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Economics in Perspective


This blog is sponsored by new member, Dr. Willam Van Lear.  Dr Van Lear is a Professor Emeritus at Belmont Abbey College (Belmont, NC). He is a part-time resident of The Villages.  His blog will feature periodic short essays on important topics dealing with economics and finance. 

Dr. Van Lear invites others to contribute to this blog (articles must pertain to economic and finance issues). Please send submissions directly to Dr. Van Lear for consideration. Feel free to engage Dr. Van Lear if you have any questions or comments about his articles. 

His email address is:  williamvanlear@bac.edu 

Dr. Van Lear

  • Monday, February 15, 2021 12:24 PM | Bryan Casey (Administrator)

    Republican governors spend less federal aid to states than Democrats, limiting its impact

    Partisanship affects how federal aid to state governments is spent, say Gerald Carlino of the Philadelphia Fed and co-authors. By observing state spending after close gubernatorial elections—where the outcome was unlikely to have been decided by broader economic trends—the authors find that Democratic governors tend to spend their federal aid, while Republican governors use it primarily to reduce taxes. This significantly affects the impact of federal fiscal stimulus, the authors say: if Republican governors spent as much of the aid as their Democratic counterparts, the impact per dollar of federal to state transfers on aggregate income would be 61 cents higher. Republican-led states that allocate the aid to tax relief over spending see lower resulting increases in state output than Democratic states do, with spillover effects on other states’ output as well. These partisan differences in aid spending appear to have first emerged during the Reagan presidency, and risen with increased political polarization over time. [Brookings, February 11, 2021]

    Dr. William Van Lear
    Professor Emeritus
    Economics Department
    Belmont Abbey College


  • Friday, January 22, 2021 9:08 AM | Bryan Casey (Administrator)

    Modest levels of economic inequality go without condemnation. People’s incomes can vary from differences in effort, education, innovation, and career choice.

    Inequality is problematic when the range of high to low income is vast or when income is concentrated in a small percentage of people at the top of the income ladder.

    Vastly different incomes are largely associated with people who control and / or own large commercial enterprises. Large property possession rewards people for their labor, but also for their organizational and risk-taking efforts connected to the control or ownership of property.

    Whether one finds the role that property plays in creating inequality justifiable, there are three basic reasons to be concerned about very high inequality:

    1. Economic Activity: When a large percentage of a nation’s income is concentrated at the high end, those people place much of that money into savings accounts and pensions, not into the purchase of goods and services. High inequality therefore deters employment growth.

    2. Speculation: High inequality means there is much cash in the hands of a few people. An important outlet for this money is speculative financial markets. This use of cash can drive up asset prices to unsustainable levels, setting up the stock and other markets for a crash.

    3. Power: The people advantaged by high inequality have a heighten means to affect legislation, to set the parameters of policy debate, and to impact public thinking. To some extent, a small minority can rule the majority.

    We know how to moderate inequality because the country did so in the middle 20th century: have high income people pay higher tax rates than low income people, finance poverty programs, implement social insurance, enlarge public funding of education, expand voting rights, and encourage collective bargaining.


  • Sunday, November 29, 2020 6:31 AM | Bryan Casey (Administrator)


    Why does the federal government spend more money than it takes in?

    Government spending and taxing is called fiscal policy. Fiscal policy is a means by which government affects economic activity.

    Here is how to think about the effect that deficit spending has on the economy.

    Assume you and I are the economy. I spend all of my money on you and you spend all of your money on me. If we do this, we are both running balanced budgets. And note that my spending is your income, and your spending is my income.

    Now assume I borrow money so I can increase my spending to buy more goods from you.  If I do this, I run a deficit budget.  But my “excess” spending or deficit must be equal to your additional income. This means you have a surplus budget.

    My deficit = your surplus!

    With that additional income you are likely to spend more, which would increase my income.

    Economists know that when this occurs throughout our actual economy, deficit spenders create surplus incomes for others, who in turn spend more money.  As spending rises in the real economy, more goods are produced and more people are employed.

    Finally, think of the economy in terms of two sectors, the private sector and the public sector. When the private sector experiences recession or unemployment, the public sector deficit spends in order to create surplus budgets for households and firms.

    What the private sector would not want is for the public sector to run surpluses because that would force the private sector into deficits.

    In sum, deficit spending by some people raises other people’s incomes, and then these people encourage more economic activity by increasing their own spending. Fiscal policy is therefore a tool directed at reviving an economy from recession or stagnation.  A great example is the government’s current deficit budget policy to mitigate the economic effects of COVID-19.

    Now you know the essence of the economic role of government.


   

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