Cetirus Paribus, Nothing Is Ever Equal

I typically shy away from political commentary. You don't care to read it any more than I care to write it. However, there have been thoughts in my head the past week that I've been kicking around so this is my chance to get them out.

I read an article that the U.S. Treasury recorded record-high tax receipts on September 15th with $85.8 billion; the record it broke was exactly a year before that when the one-day intake was $71 billion.

Obvious Observation - the government is taking in more and more money. That's a sign of a prosperous economy.

The Obvious Question: (and I don't want to go Gordon Gekko at a Teldar Paper stockholder meeting), but why are our trade deficit and fiscal deficit at nightmare proportions?

But that's not the question I'm asking. Rather, I want to know how that 85.8 got there in the first place.

And if you think you know the answer, you don't because you're wrong. Nobody knows and here's why.

There are at least two competing economic theories simultaneously and hypothetically working against each other. Economic conservatives will tell you that it's because of the Bush Tax Cut, the golden lamb that is a panacean economic driver. Partly, but not by itself. Tax cuts by themselves don't stimulate the economy any more than tax increases do.

That being said, I think the Laffer Curve is perhaps the most brilliant man-made invention. Ever.

However, I'm a Keynesian. And a semi-reformed Supply Sider. Keynesian Economics relies on the tax cuts inherent in Supply Side; it, however, takes off where Supply Side stops. Increased government spending to stimulate the economy works in times of war and national disaster whereas Supply Side doesn't. The deterrent is when private savings are low, which hasn't been a problem lately.

Both systems work, in theory; sometimes even in concert. It's absolutely true: allow the private sector to supply a high-def tv and enough people will demand one. As they first hit the market, prices will be outrageous. After a while, prices will come down. However, we need not rely on high-def tv sales to keep our economy going.Equally true, responsible government spending can do in a week what it would take months for the market economy to do.

I had two great economics professors in college. One was a very hip racquetballer who would frequently set up matches with his students. He's the one who first introduced me to Yes, Prime Minister. He's also the one who taught me that objects have no innate value, only perceived value. He did that by playing two songs: Diamonds Are Forever and This Diamond Ring. In one song, Shirley Bassey sings "Diamonds never lie to me. For when love's gone, they'll luster on." In the other song, Gary Lewis and the Playboys sing "This diamond ring doesn't shine for me anymore; and this diamond ring doesn't mean what it did before."

The other professor came in each morning at 8 a.m. with a lit cigarette, a coffee mug that read: "I spend my money on liquor, cigarettes, and wild women. I blow whatever's left.", and a hung-over expression on his face. After setting his mug on the front table and clearing his throat, he'd start class off with a rhetorical question, always beginning it with "Cetirus paribus..."

I came out of those classes with two important truths:

1. Get the unemployment level too low, and interest rates, cetirus paribus, will skyrocket. Get interest rates too low, however, and prices will skyrocket.

2. There is no sure-fire economic theory that will work in every situation.

But back to our other competing economic system. Economic liberals will tell you that the current economic surge is a fall-over from the previous administration.

And that's why it's dangerous to mix politics and economics.Here's a third truth (my own): Richard Nixon was the last liberal president. He's the one who said "We're all Keynesians now." after taking America off the gold standard. He's the reason the Dow Jones has increased over 10 thousand points in three and a half decades.

And the last one: George Bush is the most liberal president since Richard Nixon. He's also the most conservative president since Ronald Reagan. He's also one of the few true moderates since Eisenhower.

That's about it. Like I said, I didn't have a particular point to make, just wanted to clue you in what I've been thinking about on the drive home for the past several days.

Still not interested in economics? You need to listen to the Money Honey.