06.06.12

Simiple Math

Posted in Around The Nation, The Economy at 9:59 am by wcnews

Dan Baker on how to fix the economy, Simple Arithmetic, Not False Narratives Offer Antidote for US Jobs Crisis.

We cannot return to full employment until we have something to replace the demand that had been generated by the housing bubble. This is simple arithmetic.

Unfortunately, both parties in the United States refuse to talk about filling the hole created by the collapse of the housing bubble in a serious way. The Republicans talk about giving everything to “job creators”, with the idea that if we are generous enough to the rich (with tax cuts), they will show their gratitude by creating jobs. There is zero evidence to support this view. Are we supposed to believe that investment will somehow increase by 50% as a share of GDP just because we are nice to rich people?

The world doesn’t work that way. Firms create jobs when they have more demand, not because we are nice to their rich owners.

President Obama and the Democratic leadership have refused to put forward a serious alternative path. While they have been willing to argue that rich people should have to pay some taxes, they have not come to grips with the nature of this downturn, as if hoping that, somehow, the economy will just jump back to its pre-recession level of output through some magical process. There is no magic that will allow the economy to override basic arithmetic. In the short term, only the government can provide the boost necessary to support the economy. Over the longer term, we will need to get the trade deficit down through a more competitive dollar.

It’s a simple story. But as long as people are obsessed with short-term, weather-induced fluctuations, we will not see a serious discussion of the underlying state of the economy.

That sums it up!

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