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Treasurer’s Commentary: Shaken or stirred

By State Treasurer Ken Miller

Today, Oklahoma continues to embrace recovery while our nation continues to stall. Our state has outperformed throughout the upturn, but cannot swim against tide forever. Oklahoma needs a strong national economy, just as the nation needs a resilient global economy.

Persistent economic weakness has prompted discussion of another round of “stimulus.” Such thinking is counter to the fundamentals of capitalism. The private sector is meant to play the primary role in job creation while the public sector is to cultivate an environment conducive to entrepreneurship, investment and growth.

Stimulus III again calls for extending temporary payroll tax cuts, prolonging unemployment benefits and increasing government spending.

Granted, fiscal maneuvers are limited to only two tools: taxing and spending. But, how these tools are used can vary greatly depending on whether one adheres to the ideology of either Keynes or Friedman.

Keynesians believe government spending initiatives stimulate an economy back to its potential by impacting demand. Friedmanites reject this notion, believing only permanent changes in income adequately influence demand and instead rely on monetary policy to influence economic activity.

Bureau of Economic Analysis data on the 2008 tax rebates bolsters Friedman’s argument. The spike in disposable personal income derived from the rebates resulted in a slight temporary bump in consumer spending.

Regrettably, Oklahoma embraced this folly in 2005 by issuing $45 individual tax rebates rather than addressing significant issues like tax reform, dilapidated infrastructure or debt.

The world has changed considerably in the 60-plus years since John Keynes and Milton Friedman developed their theories. Today the global economy is increasingly complex, interdependent, dynamic and technological, trading more than ever on expectations— which underscores why confidence is an economic determinant and why markets perform best under certainty or at least predictability.

Although recent data, economic evolution, and consumer behavior appear more congruent with Friedman, it would be disingenuous to suggest that the trillions injected into the economy have produced zero short-term benefit, even if it is long-term prosperity that we should seek.

It is unlikely even the purest of ideologues would take responsibility for certain depression had there been no policy intervention. Surely an economy based on free market principles would eventually return to equilibrium, but at what costs in jobs, wealth and productivity in the interim? It seems the rational debate should center on what type of policy intervention would be most beneficial to a market-based economy, rather than if there should be any at all.

From the onset of the recession, there has been no cohesive, long-term economic strategy. It is time for policymakers to return the lead role to the private sector by stirring it into action with consistent pro-growth tax policies, sustainable budget policies, efficient capital markets and a stable regulatory environment.

Churchill stated that America can always be counted on to do the right thing after it has exhausted all else. Having already shaken our markets with many erratic and desperate attempts to kick-start the economy, perhaps policymakers will now realize that stirred is preferred.

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