To use an old sports analogy, winning is great, but you learn more from the losses. With our economy on its biggest losing streak since the Great Depression, it is time we look at some economic 'truisms' that have turned out to be complete myths.
Myth #1: Lower taxes always spur economic growth. Taxes are lower now than they've been in decades and have done nothing to prevent this economic meltdown. That's not to say higher taxes are better, but if 100% taxation is socialism, 0% taxation is anarchy. We need to strike a balance that actually pays for government services, something we haven't done for too long. Want to keep social security, medicare, farm subsidies, or want to start a war in Iraq? Fine! Figure out a way to pay for them.
Myth #2: Free trade is the key to worldwide economic growth. The economies of scale you get from free trade are the reason that what was once a $3000 flat screen costs you less than $1000 today. But 'free trade' comes with a cost, because much of free trade is unfair trade. Whether it be massive currency manipulation by countries like China to makes exports cheaper or foreign government subsidies that prop up their otherwise uncompetitive industries, many American companies find themselves fighting the free trade battle with one hand tied behind their back. The result is they are forced to export jobs overseas, and that's not healthy for our economy.
Myth #3: The markets can make up for our nation's financial shortcomings. Remember when the idea of allowing people to invest part of their social security benefits in the stock market was hot? Can we now conclude once and for all what a monumentally bad idea that was! You think we're big into bailouts now, just imagine what we would be doing to bailout social security had some of it been invested in stocks! It's just one of many ideas politicians who know we have a problem came up with to avoid making tough decisions (ie, raise taxes or cut benefits).
Myth #4: China, India and the EU are marginalizing America as the engine of the world economy. It's an idea called 'de-coupling.' That the consumer economies of the world make them less dependent on the United States. Well, throw that out the window. China especially is hurting. Exports are way down and thousands of jobs are being lost everyday. Half of its booming toy industry as been wiped out virtually overnight, and with a weak social safety net, it is not unthinkable that China could see a starvation crisis if things don't turn around. The American economy has caught a very bad cold, and it risks giving the world financial pneumonia.
Myth #5: Deregulation is always better. This one is so obviously a myth, I don't even have to say much about it. Even former Fed Chief Alan Greenspan admits he was wrong on this one, believing the financial markets were better self-regulated. Regulation is like the umpires in a baseball game. It helps assure the playing field is level, and that teams like the Rays and Phillies can still get to the World Series over the fat cat Yankess and Red Sox. Markets only grow if ordinary investors (you and me) can be confident the game isn't rigged against us. It's a balance. You don't want 18 umpires on the field, but you certainly don't want too few either.
Myth #6: Help the rich, and riches will 'trickle down:' Before this crisis hit, we had the greatest disparity of wealth in America since the time just before the Great Depression hit. That's not a coincidence. What we could use right now is the wisdom of Henry Ford, who many credit with jump starting our modern middle class economy a century ago when he began paying workers the then astounding sum of $5/day. His logic ... it doesn't make sense for me to mass produce cars if there aren't people out there who can afford them. Middle class wealth is the key to a thriving economy.
The American middle class economy is a modern miracle that has helped create wealth not only here but worldwide. If we want to preserve it, we need to be smarter about how we manage it and stop clutching to myths that don't serve us.
HI, I too agree with your comment, that middle class are the key to the economic development, as developed class has nothing to do with the economy as they are already rich and has every thing in the life and on the other side poor class are such who either doesn't have enough education or they are even unable to feed their stomach, so it is undesirable to think them to take part. so the remaining middle class they strive harder and lead to the development of the economy.
Posted by: Calcolo Prestito | June 08, 2009 at 04:39 AM