Monday, August 9, 2010

Macro-economics 101

See if you can connect the dots.

The number of poor is increasing.
The number of millionaires is increasing. Why?

Corporate executives, as a class, have been bleeding the country white. Bankers have been the most prominently successful. They did this not by creating value but by gambling with other people's money.

Congressional campaigns are very expensive.

The millionaires and, particularly, their corporate engines of wealth accumulation have much more influence over the Congress than do the rest of the public. One disgusted senator, referring to the banks, said "they own this place." OK, but this poses a serious economic problem by increasing the concentration of wealth.

The real rate of unemployment is about 16 percent.
Employers are not hiring enough people because they can meet all of the consumer demand with the ones they already have. Why?

Too many people are out of work or working for depressed wages. They are also in debt up to their eyeballs and don't have any discretionary income.

When the millionaires gather in more income, they can invest most of it. Some of it goes into US bonds and gold bullion. A bf part of it is invested abroad. Why?

Cheap labor and large reserves of natural resources are where the profits are to be found.

OK, our economy has a serious imbalance: lots of accumulated investment capital but too little consumer demand. What to do? Here are some possibilities.

Abandon the American people to privation and invest abroad. Problem: some of the people can see the big picture and they will tell the others. This strategy is exactly what has been in effect but it is not indefinitely sustainable - even with the undying loyalty of one political party and significant influence over the other.

Increase American consumption. Government can do this by building infrastructure and by subsidizing science and industrial R&D, and by subsidizing social services such as education and health care and by subsidizing certain large purchases such as automobiles, energy saving appliances, home improvements, and houses. This will make more government income necessary. It cannot be done forever on borrowed money. When more progressive taxes are enacted the Right will howl about "redistribution" and "class warfare."

OK, what's your alternative?

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