please don't bring up that old rhetoric about the rich getting an unfair share of the cuts. That is another issue that I will not discuss because it's too lengthy. Suffice to say, it is not a good arguement.
10. Another way to fight a recession (which I do not personally agree with) is to increase gov't spending. This will send more money to business' as the gov't buys stuff from them. Once the business' have more money, they will hire more people which means that people will have more money to spend, and yadda yadda yadda (if you don't get it, take an economics class). I don't like this method because our gov't is spend happy and I feel like they are just bypassing the system when the do this. Limited increases in gov't spending is ok, but it shouldn't be major.
11. Another way to fight recession is to lower interest rates. Only the prime interest rate can be directly controlled (the rate banks charge each other for overnight loans). This means that people can borrow more (for less) and thus they will have more money and they will spend more, etc...
12. Bush has used all 3 of these tools to fight this recession. Technically, the recession ended long ago, but no one can figure out why unemployment has not risen. Normally, when business' get more money, they will hire more workers, but they have not. One oppinion is that our jobs are going overseas or that immigrants are coming in and taking all our jobs. There is no concrete evidence one way or the other. (my oppinoin: Since no one knows why unemployment has not risen, it is unfair to blame Bush for this.)
I'm sure there is more, but hopefully after reading this you will be more informed and we can stop all this nonsensical bickering.