INSIGHTS: THE BUSINESS OF AMERICA IS STILL BUSINESS
Guest Columnist David Rehr:
CEO at TrasparaGov, Inc. and Adjunct Professor at The George Washington University
What are the underlying attitudes Capitol Hill has towards the institutions that are responsible for American economic growth? That was the central question in research conducted by the Graduate School of Political Management (GSPM) at George Washington University and The Original U.S. Congress Handbook. The survey was conducted between May 10-28, 2013. 328 congressional staff participated. Percentages may not total to 100% due to rounding. Some top line results:
Business Should Build Information Trustworthiness
One-third of Hill staff found corporate information Not very/Not at all Trustworthy, reminding us that corporate advocates need to ensure they are building their positive reputation when they can; surprisingly, Labor Unions ranked the lowest in Trustworthiness. For every one congressional staffer who thought they were Very/Somewhat Trustworthy, another one thought Labor Unions were Not very/Not at all Trustworthy.
How trustworthy do you find the information you receive from these economic institutions?
Small Business Needs to Communicate More
Small business associations need to increase their game, according to this analysis.
How often do you hear from each of these economic institutions when policy affecting them is being considered by the U.S. Congress?
The Business of America Remains Business
The words of President Calvin Coolidge are as true today as when he uttered them in 1925. Hill staff strongly supports the need for corporations, profit, and small business. 90% of the Hill sees the positive impact business has on communities.
Do you agree or disagree with the following statements about our economic institutions?
To get a complete copy of the free executive summary, contact Dr. David Rehr at DavidRehr@gwu.edu or call 202-510-2148.
ON THE ECONOMY: THE ILLUSION OF STABILITY
By Michael Flaherty:
PhD Candidate in Economics at the New School and intern at John Dunham & Associates
Nothing is certain but death and taxes… other than the short term memory of the media-political sphere.
One of the buzzwords thrown around in the wake of the ’07-‘08 financial crisis was the “Minsky moment.” The phrase itself was coined in the late 1990’s, but the idea dates back to the work of mid-century economist Hyman Minsky. He observed that economic stability leads to speculation which destabilizes the economy. The housing crisis, the credit crunch, and the financial meltdown were due, in part, to a euphoric period of speculation and risk taking. Houses built on shaky foundations will need to come down eventually.
It’s five years later, and the idea is becoming relevant again, but this time it is easy to predict when the bottom will fall out.
The Federal Reserve Bank’s policy of Quantitative Easing (QE) injects money into the economy through the buying of financial assets ($85 billion worth each month), with the goal of propping up banks, reducing interest rates and keeping inflation above a certain threshold. The downside is that this policy leads to the false sense of security that got us here in the first place. Last week, we got a taste of the bubble dynamics underlying QE. Fed chairman Bernanke announced a plan to taper off asset purchases – he likened it to easing off the gas pedal in an accelerating car – and markets reacted violently. The prospect of having to pay back loans meets the reality of poorly performing investments.
Underlying the logic of QE is the assumption that the injection of federal money will stimulate lending and borrowing, allowing consumption to remain high. The demand for goods drives up the labor demand, and unemployment falls. The idea falls apart when the money lands in the banks but is not lent back out since the banks can make guaranteed returns by simply redepositing the money with the Federal Reserve.
Left-leaning economists typically support interventionist policy decisions, overseen by a robust regulatory body, and those on the right might typically prefer the self-correcting, free market mechanics. No one would suggest, however, that the best policy for financial stability and economic growth is to reward the type of debt leveraged gambling that started the whole mess in the first place. Soon we will see whether the QE strategy implemented by Bernanke’s Fed has long lasting stabilizing effects, or whether recent signs of improvement in the economy are merely an illusion, delaying (and potentially worsening) the sting from the crash until this “tapering” is actually implemented and the money stops flowing.
Conventional wisdom is that if things seem too good to be true, they probably are (or at least it is best to be prepared for the possibility), and that is the ultimate truth underlying Minsky’s point. Stability is inherently destabilizing, and while the government can either follow a policy of taxing in booms and spending in busts (admittedly lowering overall economic growth) or follow more free market principles, the policy of coupling the high risk of the booms with inflationary spending in the busts is to add floor after floor to a house built on a shaky foundation.
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