New economic reality doesn’t fit old molds


With only six months to go until the presidential election, it’s difficult to say who will win. The most recent polls put President Barack Obama and unofficial Republican nominee Mitt Romney in a virtual tie.

Political commentators say the state of the economy will determine the winner. Supposedly, if the economy improves between now and November, Obama will be the winner; if it stays the same or gets worse, he will lose.

Though this argument might seem to make sense, it begs the following question: Why should the last six months of a four-year presidency define its success? Shouldn’t 3½ years be more than enough of an evaluation period? Most of Obama’s first term is over. It should already be clear whether his economic policies are what we would like to see again.

So why are we at such an impasse?

It has been difficult for either side to gain traction because the traditional ideological divide between Democrats and Republicans was built for another time, and the arguments simply don’t fit today’s realities.

Economically, we face something we haven’t seen before. Politically, the same should be true: Candidates should be saying things we haven’t heard before. But rather than reshaping their traditional ideological positions to reflect new realities, both parties have instead chosen to become more entrenched in their historic personas.

After the Great Depression, Keynesian economics dominated the American system, drawing on lessons learned from the crisis to stimulate demand through spending during recessionary periods. This policy lasted until the mid-70s, when inflation proved to be an unwanted side effect of too much expansionary activity. From that point forward, we witnessed the revival of laissez-faire economics, mixed with a newly conceived supply-side school of thought.

Following the crash in 2008, the Keynesian mindset was brought back in a big way to help spend our way out of a recession. This time, however, we ended up finding failure on a different level than before. Debt, rather than inflation, became the issue.

Our exorbitant federal debt, now at more than 100 percent of gross domestic product, is hampering our ability to stimulate a sluggish economy. It even calls into question the credit-worthiness of the U.S. government.

How can we stimulate the economy — whether through the stimulus policies of the left or the supply-side incentives of the right — when debt is so high?

Democrats claim that Republicans are stuck in the past, only looking out for big businesses and Wall Street — think the Occupy movement. Republicans claim that Obama represents big government and wastefulness — think Tea Party.

This intellectual divide is nothing new, but the situation has completely changed.

It seems the public realizes the debate is stale but doesn’t know what to do about it. As the presidential election draws nearer, students should keep candidates’ willingness to adapt to new realities in mind.

 

Justin Davidoff is a junior majoring in business administration. 


  • Hank Rearden

    Couldn’t agree more