So how do we fix the economy?

Obviously the question of how to fix a national economy is not so easy to answer – anymore.  Long ago I thought lowering the interest rates to make money more affordable was one good way.  Create jobs in private enterprise always seemed to work as well.  And when in doubt, push a little stimulus money into the marketplace and let people spend it.  None of those ideas seem to work anymore!

For instance, how low can interest rates be lowered?  The current interest rates are about as low as they can go and yet the economy seems sluggish, at best.  The demand for money is low, thus keeping the interest rates for loans of all kinds, including mortgages, in very low single digits.  Generally under 4 percent.  So lowering interest rates won’t work!

How about creating jobs in the private sector?  Sounds good – even by today’s standards, but companies are not doing it!  Private companies seem to prefer ‘cash on hand’ rather than investing in people, which may prove costly with all the federal, state and local obligations to healthcare, payroll taxes and benefits.  I think companies would be willing to invest in human capital if they saw a reasonable payoff.  The problem is they don’t.  Companies have no idea what to expect from all the chaos of high oil prices, upside down mortgages and the foreclosures they bring, a national debt many times larger than our federal budget, political parties unwilling or unable to talk to each other, and finally the costly toll of wars past, present and future.  The ground under our feet seems to be unstable, at best.

Finally, offering stimulus monies seems to be a tragic losing proposition.  Bush #43 did it a few times thru tax credits to taxpayers and then alongside Obama with a near trillion dollar blast into the banking, auto and public employee sectors.  The net result was a LOSS of jobs over the last three years.

How about paying off the national debt?  Sure sounds easy in theory, but in practice it would be a disaster.  In order to pay off the debt in our lifetime we would need to gut the federal government so deeply that it would no longer have any ability to act in our defense.  Currently, the budget proposed by Obama foresees increased deficits for many, many years, and often by trillions of dollars per year.  So we would have to cut spending by a trillion dollars just to stop the deficits – much less the national debt.  Yet this debt costs us dearly in increased taxes to pay interest on the debt.  I don’t think we can do it in our lifetimes or the lifetimes of our children and grandchildren – no matter how hard we try.

Analysts are predicting higher gas prices, sustained long term unemployment, widening national deficits and debts, and a very unpredictable engagement with Obamacare.  And sadly, we are getting very mixed messages from Congress and the White House.  For instance, Obama stated a couple weeks ago that higher gas prices were a result of the economy humming along.  Yet, experts agree that higher gas prices will dampen any economic growth.  It’s no wonder businesses are confused.  

So how do we fix the economy?  Is it even possible at this point?  What other things can be done too help stimulate growth, jobs creation, expanding marketplaces, innovation, etc?  Let’s hear your thoughts RMG economists on how to fix this problem.  Then we will know who to vote for in the upcoming primary…

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