Saturday, June 12, 2010

It Ain't Over Til It's Over - Global Meltdown v. 2.0

Don't you hate it when the air raid siren goes and then the "all clear" goes and then, just when you get out of the bunker, the air raid siren goes again? Well that might just be the story of the global recession, the culmination of Reagan's "Age of Ruin."

The European Union has recently been warning its members to brace themselves for a possible "double dip" recession, a message that's now reverberating through the United States to boot. Robert Reich warns America may already be in the opening throes of another bout of recession:

...Retail sales in May took their biggest nose-dive in eight months, according to today's report from the Commerce Department. Remember: Consumers account for 70 percent of the nation's economic activity.
American Corporations are sitting on huge piles of cash but they're not investing, and they're creating only a measly number of new jobs. And they won't invest and create jobs until they know there are customers out there to buy what they sell.

For three decades, starting in the late 1970s, the biggest economic problem America faced on an ongoing basis was inflation. Demand always seemed to be on the verge of outrunning the productive capacity of the nation. The Fed had to be ready to raise interest rates to stop the party, as it did on several occasions.

During this era of inflation economics, it appeared that John Maynard Keynes - and his Depression-era concern about chronically inadequate demand — was dead. So-called "supply siders" told policy makers that if they cut taxes on corporations and the wealthy, they'd unleash a torrent of investment and innovation - thereby increasing the productive capacity of the nation. The benefits would trickle down to everyone else.

But the pendulum may now be swinging back to the earlier era in which demand always seems on the verge of trailing the nation's productive capacity. The biggest ongoing threats are chronic recession or even deflation, because consumers don't have enough money to what the economy is capable of selling at full or near-full employment. Despite gains in productivity, little has trickled down to America's middle class.

...Keynes prescribed two remedies - both of which are now necessary: Government spending to "prime the pump" and get businesses to invest and hire once again. And, as Keynes wrote, "measures for the redistribution of incomes in a way likely to raise the propensity to consume." Translated: Instead of big tax cuts for corporations and the rich, tax cuts and income supplements for the middle class.

Reich is absolutely right. The key to a successful, developed country lies in a healthy, robust middle class. A big, expansive middle class that embodies everyone from the trades to the professions and everyone in between. A strong middle class is the backbone of progressive democracy, national unity, a sound economy and social mobility. It is a strong middle class that keeps the door open to the less advantaged while also keeping open the door to the so-called "upper classes." And what happens when you shred the middle class? You wind up with today's United States of America.


Anyong said...

Now is the time for the barter system to reappear. The middle class can make it happen.

Anyong said...

And what happens when you shred the middle class? You wind up with today's United States of America. And Canada

The Mound of Sound said...

Actually our middle class has been somewhat more resilient. That's not our doing as much as our economic structure. Our economy is more heavily resource-weighted while the US had a larger industrial component that anchored their middle class until those factories and jobs were dispatched abroad.

The Mound of Sound said...
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