Wednesday, October 1, 2008

Politics: How to Fix an Economy

Our economy is in crisis. All across the nation businesses are closing, people are losing their homes and our government is scrambling to find a solution. In the environment of our coming election, the question has been raised, “What will our next President do?”
Throughout the history of our nation, the role of the President has grown in power and influence. There have perhaps been no jumps more substantial than when Lincoln established the supremacy of the Federal government over the States by wining the civil war, and when Franklin D. Roosevelt used his influence in the congress and senate to enact serious economic reform in an attempt to restore our economy from its distressed state during the Great Depression. It was not until Roosevelt’s actions that the President’s responsibility for the state of the economy was considered to be substantially important. That’s not to say that Presidents never before had economic influence. Early on, questions of whether or not there would be a Federal currency or a Federal bank were issues that candidates fought over. These, however, were principally seen as issues of States rights versus the power of the Federal government. Nobody expected the President to have much influence over the everyday ebb and flow of our prosperity. People were expected to take care of their economic situation on their own. When candidates, such as William Jennings Bryan, attempted to run on economic platforms, they didn’t get far. Ever since Roosevelt, however, people have been asking the question, “What will the President do for my wallet?” But let’s face it, no President since Roosevelt has had close to his affect on the economy. Why is this? Roosevelt had an exceptional set of circumstances that allowed him to exert influence far in excess of what is normally possible. First of all, the dire economic situation of the country helped Roosevelt to persuade the house and senate to essentially give him a blank check to pass any sort of economic program he wanted. Second, the coming of World War II created an economically fortuitous situation for the American economy. Finally, Roosevelt had four terms in which to enact his influence. This is not likely to ever happen again. So, in some ways, the question of what our President can do for our economy seems silly. There is, however, something substantial that I believe any candidate would be able to accomplish.
Our current crisis, as I understand it, largely stems from disasters that arose in our real estate market. Essentially, mortgage lenders were pushing low interest, open rate, loans to borrowers because these loans were an easy sell. Borrowers, desperate to get homes, swallowed up these loans. What is more, some individuals discovered that they could use this situation in a get-rich scheme. They would take out an open rate loan on a home, buy it and wait a year for the house’s value to appreciate and would then sell it at a profit. This worked as long as only a few people were doing it, but as more and more individuals learned about this method of “flipping houses” and began practicing it inflation was supercharged. As the economic environment changed, banks were forced to raise the rates on the open-rate loans they had put out. However, many of the people who had taken out these loans had done so barely able to afford their payments even at the low rate the loan had started out. With the raise in rates, many were unable to continue their payments and had to foreclose. The banks, however, had put out so many loans that they could not afford the massive number of foreclosures happening. Rapidly, the real estate market plummeted and everything else soon followed. The foolish actions of people, born out of ignorance, dealt a critical blow to our economy.
Today, a 700 billion dollar bailout is being proposed in the upper levels of our government. Meanwhile, while this is discussed, both candidates for the presidency are fighting over what is the best method to fix our broken economy. McCain believes that the trickle-down economics of Ronald Reagan are the best solution, while Obama says that any solution needs to help the people, more than the lenders who are, according to him, responsible for our situation. Both ideas have their upsides and downsides, though this blogger thinks trickle-down is an incredibly flawed idea.
I have a different proposal. I’m making no claims to being an economic expert. The extent of my training in economics consists of a semester of AP economics and a book. The problem I see, however, with both parties proposed solutions to the economic crisis is that the roots of the problem go far deeper than anyone seems to acknowledge, they stretch through the muddled soil of our economy straight into the minds of its participants. The current proposals are only Band-Aids to serious wounds that will only start to bleed again if we don’t do something about them. The fact is that we’re in our problem because the borrowers were ignorant of basic economic principles and borrowers, swelled up by their own greed, took advantage of them. Individuals in our society are being taught from the time they are born that wanting things is good and getting them is better, and the sooner they can get something the better. Advertisers bombard our minds with the principle that we are, from cradle to grave, born to buy, and there is currently no counterweight to this. Students, on the whole, are not being taught how our economy works. They need to have it hammered into them that in an economy of supply and demand, nothing is free, nothing comes easy and if it seems to be free and easy, it should set off alarm bells in your head. I propose that the very best thing a President could do for our economy is to require the education of our youth in practical economics. Let’s face it, most students, if they get any economic training at all, get a one-semester senior year economics course where they study supply and demand curves. Yet, in our day, high school students are required to take algebra II and physics classes. Personally, as wonderful and important as those things are, they can’t hold a candle to the crucial need to know how to survive in the capitalistic economy we live in. So, why not educate students in this crucial area?
It doesn’t even take much. As I said above, my economic training is far from extensive. Likewise, my good friend Tyler’s economic education consisted, essentially, of one class. Yet, with our limited knowledge, we saw this economic crisis coming. We saw the reckless borrowing and lending and we cried foul. I’m not saying this to claim that we are brilliant, but to say that we, college students at a local community college, figured this out on the basis of a minimal economic education. Imagine what a thorough, well thought out, practical economics education could do.
My proposal is to give people an education in economics a bit more thorough than the one we got. First, I think a candidate should push that it be required that practical economics be woven into students math and history education throughout elementary and high school. Secondly, they should fight to have high schools in all fifty states create a year-long practical economics class and set it as a graduation requirement.
Ultimately, I believe that if everyone were thoroughly trained in an understanding of our economy, the majority of them would not act in the foolish manner that led to our current state, but would instead act wisely in a manner that would generate a stable economy. This, to my mind, is a far better solution to the problem because it addresses the roots of the issue and would have long term effects. What is more, this is a solution well within the powers of the President to achieve.
This isn’t to say that some sort of temporary solution, such as the current bailout, doesn’t need to be enacted. That idea is beyond the scope of this argument to address and is above my pay grade. Certainly, the urgency of our situation needs a solution that is immediate and the beneficial effects of my proposal would take some time to come into effect. Rather, what I am saying is that any solution that our government comes up with will only delay our downfall if we are not taught to be wise. The very best thing that any President could do for the economy would be to educate the people on the practical facts of our economy.
Please, if this idea resonates with you in any way, spread it around. I truly believe that this could have a powerful positive effect for our economy and my dream would be to see it enacted. You don’t even have to give me credit for this idea. Talk about it, improve upon it. Just get it out there. Thank you.
Born to Buy
Deep Economy