Jlknapp505's Blog

My earlier post had drifted from pure economic comments, and so I think this might help. The concept seems important enough to justify a post that is limited to economics.

In a recession or a depression, a nation must invest. They do this by putting people to work and paying them; not bankers, but middle class people who lose jobs in a downturn. Those people will earn a living, build infrastructure, buy houses and cars and kitchen appliances and furniture and so much more. Every dollar paid in will come back in increased economic activity.

What you’re doing in this case is turning your economy ‘inward’. It works like this:

Modern developed economies have excess workers. Simply put, machines are more efficient and more productive than humans in many cases, and so they displace the human workers who once made our widgets. The only way to employ such when the economy is doing well is to employ them making goods for export or to service travelers, tourists or business people who bring in foreign money. This is the ‘external’ part of an economy that employs excess labor working for other nations in order to earn foreign credits. A tractor built in Ohio which is exported to China benefits both China and the USA.

In contrast, when an economy turns down, exports fall. Other nations generally follow whenever this happens to a major linked economy such as that of North America or Europe or China/Asia. People in such instances can’t afford to buy our exports. They retrench, repairing and reusing instead of buying new. This is where the ‘turn inward’ option becomes so important.

By investing in infrastructure, a government uses that ‘excess labor’ to build things that will make the nation stronger when the economic recovery finally happens. Things like the national highway system, or the system of water collection and storage that has supported the development of the American West (think Boulder, now Hoover, Dam), or the National Parks system. Things like the Rural Electrification Agency that strung power lines to isolated people across the South. Or the space program, or the information exchange system that has grown into the internet, or the research initiatives that will produce cars that can drive themselves (they can already park themselves better than most humans can) and possibly recharge from powered roadways. So much more.

Simplified: a robust, functioning economy that is growing at a rate of perhaps 3% annually can employ excess workers ‘externally’. When growth drops below that, unemployment rises and government should invest and thereby turn the economy ‘inward’ by funding the hiring of unemployed workers to address needs in the nation’s infrastructure.

Written in response to a NY Times article published on April 27, 2013:

“After years of insisting that the primary cure for Europe’s malaise is to slash spending, the champions of austerity, most notably Chancellor Angela Merkel of Germany, find themselves under intensified pressure to back off unpopular remedies and find some way to restore faltering growth to the world’s largest economic bloc. ”

Not that our Republican politicians have figured it out yet. Or even the Democrats.

In a recession or a depression, a nation must invest. They do this by putting people to work and paying them; not bankers, but middle class people who lose jobs in a downturn. Those people will earn a living, build infrastructure, buy houses and cars and kitchen appliances and furniture and so much more. Every dollar paid in will come back in increased economic activity.

What you’re doing in this case is turning your economy ‘inward’. It works like this:

Modern developed economies have excess workers. Simply put, machines are more efficient and more productive than humans in many cases, and so they displace the human workers who once made widgets. The only way to employ such when the economy is doing well is to employ them making goods for export or to service travelers, tourists or business people, who bring in foreign money. This is the ‘external’ part of an economy that uses excess labor to work for other nations in order to earn foreign credits.

In contrast, when an economy turns down, exports fall. Other nations generally follow when this happens to a major linked economy such as that of North America or Europe or even China/Asia. People in such instances can’t afford exports. They retrench and stop buying. This is where the ‘turn inward’ option becomes so important.

By investing in infrastructure, a government uses that ‘excess labor’ to build things that will make the nation stronger when the economic recovery happens. Things like the national highway system, or the system of water collection and storage that has supported the development of the American West, or the National Parks system. Things like the Rural Electrification Agency that strung power lines to isolated people across the South.

Some of these things need replacement and some need repairs, and there are some which have to be built from the ground up. Things like a sophisticated power distribution system to replace what we have, or a national water distribution system that will take excess water from floods and move it to where drought is endemic, or a system of high-speed rail that will relieve the pressure on air travel and highway travel. Things like a national school system that can handle those who could go all the way to PhD or post-doc for the few, but who will produce machinists and farm technicians and water treatment plant workers or technicians trained to clean up pollution from earlier endeavors in mining and such for the many. A system of academics for those whose talents lie in that field, but an apprenticeship system for those who prefer the blue-collar middle-class lifestyle.

None of them will be done by purely-private entities because there’s no immediate profit for them. The nation profits, and the nation’s population profits. Such may be intangible in the short run, but carry immense benefits in the long run.

Profit there will be, of course; governments don’t immediately raise armies of construction workers (that could be done, but it smacks of communism and is less efficient in any case), and so private firms will be hired to do much of the work. Still, there’s a place for such as the CCC or similar programs in emergencies. But private companies can do better than the WPA if they’re regulated and supervised, and government is the agency that pays for them.

And individual government have the power of the printing press. So long as inflation is held at some reasonable level (perhaps 2.5% or something similar), it’s not necessary to borrow the seed money that will begin the economic turnaround. And after this is well underway and private companies begin competing for workers, private investment can be reduced and taxes raised to cool the economy.

The only thing holding us back is national will. And one or more national leaders. Currently, we’ve got politicians, not leaders. Instead of a Roosevelt, we’ve got Obama. Better than the alternative presented by the Republicans, but that’s not saying much. A compromiser-in-chief, as opposed to a tax-evader whose leadership consisted of offshoring and outsourcing jobs and gutting companies for profit. And the previous administrations which were nothing to brag about, either. It will take several generations to get the stench of Bush II from the national nostrils.

Part of that lack of national will is the 1%, who are doing quite will in the current economy and who see no reason to change. Labor is cheap and management profits are continuing to rise; why change this? If the middle class is suffering, too bad for them, but I’ve got mine, you’ve got yours, life is good. And investing in a few politicians will ensure that things stay that way.

And the voting public is too uneducated and too unthinking to force change. We allow our economy to be not inward or outward directed as circumstances require, but just to continue bumbling along as our bribed leaders tell us is best. We can see the evidence all around us, but collectively we ignore it.

At least, for now. I suppose things will have to get worse before we force our politicians to make them get better.