Letters to the editor (06/02/12)

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The economy has gone through ups an downs
Editor:
“Free is good.”
In France, voters have chosen a new president who they hope and expect will stop further austerity and roll back several measures that are seen as unnecessary financial restrictions with a new goal of growth and a new tax on high earners.
In Greece, voters are rejecting austerity and favor a return to early retirement, low taxes, long vacations and all their other previous perks.
“There’s no free lunch.”
The Germans believe that people should not live beyond their means. They appear to be unwilling to continue to shore up economies in Europe where spending has outpaced incomes. They have already contributed to bailouts of Ireland and Greece and are fearful that Spain and Italy will follow.
In the U.K. austerity is well under way, but the economy has now drifted into recession.
Keynesian economists say, “We told you so.”
China’s controlled economy is starting to contract and the government is hoping to avoid recession.
India is limping along. And world-wide economic growth is proving anemic.
In the United States, we currently have two political parties whose adherents are almost totally opposed in their views about the role of government, the size and breadth of the safety net, and how best to stimulate our economy and increase GDP.
The Republicans’ answers are: reduce the role of government, reduce the cost (and therefore the size and breadth) of the safety net, and reduce taxes. They would also eliminate and/or reduce many government agencies and the scope of their operations.
In their view, the economy will grow if we ease the path by eliminating regulations that impede business.
Democrats’ answers, on the other hand, are totally different and opposite to the Republican solutions.  Government does things people can’t easily do on their own; builds highways and bridges, controls airplanes, delivers mail, protects minorities and provides a host of other services people need and want.
It goes without further saying that the safety net is necessary and needs to be broadened to cover everyone.  Taxes need to be increased to pay for necessary and needed government activities.
Both parties and their candidates are now focused on our economy. With unemployment hovering around 8 percent, with the labor force reduced to pre-2000 levels, with the small increase in wealth of the middle class (especially compared with that of the “1 percent”), with businesses unwilling to hire in the face of unchanged demand for their produce, with interest rates held near zero by the Fed, and with a fearful electorate and business uncertain about taxes and regulations, it’s not a pretty picture.
The Federal Reserve has acted boldly, injecting massive amounts of money into the economy by means never before even dreamed of. Monetary policy has pre-empted and incorporated fiscal policy into its actions.
According to Keynesian economists, it should have worked. Our economy should be doing far better than it is. What has happened?
There are three places to look: consumers, business and government. Given an influx of money consumers have four choices: they can invest the money, save it, spend it or pay down debt. They were expected to spend the money. They didn’t.
Seeing the stock market fall 50 percent, coupled with both fear and uncertainty, made investment a non-starter. Savings generating nothing was unattractive.
The same fear and uncertainty prevented them from spending the bulk of the money. That left paying down debt, and they did a lot of that. So consumers failed to act the way they were expected to and did not provide the strong increase in demand that was forecast.
Business was, and is, uncertain and pessimistic about the future. They view government, both legislative and executive branches, as anti-business.
With demand low and no expectation of improvement they laid off workers, stopped hiring and hoarded their resources. Bank loans became difficult to obtain, even for highly rated customers of long standing.  Banks could borrow money from the Fed for next to nothing and buy government bonds paying two to four percent with little or no perceived risk.  So why risk lending to business? They didn’t.
Government is viewed by many as inept and incapable of managing economic activity well. The stimulus money that went to financial institutions may have saved banks and other financial firms, but the public has resented the resulting “good times” for bankers and investors.
The “cash for clunkers” program simply advanced auto purchases a few quarters, but didn’t increase demand and sales as was expected. The bailout of the auto industry is resented by business and investors alike.
Saving the auto unions at the expense of bond holders will rankle for a long time. The “shovel ready projects” that weren’t shovel ready did little to enhance government’s reputation in the community.
And more of the same. So government did little that actually fueled the economy as it was expected to do.
In spite of all of this, the economy is slowly rebounding. GDP has increased from its trough. Consumers are starting to spend more, save less and add to debt again.
Businesses are hiring cautiously and rebuilding inventories as demand increases. Banks are lending again.  Government is no longer down-sizing.
The fall in the relative value of the dollar fueled a substantial increase in exports and at the same time slowed imports. It’s slow and bumpy, but the increase is pretty constant.
The stock market has risen quite dramatically, and it’s a leading indicator of the direction of the economy.  It’s usually a couple quarters ahead of the economy, but today it seems to be forecasting a couple of years ahead.  But the forecast is for increasing economic activity.
What should we ask our legislators and president to do?  First, do no harm.  Second, maintain the safety-net.  Third, don’t either increase or reduce taxes now. Fourth, don’t increase or reduce government spending now. Fifth, stop any activity or discussion that could instill more fear into either consumers or business.
And finally, remove policies or regulations that business views as onerous. A happy consumer spends and a businessman spends, and that’s what we need now to grow at a greater rate.
These actions won’t stop the increase in our national debt, but with a growing economy it will become politically possible to do what needs to be done.
Remember a few years ago during the election that brought Bill Clinton to office, the mantra was “It’s the economy stupid!”
For a realistic approach to controlling our deficits and our debt we turn to the Domenici-Rivlin, or the Simpson-Bowles approach; both of these recognize that taxes have to increase and government has to shrink.
One can argue over the details, and we surely will, but the new mantra will need to be “You need to do both, stupid!”
When will this be possible?  My best guess is that it will take between four and six years for our economy to grow to the point where increased taxes and reduced government spending won’t push us into recession.  We really have to do it.
Look at Greece and Spain where people have taken to the streets in protest, often violent, against “austerity.” Our “Occupy” this-and-that groups are now fringe groups, but they could become a serious disruption in the future. It doesn’t need to happen.

Robert W. Sanders
Rio Communities

Golf tournament success; thank you to sponsors
Editor:
A big “Woo Hoo” to all who made our Tim Lardner Memorial Scholarship Golf Tournament the success it was.
A special thanks to the Valencia County News-Bulletin, the Lardner Family, Financial Network, BNSF, Premier Granite, Avonite, Waste Management, James and Missy Sanchez, CEMCO, Mike and Kathleen Mechenbier
N.M. Travertine, Sandia Self Storage and MyBank for their corporate sponsorships.
Thank you to the many hole sponsors, team sponsors, raffle and ditty bag donors.
TDS Golf Club does an amazing job every year for us and last but not least a huge thank you to our GBCC board and office team for your constant support!
Because of its success, local graduating seniors will be given scholarships at our networking luncheon on June 7 at Holiday Inn Express!
Great things are happening in the greater Belen area.

Rhona Baca Espinoza
Executive Director
Greater Belen Chamber of Commerce