Diatribe on the Economy

[npts2020]

For those short on time the following will be pretty long-winded. I have seen many ideas about what is happening to the economy (particularly the American) and only a few have made any real sense to my non-economist mind. Even fewer of the proposed "solutions" have made any sense to me. The following is a description of how I see the economic problem and view the the solution. I don't expect anyone to agree with the analysis or conclusions but any respectful feedback will be greatly appreciated.

 

Premises of discussion

1)We are on the brink of the greatest economic crisis since the Great Depression of the 1930's and maybe ever.

2)Random spending of vast quantities of money will not solve the problems.

3)The problems are mostly structural (or lack of) related to an unsustainable economy.

4)There are solutions for avoiding the worst effects of our situation.

 

 

1) To say the economy is in a funk is not a statement any sane person would disagree with, but to say that it may become the worst ever is something that requires further explanation. The signs of slower economic activity are fairly indisputable; higher unemployment, lower stock market, fewer imports and exports, slowed or negative GNP growth, etc. These are just the some of the ones that are frequently on the front page. In addition, there are some markets that are almost completely unregulated (I have ranted elsewhere about derivatives---supposedly $500 trillion worth of investment) that have exceeded their natural limit. What happens if a significant number of those entities (corporate or individuals) are not able to meet their financial obligations? IMO if this does happen things willbe worse than ever, hence the frantic shovelling of money from Washington, D.C. into the black hole of wishful thinking.....

2)Already a boatload of money (we can quibble about the amount) has passed from the U.S. Treasury to corporate America in the past year with little visible effect. IMO it is simply because it was given no direction. This is so profound that even Congress is beginning to wonder why. They need to look in the mirror to find the cause. What do you think happens when you hand out money with so few strings, that a plan for being able to pay it back is not even needed (isn't that kinda what happened with the sub-prime mortgages:doh:)? Very little, if any, of the money the government has handed out has had any specifications for its use, and therefore gets used to keep doing what is already being done. If what is being done is the reason you are in trouble to begin with, how is it logical to expect continuing to do it will reverse your fortune? The answer, of course is.....

3)What has gotten us here has worked in the past. The problem is that there are a few things happening now that have not happened in the past. In my mind the most prominent is the sheer size of the human population, not necessarily in America or even in the world as a whole but in the numbers that aspire to use resources at the rate of Americans. Even though there would be someone glad to sell the means for everyone to do this, it is highly unlikely our biosphere would not suffer major changes doing this for everyone in the world, the way we go about things at present. The major obstacle at present is energy, not in lack of it but rather how it is produced. This affects every user from automobiles, to chemical manufacturing plants, to street lights. If energy prices vary widely, economic planning becomes more difficult because of a less certain future. Once there are sufficient wind, solar, geothermal, tidal, or other relatively carbon-free sources in place this problem should be largely solved.

Some other unsustainable aspects of the economy; the national debt, chronic trade deficit, negative savings rate, unrestricted corporate bailouts, rate of increase of health care cost, no-interest Fed loans. In order to keep this post at a readable length I will not expound on any of these further now except to say they are a bad combination to have at any time but even more so under the current economic stress.

4)From what I can gather, economists almost universally say that it will take some kind of massive government expenditure to avoid the worst effects of this recession. This is all well and good, but if you are going to drive the national debt up to the point where it could take more than a generation to pay it back, shouldn't we get something that lasts for a generation or more for it? IMO the best place government can spend money is on infrastructure used by all. My personal preference is for automating our highway system but also includes electric grids, communication grids, schools (buildings and equipment), sewage and waste disposal, clean water and others I can't think of off the top of my head. The point being that, so far the government has been giving out money to be "invested" instead of just doing the investment itself. Why are the billions of dollars better invested by going through a "middleman" rather than spending it on things you know need to be invested in? The only solution I can see is government spending, but that has to be carefully directed with enough strings attached to figure out where it went, especially when handed over to a third party. Even if all of that happens, there is no guarantee it will work but at least we will have some first rate schools, more reliable grids, and/or an automated transit system.