There was an article in the November 20th issue of BusinessWeek magazine had a quick primer on the four major philosophies of economics that rule our national economy. I thought it was worthy to pass on.
Policy Classic (Keynesian Economics)
Main Proponents: Almost everyone.
How It Works: Increase government spending, cut taxes, and slice interest rates to fight recessions.
Why Globalization Affects It: Fiscal and monetary stimulus now increases the current account deficit rather than creating jobs at home. Interest rate cuts will have little effect against an economic crisis caused by a falling dollar.
Supply Side (Dynamic Scoring)
Main Proponents: Ronald Reagan, George W. Bush.
How It Works: Cut tax rates to boost work effort, savings, an entreprenuerial energy.
Why Globalization Affects It: Tax rates are just one out of many factors that matter for global competition. There's only weak evidence that tax cuts really have a big impact on growth.
Deficit Cutting (Rubinomics)
Main Proponents: Mainstream Democrats and Republicans.
How It Works: Shrink the budget deficit to promote savings and investment.
Why Globalization Affects It: In a global economy, the U.S. budget deficit has little effect on interest rates or on the trade deficit. A focus on fiscal restraint also holds back essential investments.
Innovation Classic (New Growth Theory)
Main Proponents: Technology heavyweights such as John Chambers and John Doerr.
How It Works: Boost government spending on education and research and development in order to stoke growth and competitiveness, and improve living standards.
Why Globalization Affets It: Global competition is helping push down real wages for young Americans with bachelor's degrees. R&D is moving to India and China.
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