Denial

Politicians today seem to live in a world of buzz words, catch phrases and sound bites. “Facts” can change to suit the moment (even adjusted retroactively), and slogans have long since substituted for common sense. But some of these myths really need to die a hard death, and today, I will focus on some of the the biggest baddest assumptions:

1.      Myth: If we generate domestic or “North American” oil, Americans will have cheaper gas at the pump. Truth: While domestic oil producers may be keeping more cash on this side of the ocean, petroleum prices are not set by the producers… it is a global commodity that carries an internationally and market-driven value that pretty much just depends on the quality (grade) of the oil sold. Unless U.S. oil producers are willing to sell at prices below what they could get on the global market, price is simply a function of supply and demand. And if more developing nations get more cars, guess where that price is likely to go.

2.      Myth: We can have a strong military and fight whatever wars we need to fight, keep taxes low and still have enough left over for education, infrastructure and research needed to grow our economy. Truth: Economists call the conundrum “guns and butter,” but we fought two wars – in Iraq and Afghanistan – while cutting taxes and maintaining our spending levels on other programs with little or no change. The Clinton budgetary surplus rapidly became the Bush-era militarily-induced budget deficits, and when the economy collapsed, we went from bad to worse. We cannot support our military at remotely near current levels without a whole lot more in taxes and/or a massive reduction in our spending everywhere else. To exclude the military from long-term downsizing – especially after we have stopped two wars – is no longer realistic.

3.      Myth: Cut taxes for the rich and jobs will spring up. Truth: The rich didn’t get that way by being stupid, and they most certainly aren’t going to waste any fresh new cash on hiring people to produce goods and provide services in the absence of clear and sustainable consumer demand. There is little indication from corporate America of any major shift to massive new hiring until economic vectors unequivocally indicate sustainable consumer demand. In fact, many companies are contemplating another round of job cuts unless they see a new trend in consumer confidence, which is teetering on the fence (and shifting from side to side at any given moment). In short, this tax incentive is only good for the folks who get the reduction… and no one else.

4.      Myth: We need to cut the deficit even if the necessary austerity sinks us back into a recession. Truth: While cutting deficits is necessary, the more meaningful analysis is the ratio of gross domestic product (GDP) to debt. If the debt levels sink, but GPD falls even more, that ratio can actually create a substantially worse situation and negate the value of the debt reduction. Such is the case in Europe, where the most impaired countries are sinking into abysmal economic conditions even as they reduce their expenditures and impose austerity measures, because even with lower debt levels, their GDP has tanked so badly that they are even in worse condition than they were with unsustainable debt. We’ve seen waves of protests in Europe – turning against the German obsession with imposing austerity measures against inflationary trends even if recession or worse is the price – all across the continent. And the only news they have is bad: “Countries such as Greece that have been bailed out by international lenders continue to see their economies shrink. Meanwhile larger economies such as Spain have imposed spending cuts in an attempt to avoid having to ask for a bailout….The eurozone has returned to recession as the region's debt crisis continues to hurt demand, figures show… The economy of the 17-nation bloc contracted by 0.1% between July and September, after shrinking 0.2% in the previous three months. BBC.co.uk, November 15^th. Think our leaders are learning anything from the European experience?

We need to get real and stay real. There are no simplistic answers to complex economic woes, and since the world is hardly static and profoundly interdependent, constant change requires constant economic readjustment. What is lacking is the political will to face harsh truth combined with the inability of politicians to explain (understand?) the issues sufficiently to their constituency. Sloganeering is so much easier.

I’m Peter Dekom, and repeating untruths… no matter how many times we try… does not make them truths.