In 1961 Joseph Heller published “Catch-22,” a satirical and absurd novel set during World War II. The title emerged from the story and into common usage as the reason for a problem being unsolvable due to a condition within the problem itself. Specifically–pilots may not be excused from flying bombing missions due to insanity because to request such relief in and of itself proves one’s sanity.
A month ago I devoted my column to putting the national deficit on the back burner because it is imperative to spend money to enhance the economy. My opinion goes unchanged. However, the call to spend less and not borrow, even with terrific rates available to our country, continues. With help from Mr. Heller and the classic children’s television show “Sesame Street,” I’ll give it another shot.
When business is unwilling to spend money, the government must. That is the function of government in a capitalistic society–do what business cannot or will not. President Obama and liberals understands this, but the conservative faction demanding a deficit reduction now does not.
I took one economics class in high school plus two in college. Even this basic course of study has made two aspects of our current situation perfectly clear. First, any one business is dependent upon others buying products or services that are being sold. If we all quit spending money all at once, there will be no economic growth because no business will be selling any goods. Due to austerity I won’t buy anything from you resulting in you having no money to spend in my store. We both go down–sure as anything a Catch-22.
Secondly, if the economy is sluggish, big business, even if they are receiving record profits to line the coffers, will be queasy about hiring and expanding due to the–wait for it–sluggish economy–sure as anything another Catch-22.
Here’s another look from a different angle. “Sesame Street” occasionally airs a segment of the show called, “Which one is not like the others?” They will show an apple, a tomato, and a carrot. Which one is not like the others? The carrot–because it is not a fruit.
In economics, the three posers are: personal debt, small business debt, and national debt. National debt is not like the others because it is a
shared debt, much of which is owed to ourselves. The government will not go out of business just because of debt. Both small businesses and individual families will.
Supply side economists force an unnecessary Catch-22 into this conundrum. The theory suggests that taxes and regulations be cut and lucrative incentives given to big business. Those monetary gains will then trickle down creating jobs and the economy will flourish. President George H. W. Bush rightly called it “Voodoo economics.” Big businesses create record profits due to government actions, but will not hire and expand. They keep the money because demand is low.
The people who buy most of the stuff are the middle and lower classes due to sheer numbers, plus the fact they spend 100 percent of their earned income to survive. They still have no jobs, ergo, no money to spend resulting in low demand.
This Catch-22 is avoidable by simply eliminating the middleman. Don’t give the money to the already rich and wait for it to percolate–get the money directly into the hands of the two economic entities whose debts are like one another.
Given jobs, families have money so they buy more goods and pay more taxes. Small businesses make more profit, so they hire, produce goods and, presto–pay more taxes.
Government can create good short-term jobs in construction plus make it easier for states to return public servants to their jobs. Even if money comes as welfare or bailout, it gets spent and creates demand. The economy may still be weak due to debt, but demand is the only condition big businesses seem to care about before hiring and expanding.
Big business may squirm out of paying taxes, but if they hire and expand, the beneficiaries of their growth will also send money back to the government via taxes. These actions will mitigate any government spending. Soon our economy is humming. Then is the time to work to reduce the deficit, not when money needs to be spent.
The money can’t trickle down fast enough. We can’t wait for “by and by the jobs will come”–that is a quote worthy of a Grimm fairy tale.
By the way–sitting in that high school economics class is my answer to the question every one of us over 50 has on the tip of our collective tongues, “Where were you when you heard on Nov. 22, 1963?”