Monday, May 27, 2024

McHugh David: The growing gulf between academia and application

by BIZ Magazine

There are suggestions running out there that ‘just getting back to work’ will cleanse the economic dip caused by COVID-19 and send America back to the top of the food chain.

On top of that, the same economists who suggested work is the ultimate cure, are also adding that another round of stimulus checks are unnecessary.

To go even further, they’re also willing to underscore the whole thing by stating that individuals can simply ‘keep collecting unemployment’ which is ‘roughly 50% of median income, in most states.’

Finally, the economist said that providing businesses with incentive to hire and grow would be the best course of action moving forward to reboot the economy.

First, lets note that any kind of economic reboot should be a combination of all of these. Businesses and consumers alike need whatever boost they can get from the federal government – even as debt climbs, suggesting that only businesses be bailed out and not consumers shows a very one-sided view of a multi-fact economy. Perhaps the economist wants to cover for the fact that money owed by the federal government continues to grow, but choosing the side of business is very transparent in that regard, showing a buy-in for the business and suggesting that the consumer should just ‘go back to work.’

It should be a package that benefits both sides of the equation, considering businesses need customers – who spend money – in order to survive.

A recently released study showed that millions of Americans dodged poverty due to the first round of stimulus checks.

But, these kinds of suggestions and plans underscore a continuing divide between academia and the real world – a divide which is fueled, for the most part, by politics.

For the most part, undergraduate level courses give students the base for which to build future lessons. They are ‘designed in a vaccum’ to show the basic premise for specific theories – which is why everyone recognizes the ‘supply and demand’ graphs as an ‘X.’

Supply and demand are rarely, if ever, straight lines.

Think of your high school physics class as an example. When the teacher said, ‘OK class, this year we’re going to learn about physics… but we’re going to leave gravity out of most of our formula. If you decide to try this in college and beyond, they’ll introduce it there.’

So as you move forward in economics, new things begin to be introduced. Like gravity, which is of course a major part of our lives and affects every piece of physics we study, classes eventually begin to introduce real-life application of economics and show that, no, not everyone behaves rationally.

So introducing a one-sided approach to economic recovery shows a distinct lack of overall knowledge of the economy – that it takes at least two to tango, business and consumer.

History has shown that ‘trickle-down’ and ‘trickle-up’ economics are both fascinating theories to cover in academic settings, but fall short in addressing long-term economic growth. In the short-term? Sure, providing businesses with incentives to grow and consumers with extra cash to spend will make the economy rebound. But notice that both sides of the equation were provided with the means to boost the economy, not just one.

Why? Because neither side can be trusted to act rationally after a certain amount of time. Trickle-down, or corporate-based economics, shows that businesses will hold on to every penny they can. We’ve been doing this since the mid-80s by providing low corporate tax rates and allowing for businesses to dodge taxes in many different ways, all while wages continue to stagnate.

On the other hand, trickle-up shows that consumers will eventually begin to act with total irrtionality toward spending – consuming in an unsustainable manner.

Far too often we seek the easy way out, especially when it comes to converging the teachings of academia and the applications in real life. Society seeks the ‘easy way out’ with the ‘one time explanation’ that will solve all the problems.

What’s been proven, time and time again, is that just doesn’t work. The world we live in has a plethora of moving parts that all form a very complex engine. Seeking that one answer would be akin to replacing a fuel line in a car who’s engine is on fire.

Balance is the approach that must be taken when trying to fix the economy. Consumers and businesses alike must be considered in future economic stimulus, because both groups need help if th economy is to reboot.

Because, let’s be frank – unemployment is enough to keep a family alive. 50% of median income is nothing to move forward the economic needle, so the market will need more of a push than just that. Businesses, as well, have employees that cannot or will not return to work – that return must be provided with incentive.

The country must legislate in real time, not the way one side thinks is right.

McHugh David is publisher of the Livingston Parish News.

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