When the recession began sometime in 2006, and economists were debating whether we were in a recession, I recall many of them talking about the consumer would be the key to keeping the US economy growing. Three years later there is still talk about the consumer driving the economy. We keep hearing that consumer spending is about two thirds of the economy and of that one half of the retail sales in this country significantly impact the psychology of investors, bankers and the stock market. We hear that consumer spending needs to be increased, yet we hardly hear from economists, a plan for increasing spending.
From a fundamental perspective, or perhaps from my pure science background, I see that if we expect the economy to grow, the powers that be (government, big business, bankers, corporations) need to support the consumers. And they need to provide this support in a synergistic way.
Here’s why.
If the government supports the consumer, by creating capital improvement jobs, supporting unemployment, more stimulus, it makes the country broke. This means that the fed will have to print more money thus devaluing the US currency; congress will have to raise taxes, because money does not come from thin air. Cutting spending will create more unemployment which would lead to the government needing more money to support unemployment. Thus, if we rely on government alone to lead us to fast growth, it just wont happen, or we would need a new kind of politician who doesn't mind loosing their job by raising taxes. In essence, we cant rely on Washington alone.
If we expect the banks to give consumers direct credit, so that they Jill public can go out and buy shoes at the mall, that too will be bad. First Jill needs the credit to fix her home so that her family can make it comfortable. Since she cant “flip” the house in six years, her family has to decide how they will make the 1000 sq foot house comfy until she can get a better job. Of course if credit is going to be used, especially at today’s rates, it had better be important. Say for a big purchase of a durable good- to replace a broken water heater perhaps? Or maybe for a project that will reduce energy consumption, like a new energy star appliance, insulating the attic, or new low-e windows. Since 9.5 percent of people have no jobs, plus the additional 1.4 million that don't have jobs and but don't count in the statistic, credit probably wont happen. And since many people foreclosed on their home reducing their 650 credit score by 150 or more, credit wont happen. And since income growth is small, and people need to pay off the debts they already have, and since credit lines have shrunk, credit wont happen. The odds of not getting credit are greater. Thus we cant depend on the banks.
Some economists speak about the need for small business to jump-start the economy. They have saved us before you see. But just like Joe and Jill public need to face the banks so they can buy stuff, so does Mom and Pop. Small business need capital or money so that they can hire people for increased production; or for the new machine that will improve production or for the new hire that will work the new machine that will improve said production. Since small business has to make stuff before they sell stuff, and they first need the money to make the stuff, they need money. And since the odds of not getting credit are higher, then small business will have to rely on increasing productivity the old way: make enough profits to buy more stuff to make more stuff. That will take years.
Of course there are folks who can begin driving the economy. Folks with money who don't need to to ask the banks for money. Like the government, who’s members would loose their jobs if they provided more money for the economy increasing the unemployment cycle, and Big Business. If the large corporations with large cash reserves would quit sitting on their billions, and hire people, maybe they can start moving the economy again. Large corporations need to hire to maintain their competitive edge, so they need brains for R&D, and the R&D grind. Large corporations need employees to expand the safety and reliability of their products. For example Apple need folks to figure out why the iPhone 4 cannot be used as a “phone”; Microsoft has to figure out how to prevent the “blue screen of death” on Windows 7 and death by Google. GE needs to make an LED light bulb that costs less than 25 bucks so that people can actually use the technology to reduce energy consumption, and BP and others need to figure out how to drill in deep water without killing the ocean, birds, and economies of the Gulf states. And that's just to get started.
If the large conglomerates hire more employees, then the productivity of the company increases, which means the company will need to increase orders to small business. Small business will make profits faster, which will enable them to have more money to hire more folks or buy the big machine that will increase their output. They will then be able to hire folks to operate the machines that's make the stuff that they sell to the big companies. If large companies hire more people, we get better and safer medicines, better health care, smarter applications. Since more people have jobs they would have more money to spend. Joe could then consider taking the loan to improve the energy savings of his house, which will give small business more profits to hire some one to make more stuff for building homes. Now that we have increased the workforce, and the home project is half way, Jill might say, “While were at it, why not purchase an energy efficient fridge? So now GE has to make more fridges, which they have to get the components from small business, who then have more money to hire more people to make more components from GE. And since GE made profits on the refrigerators, they can now spend more money on making the LED light bulbs cheaper. A win, win.
Then with all of the needs taken care of, people will then go out and buy stuff that they don't need, like more clothes, shoes, eat out and all that.
Big business needs to realize that they are the ones who need to be taking the risk at this economic era. Banks are broke, small business's, don't have capital, and people don't have jobs. Most of all, since the government is stretched holding all of these other components of the economy together, another force is needed for growth. And since Europe is in the same economic boat as we are, and we need the oil form the Arabs, starting a war is out of the question.
Still, we may be facing a sadder reality. The longer we wait to start moving the economy, the longer the population of people who support retail will have to realize will really don't need to spend their money on clothes shoes and all of that junk that fills the pocket of retailers and if “trickling up” was possible, big business. Thus the two thirds of the GDP which produce the 1% growth these days will continue to decline together with the stock market, the government and the big business that they support.
From a fundamental perspective, or perhaps from my pure science background, I see that if we expect the economy to grow, the powers that be (government, big business, bankers, corporations) need to support the consumers. And they need to provide this support in a synergistic way.
Here’s why.
If the government supports the consumer, by creating capital improvement jobs, supporting unemployment, more stimulus, it makes the country broke. This means that the fed will have to print more money thus devaluing the US currency; congress will have to raise taxes, because money does not come from thin air. Cutting spending will create more unemployment which would lead to the government needing more money to support unemployment. Thus, if we rely on government alone to lead us to fast growth, it just wont happen, or we would need a new kind of politician who doesn't mind loosing their job by raising taxes. In essence, we cant rely on Washington alone.
If we expect the banks to give consumers direct credit, so that they Jill public can go out and buy shoes at the mall, that too will be bad. First Jill needs the credit to fix her home so that her family can make it comfortable. Since she cant “flip” the house in six years, her family has to decide how they will make the 1000 sq foot house comfy until she can get a better job. Of course if credit is going to be used, especially at today’s rates, it had better be important. Say for a big purchase of a durable good- to replace a broken water heater perhaps? Or maybe for a project that will reduce energy consumption, like a new energy star appliance, insulating the attic, or new low-e windows. Since 9.5 percent of people have no jobs, plus the additional 1.4 million that don't have jobs and but don't count in the statistic, credit probably wont happen. And since many people foreclosed on their home reducing their 650 credit score by 150 or more, credit wont happen. And since income growth is small, and people need to pay off the debts they already have, and since credit lines have shrunk, credit wont happen. The odds of not getting credit are greater. Thus we cant depend on the banks.
Some economists speak about the need for small business to jump-start the economy. They have saved us before you see. But just like Joe and Jill public need to face the banks so they can buy stuff, so does Mom and Pop. Small business need capital or money so that they can hire people for increased production; or for the new machine that will improve production or for the new hire that will work the new machine that will improve said production. Since small business has to make stuff before they sell stuff, and they first need the money to make the stuff, they need money. And since the odds of not getting credit are higher, then small business will have to rely on increasing productivity the old way: make enough profits to buy more stuff to make more stuff. That will take years.
Of course there are folks who can begin driving the economy. Folks with money who don't need to to ask the banks for money. Like the government, who’s members would loose their jobs if they provided more money for the economy increasing the unemployment cycle, and Big Business. If the large corporations with large cash reserves would quit sitting on their billions, and hire people, maybe they can start moving the economy again. Large corporations need to hire to maintain their competitive edge, so they need brains for R&D, and the R&D grind. Large corporations need employees to expand the safety and reliability of their products. For example Apple need folks to figure out why the iPhone 4 cannot be used as a “phone”; Microsoft has to figure out how to prevent the “blue screen of death” on Windows 7 and death by Google. GE needs to make an LED light bulb that costs less than 25 bucks so that people can actually use the technology to reduce energy consumption, and BP and others need to figure out how to drill in deep water without killing the ocean, birds, and economies of the Gulf states. And that's just to get started.
If the large conglomerates hire more employees, then the productivity of the company increases, which means the company will need to increase orders to small business. Small business will make profits faster, which will enable them to have more money to hire more folks or buy the big machine that will increase their output. They will then be able to hire folks to operate the machines that's make the stuff that they sell to the big companies. If large companies hire more people, we get better and safer medicines, better health care, smarter applications. Since more people have jobs they would have more money to spend. Joe could then consider taking the loan to improve the energy savings of his house, which will give small business more profits to hire some one to make more stuff for building homes. Now that we have increased the workforce, and the home project is half way, Jill might say, “While were at it, why not purchase an energy efficient fridge? So now GE has to make more fridges, which they have to get the components from small business, who then have more money to hire more people to make more components from GE. And since GE made profits on the refrigerators, they can now spend more money on making the LED light bulbs cheaper. A win, win.
Then with all of the needs taken care of, people will then go out and buy stuff that they don't need, like more clothes, shoes, eat out and all that.
Big business needs to realize that they are the ones who need to be taking the risk at this economic era. Banks are broke, small business's, don't have capital, and people don't have jobs. Most of all, since the government is stretched holding all of these other components of the economy together, another force is needed for growth. And since Europe is in the same economic boat as we are, and we need the oil form the Arabs, starting a war is out of the question.
Still, we may be facing a sadder reality. The longer we wait to start moving the economy, the longer the population of people who support retail will have to realize will really don't need to spend their money on clothes shoes and all of that junk that fills the pocket of retailers and if “trickling up” was possible, big business. Thus the two thirds of the GDP which produce the 1% growth these days will continue to decline together with the stock market, the government and the big business that they support.
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