The Economy Stupid?

This phrase was coined by James Carville during Bill Clinton's campaign in 1992. Most pundits claimed it helped Clinton connect with those imperiled by the recession that was underway then, or not, as was later shown to be the case. It is still up for debate how much this helped, versus say a strong third party challenge from a certain peculiar Texan.

This begs the question today. Most who proffer this think the economy needs to be "fixed" by government intervention. Things like stimulating consumer demand or spending on infrastructure. The theory is that these create demand that gets the economic machinery moving. This is true, but typically true as a 5K vs a marathon, in other words it is short-lived and typically not sustainable. Like it or not, this is a tool that could be used, but like all tools, it should be only applied in the right application.

The ups and downs of a market economy are driven in part by two distinct types of disruption; Cyclical and Structural. Cyclical disruptions are driven by the business cycle. This cycle is constantly seeking, or oscillating around, a balance between supply and demand. Structural disruptions are driven by big changes in the structure of an economy. These are typically large shifts in supply and/or demand driven by technology, war, political shifts, or major behavioral shifts. I contend that government intervention may ease a cyclical disruption, but that it will aggravate a structural shift. So what was the 2008/2009 Recession and it's aftermath, cyclical or structural? What do you think about government policy shifts and their effect?

So following a "systems thinking" approach, we would approach these questions in a logical sequence;

1. Determine the nature of the problem.
2. Determine an application or technique to solve said problem.
3. Execute application to solve problem.
4. Test or analyze results.
5. Verify and close, or modify plans and approaches and return to Step #2.

These steps will be subject of future posts where we'll explore these questions in the context of the current economic situation in the US. Hopefully lively and enlightened discussions will ensue.