The Economy

If you don’t have money in the market it was amusing to watch what Wall Street has been doing. The panic was announced, and they panicked. The abysmal Paulson Plan was rejected and they panicked. The not quite as abysmal plan was passed, and they panicked. The Brown Plan was finally adopted and the “irrational exuberance” took off. The reality that the Plan steadied the credit markets, but everyone was already in a recession, took hold and it was back to panic.

If you were paying reasonable attention to the real world, the credit crisis was totally predictable years ago. The recession has been unavoidable since last year. If you look at the real numbers that were used in the last century, the US has been in a recession since the late Fall of last year.

Robert Peston makes a couple of important points in his post, Spend, Spend, Spend:

But they’ve been powerless to prevent the banks contracting the amount of credit they’re providing, which has reduced the ability of companies and individuals to invest and spend, and risks turning an economic slowdown into something rather worse.

That’s why the British government is being forced to think about something new: a substantial and sustained increase in public spending to offset the contraction of spending by the private sector (there may be little point in cutting taxes, since nervous consumers and businesses would probably hoard any extra cash that went into their pockets).

You can lead a bank to money, but you can’t make it lend. The banks have all kinds of money now, but they aren’t putting it in circulation, they are using it clean up their books. If they don’t start using it, the whole point of giving it to them is lost.

I have heard third hand that a local GM dealership has not sold a single vehicle in the month of October. There are people looking for cars, but they can’t get a loan. GM has stopped making credit available to its dealers. If they lose their dealers, it won’t make any difference what kind of cars GM makes.

The second point is more important, given the dueling tax cuts mentioned in the Presidential campaign. Tax cuts are not going to do much to help the situation.

The rules for combating a recession are clearly established: extend unemployment benefits and increase Food Stamps are the two quickest ways of injecting money into the economy. That money gets spent, not hoarded. The people who get it have to spend it to live. Most of the recent Congressional “economic stimulus package” was used to pay off debt, not spent, by everyone I know who received it.

The time is right for job creation, and the fastest way of doing that is by rebuilding the crumbling infrastructure. There are a massive number of unemployed construction workers who need to be put to work, and we definitely have a lot of work that needs to be done. We don’t need giveaways or tax cuts as much as we need jobs, and no business is going to hire people for a tax break unless they have work to do. You need more consumers, and the only way to get them is by creating jobs. The private sector needs to see sales before they will expand their work force. We need to revive the WPA and the CCC to fix the damage caused by the “Reagan Revolution” and neglect.  We should also look into spending some of the money already allocated for hurricane relief along the Gulf Coast going back to 2004 on affordable housing.

Two-thirds of the GDP is consumers.  No jobs = no consumers.  Let’s get back to work.