The document outlines 10 key things voters should know about the economy before the November election, including:
1) The debate between "supply-side" and "demand-side" economic theories.
2) Arguments around tax policy and the federal budget deficit.
3) The Federal Reserve's role in monetary policy and managing interest rates.
4) The rising federal debt and questions around spending vs. balancing the budget.
5) Issues surrounding large banks and financial institutions.
6) The growing costs of social programs like Social Security and Medicare.
7) Problems in the U.S. healthcare system.
8) Impacts of free trade and globalization.
1. Ten Things You Should Know About
The Economy Before You Vote In
November
Courtesy of Forbes Magazine
Written BY:
Brett Nelson
2. 1. Reagan Versus Keynes
• There are two broadly defined schools
of thought on what makes the
economy go—voters should
understand the main merits and flaws
of each.
• “Supply-siders” (the most famous
being President Ronald Reagan)
believe that if you entice
entrepreneurs and investors with tax
breaks, they will respond by making
stuff, employing people, taking risks
and accelerating the economy.
• “Demand-siders” (fans of economist
John Maynard Keynes) believe that
growth hinges on consumer demand,
which can sputter from time to time.
When it does, they argue, government
should “stimulate” spending through
various mechanisms—say, by
employing people to build roads and
bridges, or by increasing the overall
money supply to lower interest rates .
3. • You might think the argument
between supply-siders and
demand-siders would be
settled by now, yet it rages on.
• For more on this topic, check
out Naked Economics:
Undressing The Dismal
Science, by Charles Wheelan, a
senior lecturer in public policy
at the University Of Chicago.
(In fact, if you read one book
on the economy between now
and November 6, grab that
one.)
4. 2. Taxes
• Like Chinese water-torture, the
opinion pages relentlessly drip with
arguments about “fiscal policy”—
that is, how the government taxes
and spends. The debate begins
civilly enough, but often devolves
into ideological yammering over
what’s “fair” and what isn’t.
• The tax code is nearly 74,000 pages.
You don’t have to read them all, but
you should have some baseline facts
and figures at your fingertips. For
that, see “The Numbers Inside A
Hot-Button Issue”, a one-page
primer by David Wessel at the Wall
Street Journal. For more unbiased
stats and analysis, check out the Tax
Policy Center and the Congressional
Budget Office.
5. 3. The Federal Reserve / Money
Supply / Interest Rates
• The amount of money in the economy
is vastly important because it
ultimately affects interest rates. If you
care about the amount you pay on
your home mortgage or student loan,
or about what your employer pays to
borrow money to keep his operation
humming, then you care about
interest rates.
• The more dollars sloshing around the
system, the lower the rates that banks
must charge to lure enough customers
to borrow all that money; the fewer
dollars, the higher the rates.
• Lower rates encourage spending;
higher rates slow it down. Keeping
rates too low for too long can trigger
inflation, which decimates the
purchasing power of those dollars.
Four-dollar hamburgers annoyingly
cost eight.
6. Cont.
• The very difficult trick: monitoring the money supply so that
the economy stays strong but inflation doesn’t kick in. The
Federal Reserve—headed byBen Bernanke and subject to
Congressional oversight—sets “monetary policy”:
• It determines how much money is in the system by buying
and selling U.S. Treasury bonds. (When Uncle Ben buys
bonds, he effectively puts more dollars into the system; when
he sells bonds, he pulls money out.)
• As economic issues go, monetary policy is a big one—and it’s
fairly impossible to truly understand the Wall Street Journal,
the New York Times or any other financial publication (let
alone a crafty politician) without a fundamental grasp of it.
7. 4. The Federal Debt
• The U.S. government regularly
spends more than it brings in, and
borrows to fill the gap. The
cumulative tally of all those annual
deficits is called the national debt.
• Carrying debt isn’t bad in itself, but
carrying too much of it can be
dangerous: Having to cover those
interest payments gradually impairs
a country’s ability to pay for other
services (as anyone with a sizable
credit card balance can attest).
• Without sustained economic growth
or substantial tax increases, the U.S.
national debt is projected to rise
sharply as aging Baby Boomers
check out of the work force.
8. • Four years into the latest
economic downturn, the
thorny question on everyone’s
mind is: Should the country
keep spending money in the
short run to stimulate the
economy (and thus keep
adding to the debt), or should
it reduce the debt by balancing
its books sooner than later?
• The answer isn’t easy, to say
the least, but you should have
an opinion about it. (For more
hard data on this topic, check
out the Peter G. Peterson
Foundation’s website and the
readily digested
documentary I.O.U.S.A.)
9. 5. Megabanks
• Imagine you were invited to a
very special casino where you
got to keep all of your winnings
while local residents absorbed
most of your losses.
• That’s essentially what went
down in the latest financial
crisis, with big banks and
insurance companies playing
the gambler role and taxpayers
cleaning up the mess.
• Lawmakers’ rationale: Those
financial institutions were so
critical to the functioning of the
global economy that they were
deemed “too big to fail” (see
the book and movie by the same
name).
10. • The crisis touched off a wave of
mergers and an avalanche of
regulations designed to rein in
the gamblers and avert future
meltdowns—except that now we
have even larger megabanks that
are arguably way too big to fail.
• (The 10 largest banks now
control nearly 80% of all
banking assets.) This issue is
complicated, but you don’t need
a Ph.D. in finance to get the gist.
• (For extra fortification, read
just about anything penned
by Gretchen
Morgenson andAllan Sloan,
both former Forbes senior
editors, now with The New York
Timesand Fortune,
respectively.)
11. 6. Entitlement Programs
• SocialSecurity, Medicare and
Medicaid—the big three
entitlement programs—
account for nearly half of the
federal budget.
• As with the interest on the
national debt, that percentage
is set to rise fast in the coming
years as Boomers retire.
• Even if—especially if—you
don’t intend to collect Social
Security or Medicare for some
time, the fate of these
programs is at your
doorstep now.
12. 7. Health Care
• The drama over whether Congress
can lawfully mandate the purchase
of health care may have subsided,
but given that Washington remains
so bitterly divided over
the Affordable Care Act (and given
that you, inevitably, will get sick),
you should know what fundamental
issues are at stake.
• An absolutely necessary first step:
Read “How American Health Care
Killed My Father,” by David
Goldhill, published three years ago
in the Atlantic Monthly. You can’t
fix something unless you know why
it’s broken, and this brisk tome gets
right to it.
• (Hint: In the U.S. health care
system, the customer isn’t the one
who pays, and no one knows what
anything really costs.)
13. 8. Free Trade
• The more open an economy is, the
more reason to sweat competition
from beyond its borders.
• Free trade lowers the cost of goods
and services by efficiently doling out
the tasks required to deliver them; it
also displaces some workers in the
process.
• This arrangement thrills some
people and terrifies others—perfect
fodder for a game of political
football (see “The Folly Of Attacking
Outsourcing,” in theNew York
Times).
• Globalization is here to stay. A huge
question, for both sides, is how to
retrain the displaced and get them
working again. Keep an eye on that
issue.
14. 9. Immigration Reform
• Speaking of putting people to
work, how do you attract the
most talented and industrious
folks on the planet while
thwarting illegal immigrants
and protecting your borders?
• The answer has sizable
implications for the economy.
• Here’s a decent primer:
“Economic Impacts Of Illegal
Immigrants In The United
States.”
15. 10. Income Inequality
• A capitalistic system, in the
aggregate, creates greater
wealth over time. No one
argues with that.
• What many people do take
issue with, however, is the
widening gap between the rich
and the rest.
• The financial-services
industry gets much of the heat:
Despite the recent downturn,
many Wall Streeters (the very
architects of the calamity,
some argue) have pulled down
lavish bonuses the past two
years.
16. • Assume for a moment that
some amount of income
inequality comes with the
territory in a capitalistic
economy.
• The next questions are: What’s
the right amount, and who
gets to decide? Wrestling with
the previous nine points will
help you figure out where
you—and the candidates—
ultimately stand.
17. Do a lil research and get to know what you may
be voting for. Illiteracy is not an excuse with the
vast amounts of information available to you.
• Of course, more hangs in the
balance come November than
just our livelihoods. And no
matter who gets elected, the
President has less to say about
the laws of supply and demand
than you might think (see this
report by the thoughtful gang
over at Freakonomics).
• Still, at $15 trillion and
counting, it’s worth the time to
understand what the
candidates are saying about
the economy—and whether or
not it passes your smell test.