Common Sense

Common Sense

Common sense is a very broad range of ideas, but the general concept is that after having some amount of experience with the world, most people should be able to figure out what to do in a situation.

Don’t touch a burner on a stove that’s been on, study for tests so you can do well on them, save money so that you have something ready in case you get laid off, etc. All things that map to our personal experiences (or those of our elders) and all things with good cost/benefit ratios.

Unfortunately, this kind of wisdom starts to break down when you go outside of the personal experiences most people have. Just like the laws of physics start getting weird once we start talking about quantum mechanics, so does macro economics begin to stop following common sense once you get enough people conducting business.

It’s rational for an individual or a business to spend less money in a depressed economy. The business doesn’t have enough orders to justify hiring new workers or buying more inventory to sell, and the workers see a tough job market and hold off on buying what they don’t need to protect themselves if they get laid off. However, when you get a whole country full of people and businesses doing this you have a self perpetuating cycle of depressed output and demand.

This is possible even if profits are up and the economy is slowly growing. Millions of people can see their livelihoods destroyed as they wait for a job market to recover years after the recession itself ended.

Eventually most economies will get themselves out of these kinds of slumps, but it usually takes a decade or more without some outside force increasing demand. WWII ended the great depression because it put millions of Americans back to work in otherwise idle factories, building new ones, and thousands of other tasks needed to fight the war. In short, people doing something are more productive than people doing nothing.

When you have a large percentage of your population unemployed or underemployed, it’s cheaper to put them to work and pay them with deficit spending than it is to wait for the “rot” to get out of the system. If this blows your mind the first couple times you think about it, it should. We went through a lot of economic hardship before economists started to agree that this is how you fix things when they get really bad. And believe me, things are bad right now for millions of Americans.

We are in a great position right now in that we don’t need to go to war to end the great stagnation. We don’t need to build tanks or aircraft carriers to fix our economy, we can fix roads and bridges, build high speed rail, keep teachers and cops on the payrolls, increase access to healthcare, build ultra high speed fiber networks to commercial and residential areas, improve early childhood education and a thousand other things that would enrich us more than having millions of people sitting at home sending resumes to job postings on craigslist.

This isn’t common sense. It is, however, the textbook prescription for getting out of a depression. So the next time someone suggests that the government needs to tighten it’s belt like the rest of us, tell them that you can’t fix the economy by putting more people on the unemployment roles.