Our Next President Had Better Understand Domestic and WW Economics

The Great Depression of 1930's

At no time, since the Great Depression of the 1930's, has it been more important than now for our political leaders to have more than a basic foundation in world wide economics.

Based on the current state of the country's economic position, it appears imperative that the future leader of the free world must have a full understanding of both US domestic and international world economics.

Status Today:

Unfortunately, our current fearless leader has shown that he really isn't capable of wearing that "hat" regarding economics, as he has only ever worn the 10 gallon, "Texas" version. What's equally frightening is that his targeted Republican wannabe successor, Senator John McCain, has admitted that he does not have any extensive understanding of the economics of the country or the world in general.

When one understands what "could have been done economically," had the President not chosen to attack Iraq and then decide to "stay the course" while spending $522 Billion (to date) for the occupation of Iraq, things in the US could have been much different.

Based on a report by the Political Economy Research Institute (PERI) at the University of Massachusetts, here is just one of many examples of what "could have been paid for" if, just the 2007 Budget for Iraq of $138 Billion were available to spend on America's domestic needs and infrastructure.

With $138 Billion, the US could have paid in-full for:

>> Medicaid level healthcare for the 45 Million uninsured Americans

>> Added 30,000 additional elementary and secondary school teachers

>> Built 400 new schools for them to teach

>> Provide weatherization for 1.6 million existing home, (thus reducing their energy consumption by 30%)

Even President Bush and Senator McCain can understand the implication of these potential infrastructure and public investments in the US. However, we have learned that a current "war time President" and a previous "POW and Vietnam War Hero" aren't about to give up their war, no matter what the people (their constituents) want and need.

Unfortunately, there are a number of levels of economics that go well beyond this basic understanding that I fear would go nowhere with either of these two individuals.

First, most economists and the National Bureau of Economic Research (NBER) all agree that for every Billion dollars that is spent on a combination of US: education; healthcare; energy conservation and infrastructure investments; it creates approximately 75% more jobs than when the money is used for the war in Iraq. Since virtually all parties, including the Federal Reserve Bank, also agree that the coming economic "Recession" is going to be unavoidable and continuing to support this very unpopular war in the Middle East is like "throwing the preverbal baby out with the bath water."

Recession or Depression?

Before I go on, let's try to understand the basic difference between a "Recession" and a "Depression".

There is of course the old joke among economists that states:

The Definition of a Recession vs a Depression:

>>> A Recession is when your neighbor loses his job.

>>> A Depression is when you lose your job.

The real difference between the two terms is not very well understood for one simple reason: There has not been a universally agreed upon definition. However, for the purposes of this article, let's just use the classic "Newspaper Version" of the difference between the two.

The Newspaper Definition:

A Recession:

The standard newspaper definition of a Recession is: "A decline in the Gross Domestic Product (GDP) for two or more consecutive quarters."

A Depression:

Before the Great Depression of the 1930s, any downturn in economic activity was referred to as a "Depression". The term Recession was developed in this period to differentiate periods like the 1930s from the smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a Depression as a Recession that lasts longer and has a larger decline in business activity.

The Difference

So how can we, the people, tell the difference between a Recession and a Depression?

A good rule of thumb for determining the difference between a Recession and a Depression is to look at the changes in GDP. A Depression is any economic downturn where real GDP declines by more than 10 percent (FYI: The Great Depression of the early 1930's saw a GDP decline of 33%). A Recession is an economic downturn that is less severe.

Do Government Stimulus Packages Work for the Economy?

Most economists feel that the current stimulus package crafted by the Bush Administration and Congress is the least effective type of stimulus package. The type of spending that the up-and-coming rebate checks will generate will be for the people to buy mostly imported consumer products, which will just send the larger portion of the money back out of the country. There is also the problem that the rebate money that is being sent out to the public, is not money that was generated within the US. The rebate money is money that has been borrowed from other, creditor nations and the US government will be paying interest on it for years to come.

The most effective stimulus packages are where the public investments concentrate on job expansion within the country. Based on the current spending in Iraq and the new rebate program, together they will only deepen the severity of the Recession.

If one looks back to the 1930's and 40's, at FDR's "New Deal" program, the Depression was turned around as a result of unemployed US citizens taking government jobs to work in the US building a vast number of American infrastructures that included: federal buildings, bridges, highways, schools and hospitals. These jobs paid good wages and this program kept the money inside the country.

What Isn't Working:

In 2007, the US government spent $572 Billion, just on the military and the war. This is $1,800 for every resident of the United States. This is also more than the combined GDP for Sweden and Thailand and eight times the US federal spending on education. The level of spending on the military has risen dramatically since 2001, even before the 9/11 disaster. As a share of the GDP, the military budget has risen from 3.0% to 4.4% over Bush's last seven years as President. The difference between a 3% and a 4.4% budget increase comes out to an increase of $134 Billion.

Were any jobs created with this increase in military spending? Of course there were, but one needs to understand that when you build military bases, equipment and armament, it is similar to just cashing your paycheck and using the cash to light the logs in your fireplace. Today, the country's good money is used to build products that eventually are either blown up, worn out or they become obsolete. When weapons are being manufactured, nothing is being invested in the people or in the things that last like schools, where people can become better educated and can then move on to having livelihoods that build products that create instead of destroy.

Economics Professor, Robert Pollin of the University of Massachusetts has put together a simple example to show how, given the same size pot of money as that going to build the military's Camp Victory in Baghdad, that weatherizing homes in New England could provide more long-term infrastructure investment in the US (and more jobs) than the building of the military facility in Iraq.

Professor Pollin's Simple Scenario:

>>The jobs to work on military facilities in a war zone, pay contractors much more than to those workers working on homes in New England. Therefore, with the same pool of money, many more jobs would be provided in New England than in Iraq.

>>Equipment and materials for weatherizing homes is much less expensive than that for building high-tech military bases. This would allow more spending on the people than on the equipment and materials.

>>The money paid in New England would stay in the US and would be spent at other locations in the US. Studies show that US military personnel and US contractors abroad would only spend approximately 43% of their incomes on domestic goods and services. The overall population of US workers currently spend 83% of their income on domestic products.

>>It has been proven time after time that when stimulus funding is invested in the areas of education, healthcare, energy and infrastructure, more jobs, and longer-term jobs, are created than when spending the funding on the military.

The above scenario can be duplicated in any number of related areas of domestic stimulus versus military funding.

Swords to Plowshares and Jobs:

Even though you may have heard that if you put 100 economists into a room, you will get 100 different opinions on the economy.

One area however that the majority of economists do agree on is that uncontrolled government spending as is occurring today will eventually come back to bite the country on its back side. When you send jobs abroad; when unemployment continues to increase; when the quality of those coming out of the American public school system continues to decline; when the spending on the military and the borrowing continues to increase the federal deficit; if the current situation continues, the Recession will eventually become a Depression, and after that, all that's left is a bankrupt nation.

Summary:

Today, Japan is known for designing and producing the best consumer electronics and high quality cars, China is known for low-cost manufacturing, South Korea for the best cell phones and home appliances, Germany is known for high performance automobiles and the largest industry in the US today is being the world's largest manufacturer of military weapons.

More than one economist has made it clear that this is not the proper legacy that will allow the US to again become the economic powerhouse that it has been in the past.

In order to survive long-term, things have got to change, and change very soon. The US must have a President that can get the US out of Iraq while focusing on the basic economics of the country that have been ignored for way too long.