This is an extraction of Edward Paul Lazear’s lecture on the future of the American economy provided here in Chicago: The Veil of Uncertainty.
Edward Paul “Ed” Lazear is an award-winning American economist, considered the founder of personnel economics, and was the chief economic adviser to President George W. Bush.
Summary of Lecture
There is a heightened sense of insecurity; A rising number of Americans are expressing an uncertainty about their economic future. Yet, Edward Paul Lazear, an award winning economist, explains that Americans are not uncertain about the future of the economy; they are certain that governmental policies moving forward, will not effective enough, to impact the drastic changes that are needed.
To date, policy decisions are intertwined with politics, therefore refuting real progress. Yet Lazear feels that he has a list of solutions that would rectify our dragging economy.
He explains that this recession does not resemble the one of the Great Depression era, in-spite the accusations. The Great Depression, was far more severe, and the recovery was strong. However, the big stimulus did not come until 1941.
Industries that receive the most employment have short-term standing and a rapid decrease in employment. Employees are more likely to be laid off eventually, i.e., hiring an influx of construction workers may provide an instant boost, yet the work is not sustaining.
Today, the manufacturing sector ceases to exist. Jobs that used to affect the economy, such as labor, are no longer available. The manufacturing sector has been pushed over seas. Labor in the U.S. is cost extensive, while overseas labor is cost effective to American companies.
He claims that we can not necessarily spend our way out of a troubled economy. We have to stimulate output by changing government spending. Tax breaks do little for the economy. When we give $1000.00 as oppose to $100,000.00 to individuals in tax breaks and rebates, people are more likely to spend the lesser of the two. They will simply save the $100,000. A tax break of $1000 per individual has not been an effective stimulant for the economy. He claims that this has been proven. He also thinks that the entitlement program structure needs to be reformed.
The major two factors that Lazear claims is exploiting our economy is low tax revenue and high government spending. The debt is going up very rapidly.
Above all, Lazear feels that there are four things that will remedy the economy’s policies:
- Tax reform
- More trade and an open economy
- Effective regulation
- Taking fiscal responsibility
Lazear claims that politics hinder progress in our government, especially pertaining to fiscal matters. Yet, he has been accused of being loyal solely to Republicans. His assessment of politics impeding effective policies are accurate. However much of his theories throughout this lecture, does not appear to support a workable agenda for the American people. Here is why.
Folks are still leery about what’s to come, regarding the federal deficit and economic state. Our most recent recession has been often compared to the disastrous recession of the 1920’s- 30’s. Even though Lazear says that this recession is no where close, the unemployed and underemployed can not be convinced, otherwise. Contrary to his viewpoints today, he has compared today’s recession to the Great Depression in the past.
When Lazear mentions the great stimulus for The Greatest Generation (WWII era), It is clear that he refers to the defense spending and military mobilization. The country manufactured war supplies as Germany invaded France at the beginning of WWII. The manufacturing sector boomed as the U.S. became the major producer of military weapons. He gave no merit to FDR’s New Deal, though. In fact, many economists and historians feel that it was the reservoir that restored confidence in the U.S. markets. The New Deal of 1933-4 spurred job growth; various government agencies were designed to provide relief and employment to Americans. The work was not long-term but a necessary boost to a downward economy at the time. It was better than any sort of do-nothing policy. Unemployment fell by 66% in Roosevelt’s first term (from 25% to 9%, 1933–1937), and fell continually until the war.
Plus, after the Great Depression and World War II, American auto companies continued to prosper and the U.S. produced near three quarters of all automobiles in the World near 1950. However, beginning in the 1970s, a combination of high oil prices, increased competition from foreign auto manufacturers severely affected the companies.
Today’s economy produces a bleak picture. Lazear states that post the stimulus of 2009, the economy has produced a growth rate of about 2% a year. He feels our problems are due to too much government spending and low tax revenue. He fails to add that initially, FDR’s New Deal, a program funnel by the government, triggered the economy. Then came the military boom and the great surge from the private sector, the automobile industry. These approaches collectively boosted the American economy. Today, we have no such infrastructure post the 2009 stimulus. Our Congress’ unwillingness to work together in bipartisanship has hindered a portion of that.
The stimulus of 2009 wasn’t a bad thing. It prevented a further collapse. Unfortunately the government placed confidence in luxurious banks as oppose to hard working Americans. Many Americans were baffled by the government’s decision to bail out banks as oppose to invest in individuals and their households. If the trillion dollar bail-out for the banks was divided and distributed to each American instead, every individual would have gained approximately $30,000 dollars. Some experts argued that working-class Americans would have put the money back into the economy. Plus it would have alleviated worry and restored confidence in the U.S. markets. It turned out that the bailed-out banks held onto tax dollars and stiffened their standards on lending. As a result, Americans felt less confident in both their political and economic system. The message that was sent to Americans, was that government cared far more for big business than average individuals.
Critics and doubters of Lazear’s economic principles claim that he was behind the Bush tax cuts on capital gains while forcing those with earned income (every day, average Americans) to pick up the slack. Government is giving big business and the rich a free ride as they contemplate cutting programs that were designed for hard working Americans. If we end the Bush Tax cuts we can invest that revenue in more programs for working class Americans. They will place that money back into the U.S. economy. Working class Americans do not have the option of storing money in offshore accounts. This is an idea funneled by Paul Krugman, an American Economist and a Nobel Memorial Prize winner in Economic Sciences.
Edwards Lazear’s economic policy proposal is only as fiscally sound as the reforms and regulations he proposes. Right now, I am amongst the skeptics.