Wednesday, April 6, 2011

Damn The Torpedoes!

By Dan Perin

During the Battle of Mobile Bay of August 5, 1864, the Federal fleet commanded by Rear Adm. David G. Farragut, attacked a smaller Confederate fleet led by Adm. Franklin Buchanan.  Admiral Farragut is remembered in popular culture for his order at the Battle of Mobile Bay, usually paraphrased: "Damn the torpedoes, full speed ahead!" by U.S. Navy tradition. (Wikipedia)

Those words came to mind as I followed the economic news one recent morning.  I have the feeling that a significant segment of our Congressional Representatives are taking that same attitude about resolving our budget and other fiscal issues.  The problem is that they are heading into much more dangerous waters than Admiral Farragut was facing.  They seem oblivious to the potential fall out from precipitous actions to cut programs no matter what.

Every Saturday the Oregonian newspaper prints commentaries by Paul Krugman juxtaposed with David Brooks, both New York Times columnists.  Often they provide two sides to an issue of the day, usually to do with the economy.  Even though in a recent morning’s paper they each dealt with a different subject, I was again struck by the reality of divergent views of economic principles by the Democrats and Republicans.

Years ago while taking a college business course I wrote a paper detailing briefly the basic principles of the economic policy of John Maynard Keynes[1].  One of the aspects of his view of economics had to do with the principle that when the economy slowed to a point where consumers were not spending money and output contracted, the government was the resource of last resort for pouring money into the markets so that jobs were created, income restored and consumers bought goods.  This would likely create a temporary deficit that eventually would be balanced by the increased financial activity, including taxes on goods produced and bought.

This economic theory generally has been the basis of the Democratic approach to the economy.  The Republicans, on the other hand, believed that stability came through tightening government spending and giving tax benefits to businesses thinking they would then invest their “saved” money in the economy restoring confidence in consumers allowing them to again begin spending.  This was called  “trickle down economics.”

We are again in a heated debate over these opposing policies.  Certainly, we can see where the economic policy of the Bush years led us—serious debt and decline in production.  When faced with the disastrous conditions in 2008, the final months of the Bush administration, drastic action needed to be taken to avoid another “Great Depression” as we had in the 1930’s.  The government began to pour money into the economy to keep the financial wheels on the auto industry, to attempt to protect investors and consumers from a total melt down.  Were it not for those actions, it is most likely our recession would have become a major depression taking many additional years to overcome with untold human losses of personal economic stability.  As it is turning out, much of the money the government invested in “saving” the economy is being returned with interest, so the actual cost of the effort is considerably less than the original investment.  (This is one of the ways it is supposed to work!)

Back to the realization of Admiral Farragut, that some situations call for heroic action no matter what the appearances to the contrary.  Damn the torpedoes of doubt!  We have a Democratic President with a majority of support so it is time to bravely negotiate the minefield of fear and forge ahead.  The deficit can be managed by getting infrastructure projects going (Eisenhower’s Interstate Highway program, for example) and getting money back into the economic flow.  Big business, on the other hand is banking cash in unprecedented amounts and that has the effect of removing money from the economic flow. 

Unfortunately, we are at deadlock once again between the philosophies of the Republican and Democratic parties.  Although I am a registered Independent, my political philosophy lies somewhere between Democratic and Libertarian.  I like not being “pegged” to an overall political position.  That flexibility allows me to choose from all points of view those I most clearly identify with.  Then I can make electoral choices based on who comes closest to my values.  It seems to me that if we all did that, rather than blindly follow one political party or the other, we would provide ourselves with a more productive slate of Representatives and Senators.

Finally, I admit to my bias on this particular issue.  Unless businesses begin to use their huge cash reserves to invest in the economy through new hiring, new production, and the startup of new businesses (entrepreneurship), it will take much longer to get back on a stable economic platform.  The circulation of money is key to stability.  Typically, circulation involves labor (doing a job), receiving payment for your work, buying goods (food, housing, clothes, etc.), which creates more jobs to produce more goods and services.  If there is a breakdown anywhere in that cycle, circulation stops, stagnation and/or recession occurs and finally depression.

Damn the torpedoes!  Let’s get government working again producing jobs, salaries, products and needed infrastructure recovery.

[1] "We are all Keynesians now" is a now-famous phrase coined by Milton Friedman and attributed to U.S. president Richard Nixon. It is popularly associated with the reluctant embrace in a time of financial crisis of Keynesian economics by individuals such as Nixon who had formerly favored monetarist policies. (Wikipedia)

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