Robert L. Sharp: Voodoo economics

01/17/2009 1:08 AM

01/17/2009 1:09 AM

My bank employer would send our ebullient economist Dimitri Balatsos around the world every year to meet our customers and hopefully also to generate some newspaper attention.

When meeting people, he would invariably trot out an old economist joke, partly as entertainment, but mostly to deflect the usual request for a prediction of future business conditions.

One of the most popular jokes was that of the man adrift in a hot air balloon who is hopelessly lost, but seeing a man in the countryside below him, asks, "Excuse me, sir, but can you tell me where I am?"

The passerby says, "You are in a big red balloon, about 20 meters above the ground."

The balloon's unhappy occupant replies, "You must be an economist."

"How could you possibly know that?" asks the passerby.

"Because your answer is technically correct, but absolutely useless, and the fact is, I'm still lost!"

Our economist would then note, "I cannot foretell the future, but I can give you some hints about what to look out for that may give you some idea of what is coming."

We can't tell the future, but are finding that surprise! surprise! Barack Obama cannot save the world all by himself, but must work with Congress. He can propose, but they dispose, passing enabling legislation and appropriating money.

Mr. Obama's stimulus plans are made even more difficult as they try to reverse the philosophy of previous Republican administrations.

George H. W. Bush, running against Ronald Reagan for president in 1979, referred to the latter's economic policies as "Voodoo Economics."

What came to be called Reaganomics was partially based on the principles of supply-side economics and the "trickle-down" theory, which called for widespread tax cuts, decreased social spending, increased military spending and the deregulation of domestic markets.

On the contrary, as my Japanese friend Seiichi-san believes, the Democrats want to see equal results, versus the Republican desire for equal opportunity. So it is a little odd that President George W. Bush promoted grassroots funding to stimulate the economy. He sent out checks in 2001 and 2003 and did so again in 2008, even though the earlier distributions had little effect on the economy (hats off to Gov. Bill Ritter of Colorado, who knows the plural of stimulus is "stimuli").

The fatuous exhortation was, "When the going gets tough, the tough go shopping."

More cynically, it was observed we borrowed money from China for use in buying goods from China.

In this vein, Fred Thompson, actor and former U.S. senator from Tennessee, has a satirical video circulating on the Internet (http://blip.tv/file/1528079) which in summary says, "We got in trouble borrowing and spending and now they want to get out of trouble by borrowing and spending."

Just giving money to the banks and Wall Street and Detroit is akin to pouring it onto sand, as one-time payments disappear. This doesn't work; it's employment, with continuing income, which is needed to reboot the economy, not a one-time dribble.

What we will now see is an application of Keynesian economics, named after British economist John Maynard Keynes, whose ideas created government economic policies during the Great Depression.

He observed the multiplier effect that during hard times, people hoard their money, but since one person's income spent becomes another's income and so on and on, lack of spending brings the economy to a halt.

Keynes' solution to this sad economic situation was to prime this circular pump with government spending. This is what Mr. Obama is advocating.

Washington must be abuzz with lobbyists salivating over the large sums to be spent, and you know Congress will stick on their pork barrel earmarks. I look forward to the infrastructure part, which will leave behind things you can see and use, unlike throwing money into the wind.

The Troubled Asset Relief Program (TARP) congressional oversight panel reports the Treasury has failed to reveal its strategy for stabilizing the financial system and had done little to track how the money was used. Let's hope the new administration is more responsible.

Robert L. Sharp grew up in Linden (population 1,000) and spent most of the following 30 years as an international banker in Asia, including four years as a Naval officer in that part of the world.

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