Economic course correction

What caused this economic downturn that started back in 2007?  It is a question that must be answered correctly, because if it isn't, how can you possibly come up with solutions?  Like the quote goes "a problem well stated is a problem half solved."  So, what is the problem, exactly?

There are a lot of opinions, but little else.  It isn't an exact science, this field of economics.  Maybe it isn't even a science at all.  There may be more art to it than science.  But there are a few things that can be quantified.  From that aspect, at least, it can be said to scientific.  You can pretty much count on the law of supply and demand.  That is, as long as the demand is elastic.  Or the supply isn't constrained.  Those two factors can be manipulated by political forces.  Generally speaking, people respond to incentives.  But not always.  It isn't so easy sometimes.  Maybe you just have to fly by the seat of your pants.

I think there a guideposts that be followed.  Such as the above.  Set up the incentives and hope that people will respond.  If the incentive structure is right, then the rest of the ship will right itself.  If this doesn't happen, then something else is wrong.  And whatever that something else may be, it may not be solvable by economics.  In such a case as that, it may take a greater force to change things.

I have been of the opinion that for the last seven years or so, that the US tax code must be reformed.  We are too much oriented toward consumption as opposed to production.  While consuming more, we are saving less.  The income tax penalizes income and encourages spending.  Yet people want to beat that dead horse again and again.  You have to increase spending, they say.

I disagree.  You have to increase income and savings.  Then you are better situated to pay off debt.  Debt is the problem.  Debt is nothing but accumulated spending.  The solution is to increase income and cut spending.   You can't pay your bills until you have the income to do it.  Otherwise, you must default.  Is anyone sure that is the way to go?  But that is the path we are on now.

With a new Congress, perhaps a new path is emerging.  We will see if it pans out that way.  If it does pan out that way, how will the people respond?  What happens then could be very interesting.