Whither the Downfall?

Our economy won't turn around until people have money to spend, and people won't have money to spend until the economy improves.

This kind of problem has been faced countless times in the past.  Usually, there are actions that can be taken that can fake out the system and get it running again.  There are plenty of ways to stimulate an economy, and we've already tried all of these multiple times, but this time they have only slowed the angle of descent.

Bush gave tax breaks to the rich, to no lasting effect.  No surprise there, but that's the topic for a future post.

The Fed has cut short-term interest rates so low that they are essentially giving money away to their prime borrowers.  They literally can't cut rates any further without actually giving money away.  But while this has helped keep the economy from nosediving into the ground, it can't keep us airborne either.  The economy only reacts to a change in the rate, and now that rate can only stay the same, or go up.  That well is dry.

Congress and Obama have increased government spending with the stimulus package, and that was like the jolt of a defibrillator.  All of the economic indicators perked up for a bit with that money.  But we can't keep pumping money into the economy because of the overwhelming size of our national debt.  And without that stimulus, we're back to flat-lining.

As an aside, the "bail-outs" were not done to try to stimulate the economy.  They were done to avert catastrophes caused by the collapse of very large (too large) corporations.  So the current bad economy is not proof that the bail-outs were bad.  The fact that we haven't had cascading failures of our biggest corporations is evidence that the bail-outs were, instead, successful.   Whether the bail-outs were wisely handled is another question.

In recent decades, we've had long stretches where the economy looked good only because Americans were spending by going deeper and deeper into debt. Just when that looked to run dry, huge real estate increases allowed even more borrowing against the mythical value of homes and businesses. Now the American consumer is broke, and can't get a loan to boot. Consumer spending won't rescue the economy this time.


When we last managed to extract ourselves from woeful economic times, at the end of  the Great Depression, one thing that seemed to work was a war.  World War II ramped up the economy, and that lead to the boom years of the 50's, right?  Well, we've been running two wars for several years now, and it hasn't helped us one bit.  (WWII did help bring us out of the depression, but it was mostly the sales of weapons and goods to our allies that stimulated our economy.  Our boom years were fueled by increased European debt.  Now, our debt is fueling China' surging economy)

So how are we going to get out of this mess?  Only by significant structural changes to our economy.  It's not enough for American corporations to make money.  In fact, corporate earnings should not even be a targeted goal of economic planning, but merely taken as a trailing indicator.  What we need to do is to get more people working, and more people earning. The wealth of our nation cannot be measured by the GDP, by corporate earnings, or by the wealth of our richest citizens.  Median household income should be the measure that guides us.  Focusing on that can lead to some new ideas.  Radical ideas, even.

= Michael

This Ain't Going to be Easy

Finger pointing is easy.  Slogans are easy.  Sarah Palin is easy.

By which I mean to say that her kind of ignorant rah-rah is simple to manufacture and easy to spout.

What's hard - really hard - is to accept that the United States is losing it.  We're going down.

This economy won't recover the way things are going.  Ever.

We're broke.  We produce almost nothing.  And we're locked into political ideologies where even old ideas don't get a proper consideration before they are slammed by opposing idealogues.

New ideas aren't even being dreamed up anymore, as each side spends all of its time trying to destabilize the other.  And the wobbling center grasps at straws, trying to hold on to a common sense that no longer makes sense, that doesn't reflect the simple, hard fact:

The United States is losing it. We're going down.

So, on an occasional basis here, I'll use this forum to propose some ideas which are not from the left, not from the right, and not from the center.  They're other.  Because it will take other thinking to get us out of this mess.

== Michael