Figuring Out Macro Economics, the Dismal Science, for Myself
I became very interested in economics around the time the Great Recession of 2008 hit. I had been paying attention to global economics, but really didn’t know much beyond what I was taught in Macro Economics 301 at U.Va. a long time ago (yes, I took micro too). Unfortunately, it didn’t really equip me to understand all the issues around the Fed, Fannie Mae & Mac, Lehman Brothers, CDOs, derivatives and a fiat money economy since what I was taught was based mostly on Gold Standard economics. I did, however, begin to realize that much of what people were saying was dead wrong because they were talking about it in a micro-economic sense not a macro-economic sense and I did know that the two were quite different. For one thing I knew that we were no longer on the gold-standard, the U.S.A. has guaranteed income in perpetuity from its taxing authority, the Treasury could print or create as much money as is needed by the economy or the government, and I knew the U.S. dollar was the reserve currency of the world. Those three alone made the U.S. economy and the dollar the envy of the world and pretty much guaranteed we were not and could not go bankrupt as people were saying. After all, the U.S. has amazing resources and holdings in addition to its taxing authority so using an analogy is a man who owes $50 million and spends $1 million a year, but owns $250 Million broke or going bankrupt? No, of course not, especially if he is investing in a business that will eventually bring in $2 Million a year. I worked for a company that didn’t make money for over 10 years, but did a successful IPO and was growing by leaps and bounds and it wasn’t bankrupt either. I wondered a great deal about Dick Cheney’s famous statement that, “deficits don’t matter” and how that related to our budget and our national debt. Finally, I had run across the curious fact that every time we run surpluses and try to retire debt we run into a recession or depression. Look it up if you like so here are the years: 1819, 1819, 1837, 1857, 1873, 1893, 1929 and 1999. Here is a particularly cogent explanation of why a sovereign government is absolutely NOT like a household or a business – http://www.newdeal20.org/2010/02/10/the-federal-budget-is-not-like-a-household-budget-heres-why-8230/
The Financial Times, not noted for it’s liberal leanings, put it will in 2010 – Balanced Budget Amendment a ‘Phony’ Deficit Solution
All this and the screams of what have sometimes been called the “deficit terrorists” for their fanaticism about cutting the budget, fiscal austerity and the national debt (not to mention some crazies calling for the abolition of the Fed and a return to the Gold Standard) led me to search out a school of economics that used data from the last forty years (since Nixon took us fully off the gold standard in 1971 by ending gold converibiliyt) to describe what is going on in macro economics and helps recommend policies and proscriptions to remedy our economic ills going forward.