Thursday, April 5, 2012

It’s Demand, Stupid

Contrary to what politicians would like us to believe, the present economic situation is the result of lack of demand. Joblessness is not because of tax policies, business uncertainties, regulations, or any of the other causes of the moments espoused by Boehner, Cantor, of McConnell. Business is not hiring at a greater rate, in spite of record profits, because business is able to supply the present demand for products and services with the current level of employment. There is an obvious reason for the present lack of demand. According to government statistics, the median family income in 2010 was $26,000. First of all, that is a decrease in actual purchase power. Second, when one considers that 50% of families earn $26,000 OR LESS, there is not a lot of money available for anything but necessities. Third, the 20 million unemployed or under employed are not going to create much demand for products or services. The Fox news talking heads continuously point out 47% of Amdericans pay not income tax. Fox fails to indicate the reason is that 47% of Americans do not earn enough income to pay taxes. Well, if they do not earn enough income to pay taxes they also do not earn enough income to create enough demand for products and services that will force business to increase hiring. This situation will remain as long as income disparities continue. Like it or not, the only source for significant numbers of jobs in the near future will not come from the private sector. Until median income increases and the numbers of unemployed and under employed decrease demand can only come from an increase in public sector jobs. The public sector, read government, is not dependent upon demand. Government can create jobs by funding various projects that benefit everyone such as building roads and bridges, hiring teachers and first responders, increasing the size of the military, and the like. A student of history will quickly notice that there is a parallel between the depression of the thirties and the present day recession. In both cases, there was a dramatic growth in income and wealth of a very few, less than 5%, of the population. The income and wealth of the remaining 95%, at best remained stagnant and, in most cases, declined. Those with funds to invest did not invest in job-creating ventures but invested in “paper” products that only resulted in income swaps from one wealthy individual to another wealthy individual. Finally, in both cases, tax legislation and regulations encouraged growth of wealth for the top 5% and discouraged growth of wealth for the remaining 95%. The recession of the ‘30s was reversed by the various government “make-work” projects that resulted in increased employment and corresponding increased family income.