(Readers: Please note the blog about the 5th revolution in the US is constructed as a story. While not all chapters are linked, I think the story will be more meaningful by starting at the beginning.)
Want a PDF version for Entries #1-10 and 11-20 formatted for tablets and e-books? Click links for download. America’s 5th Revolution Volume I (Entries 1-10) America’s 5th Revolution Volume II (Entries 11-20)
Scene: Bagel shop in Washington. Jordan runs into Greenie.
Greenie: “Jordan Abel. What a surprise. Hanging out with the little people for a change?”
Jordan: “Greenie, always a pleasure. Glad you have not lost your biting humor. You have time for coffee?”
Greenie: “Love to. Just got off the Metro and I need a fix.”
Greenie gets coffee and returns.
Greenie: “You know, Jordan, the new government needs to start operating more responsibly. It needs to start acting like a household — run a surplus and save money.”
Jordan: “Who have you been talking to lately? Never mind. I don’t want to know.”
Greenie: “And I won’t tell you. But really the question seems valid.”
Jordan: “I know the idea sounds logical…but what if I convinced you that ideal government behavior is exactly the opposite of ideal behavior by a household?”
Greenie: “How so? That makes no sense.”
Jordan: “Let’s talk about the role of each. Start with the family.”
Greenie: “OK. The family should not spend more than its income. It should also try to save for house down payment, college fund, retirement funds and unexpected expenses.”
Jordan: “And when the economy is good, what should the family do?”
Greenie: “Still be conservative but spending a little more is OK.”
Jordan: “What about borrowing?”
Greenie: “Try not to borrow too much, especially using credit cards.”
Jordan: “What about borrowing to buy a house?”
Greenie: “That’s OK as long as the payment, the maintenance and the taxes do not take too much of the income. Still need to eat and save some money.”
Jordan: “And when fiscal times are not so good?”
Greenie: “Cut back on some spending but you can only cut back so much…at least in the short-term.”
Jordan: “Is it OK to use some savings when times are tough?”
Greenie: “Not if you can help it. That’s like running a deficit. Do not do it unless absolutely necessary.”
Jordan: “I agree. So for an individual, a family or even a company, do not overspend. Be fiscally responsible.”
Greenie: “Right.”
Jordan: “The study of economic behavior for smaller units — an individual, a family and even a company is called ‘microeconomics.'”
Greenie: “Where do you come up with that term? Micro, schmicro, who cares?”
Jordan: “You should care because it is important to know the difference in how individuals or small groups behave and how the government is supposed to behave.”
Greenie: “So if studying my behavior is schmicro economics, studying the behavior and actions of government and other big stuff must be schmacro economics. I know. I know…it’s probably macroeconomics.”
Jordan: “Now let’s pretend you are head of the President’s Council of Economic Advisors — the chief schmacro economist. Tell me what you think the role of government is.”
Greenie: “Maintain security of the country, enforce laws, create environment for residents to work and earn decent living, build and maintain infrastructure, establish and maintain a money supply. Probably some other stuff, too.”
Jordan: “Good summary. And do you think those activities affect the overall economy.”
Greenie: “All of them affect the economy one way or another.”
Jordan: “How should government behave when the economy is rolling along?”
Greenie: “Ease back on spending, if possible. But make sure economic growth can be sustained.”
Jordan: “What about government action when the economy slows down or goes into recession?”
Greenie: “I’m not quite sure how one defines a recession but whatever the exact definition is, someone needs to spend money to get people back to work. Individuals, families and businesses are probably cutting back, so someone needs to take the lead…and I guess that means the government.”
Jordan: “You are making a good chief economist. The role of government is to manage economic growth when the private sector starts to falter.”
Greenie: “I’ve never quite looked at the economy this way. The macro, schmacro behavior needs to be almost the opposite of the micro, schmicro behavior.”
Jordan: “I would use the term ‘complementary’ rather than ‘opposite.’ Sometimes government actions are in parallel with individual behavior. Sometimes not.”
Greenie: “So a primary role of government is to make sure the economy keeps growing. That means that people need to spend money to create demand. If everyone cuts back, then even more people will be unemployed. Someone has to spend. If everyone saves, there will be much less demand.”
Jordan: “You are on a roll. Keep going.”
Greenie: “I do know the country cannot save its way into prosperity. And neither can a business or an individual. You need to create income before you can create wealth. Why does this seem so logical? And why don’t other people seem to understand this?”
Jordan: “What do you think is the reason?”
Greenie: “I think some people either do not want to know or no one has explained it to them. The logic does not seem all that complicated. I know there is more too it but the basics seem easy to understand.”
Jordan: “Your role as chairman of the Council of Economic Advisors is to explain the logic to the country.”
Greenie: “Jordan, you know I don’t really understand all the economics mumbo-jumbo. But I’ll try one more time. Macroeconomics is about the behavior of large entities like government and microeconomics is about the behavior of individual units like people, families, even companies.”
Jordan: “You are now an expert. And now, madam chairman, I need to go. Great to see you Greenie.”
Greenie: “And, great to see you Jordan. Enjoyed it.”
usrevolution5 