Imagine if you will someone who just bought his or her first car. As they leave the dealership they are reminded by the dealer to keep pressure in the tires above some minimum level. The new owner dutifully follows the advice. As soon as the pressure in the tires drops bellow the desired point the owner pumps air and all is well. As the tires get worn out the owner’s frequency of pumping air increases. Then one day the car gets a flat tire. The driver makes it to the service station and starts pumping air into the flat. Unfortunately, no matter how much air he pumps, the tire still goes flat after just a few minutes. Fairly soon the car’s owner will realize that a hole has permanently altered the tire and the previous solution of pumping air will not work. He will have to fix the tire another way.
As you might have already realized, the tire in this story is our economy and the driver can represent any number of government agencies and politicians who advise policy makers on economic decisions. As it appears now, apart from a number of ultra conservative and libertarian politicians, the government’s weapon in fighting the recession has been pumping money into the economy in the form of stimulus and bailouts. So far that has not worked. At some point, and this point might very likely be now, it should be worth asking: "Has the American economy fundamentally changed? Are we pumping air into a flat tire?"
Modern economics since the days of John Maynard Keynes has relied on statistics from past data to adjust the valves of monetary and fiscal policies. This works well as long as recessions and other undesirable activities stay within previously observed boundaries. However, when those boundaries are broken, continuing the same policies as in the past can prove to be as futile as pumping air into a flat tire, and with money not being as abundant as air, the old methods might actually prove to be dangerous. A disastrous result of current policies will at some point in the future make interest payments on the federal debt the largest portion of the federal budget. The appropriate thing to do now is to recognize the limits of economics and tackle the current problems with a wider focus and tools such as political philosophy and a broader view of history.
If we rely exclusively on the recent past for guidance, we will confront the future unprepared, for there is no data to study about the future. None at all. We can think of one last metaphor, a whale approaching the shallow waters of the beach shore for the first time. With only the deep ocean waters in its memory the whale will ignore the danger posed to it by the coast line. It is in this moment that a rogue wave or a bad choice can push the whale onto the shore with no means of getting back. My advice to American policy makers is this: Look to the past, but anticipate the unexpected future. If we don’t, our country can find itself similar to that beached whale, unable to make it back out to sea.
