The case for real world economics

By David Kaufman

Last year the University of Massachusetts Republican Club hosted the CEO of Forbes Inc. and the president and editor-in-chief of Forbes magazine, Steve Forbes, who gave a speech on the morality of capitalism as well as its countless benefits on just about every aspect of life.  A week later, I even had the honor of receiving a signed copy of his book.  Not only did this book allow me to objectively view capitalism and presidential actions on the economy throughout the years, but also the ineffectiveness of other economic systems as well.

Flickr/jamesomalley

As an economic conservative, I have many objections to Barack Obama’s policies put in place throughout his first term.  Whether it was the mishandling of the bailout of the banking sector, the unnecessary bailout of the auto industry, the abysmal creation that is Obamacare, or his relentless liberal ideology of throwing money at the economy through the stimulus package, his policies have failed miserably.

Four years into his presidency, our country faces a pivotal turning point that must be dealt with head on.  We have an anemic economic growth rate of 1.3 percent, with one in six Americans in poverty, record-high food stamp usage, 7.8 percent unemployment, a debt above 16 trillion dollars and a fourth straight year of reduction in median household income; a key indicator of the health of a national economy.

Politicians from both sides of the aisle recognize that the economy is in terrible shape.  During his 2008 campaign, Obama promised that he could fix the economy, the public just need to be patient. Critics of Obama predicted that the recession would only deepen with the implementation of his economic policies.

The answer to successful economic policies is the need to stay consistent no matter how deep a recession we are in or which political party enacts them.  As we have witnessed throughout our history, the economy is cyclical. Historically, during a downturn, Democrats tend to want to constantly “do something” about it, instead Steve Forbes says “real world economists” know better.

In a 2004 study, two researchers at the University of California Los Angeles found that the Great Depression was only worsened by policies of Franklin D. Roosevelt. Obama’s current economic policies have brought similar speculation. Through a historical lens, we can look at the economic policies of President Warren G. Harding in 1921 during a time with 11.7 percent unemployment, even higher than today’s rate.   Despite immense internal and external criticism, Harding did not pass any policies to stimulate the economy, but rather reduced government spending due to decreased tax revenues as a result of a shrunken taxable base.  By 1923, the unemployment rate fell to an incredible 2.4 percent without government intervention.  Once again this occurred in 1980, when Reagan inherited a terrible economy with an unemployment rate of 9.7 percent.  In three years unemployment dropped to 7.2 percent, and for the next 20 years we experienced unprecedented economic growth with low inflation and unemployment.

Many seem to believe that Obama saved the auto industry, but fail to realize that these businesses were forced into government-designed recoveries after being bailed out by the government.  As a result, General Motors was unable to recover as they would have in a free-market society and were forced into rewarding union workers with stock in the companies as well as large ownership by the federal government.  Contract law was rewritten and bondholders were cheated by not being paid first. Today, the new General Motors has at least 20,000 fewer workers with stock from what Forbes called “government-restructured automakers” being sold at $10 less than what the government had invested into the company resulting in major loses for stock holders.  In comparison, Ford Motor Company, which was not bailed out during the recession, now enjoys sales that are “up more than 20 percent … the company was on track to gain market share for the first time in almost twenty years,” according to Forbes’ estimates. The lesson learned is that weathering the realistic brutality of a free-market system is ultimately very beneficial.

There has been much speculation of Romney’s proposed tax plan, which gives tax breaks for citizens of every economic class. Romney’s critics believe that his tax policy will only further the gap between the rich and the poor; that businesses and wealthy citizens keeping more of their own money will only worsen the effects of the recession.  However, this supposition has taught us otherwise.  Because the poor and middle-class barely have enough money to spend on a day-to-day basis and must save whatever extra income they may receive, it is the big business owners, or the wealthy who invest their money in businesses and grow our economy.

Consequently, an across the board tax decrease is essential to grow our economy again, not a tax increase for the wealthy. Across-the-board tax cuts are proven stimulants to the economy.  Tax cuts allow big business owners to keep more of their money, creates more disposable income for the middle-class, and creates more of an incentive for businesses to take risks, like expansion.  Expansion creates more jobs, thus reducing unemployment, and produces more wealth, resulting in more tax revenue for the government to pay off the alarming federal government debt of $16 trillion.

It is the instability of policies implemented by the Obama administration, including failed budget proposals, government-implemented overreach in the private sector, investing in Solyndra, and anti-business regulations, that have stifled our economy for the past four years.  It is obvious that the economy is not doing well, and that Obama wants to change that fact.  What is unclear is if he will learn from his mistakes and what history has taught us to in order to take the steps necessary to create an economy worth investing in once again.

David Kaufman is a Collegian columnist. He can be reached at [email protected]