The Reality: An Economy Runs on HOPE

While reading a report today on the current economic "meltdown" going on in overseas markets, I came across this paraphrase of George Soros.

Billionaire investor George Soros said he believed the United States was already experiencing the pain of a double dip recession and that Republican opposition to Obama's fiscal stimulus plans was to blame for sluggish growth.

Of course, Mr. Soros's actual words were far more nuanced. But this reflects the current reality of politics - both sides are more interested in blame than giving the electorate a clear view of their choices.

So, let me give it a try. I add the disclaimer that I am NOT an economist, and I am sure many economists would ridicule my explanation as overly simplistic. You judge for yourselves.

Everyone agrees we are in the middle of a bad situation. To use a fairly standard analogy, the economy is on fire.
--> Democrats want to beat the fire by spending more. They want to use borrowed money to build the economy faster than the fire can destroy it.
--> Republicans want to beat the fire by spending less. They want to fix the underlying causes of the fire right away, trusting the fire to go out on its own, which will eventually allow new building to resume safely in the future.

But both sides are dismissive of the opposition:
--> Democrats say the Republican plan is like revising building codes in the middle of a fire - it does nothing for those suffering NOW.
--> Republicans say the Democratic plan is like adding fuel to the fire while it is still burning - it may make it harder to see in the short-term, but in the long term it just makes the fire worse.

The problem is, a "fire" is a bad analogy for analyzing the Economy. A fire attacks concrete things, destroying them, requiring people to grow new trees, mine new steel, and use human labor to put it all back together. The Economy, on the other hand, is a more nebulous concept. Value is something which exists in the mind of a human being, based on some "real" factors (like supply and demand) but also based on intangible factors (like desire and status). Value can be created from nothing - consider what you are buying when you buy a baseball card or purchase a Netflix subscription - and can be destroyed without anything concrete having been destroyed (as when a writer is found guilty of plagiarism or fraud). The economy is not built on debt or savings, but rather on HOPE.

Look at it this way.
--> If you have HOPE to have a family, you'll buy a house for them. If you have no hope, why bother?
--> If you have HOPE that you'll have a job tomorrow, you'll take the time to buy more than the essentials. If not, you'll hoard what you have.
--> If you have HOPE to eventually become employed, you'll invest time, money, effort in education. If not, you'll look for ways to pass the time.
--> If you have HOPE that you'll be repaid, you'll extend a loan. If not, you'll keep the money to yourself and invest in treasury bonds.

So, do Democrats or Republicans have the right solution? Neither. Both. It is not a question of finding the right value for a variable in the equation. It is a matter of convincing people there is HOPE for the future, so they will act, spend, and invest. And at the moment, all the Federal Government has done is convince people to look elsewhere for HOPE.

Keep that in mind this next election season.