All humans have a blind spot,
known as a scotoma, on their retinas that prevents them from perceiving a small
portion of their field of vision. This
is generally not noticed, however, because the brain fills in the gap with
surrounding detail and information from the other eye.For some reason, many of the most vociferous commentators on our current economic malaise (a euphemism if there ever was one!) –- including the Obama Administration, the Treasury and the Federal Reserve Board –- also seem to have a blind spot as they seek to reverse the downturn.
Their blind spot is the role of aggregate end-user demand in the American economy.
Apparently, our national leadership does not seem to grasp that, until people (end users) start spending for things again –- no progress will be made in real economic growth, no businesses will be nudged into hiring and no one will be borrowing –- except our large, insolvent banks and the government itself.
This is all about small businesses (which create 70% of all U.S. jobs) and consumers (who account for 70% of GDP). And I don’t know about you, but every small business owner I know –- and quite a few owners of mid-sized businesses –- is grappling with a frightening softness in customer traffic and spending. That’s where the root of the problem lies.
Ah! But here’s the rub!
Maybe the reason the “authorities” seem so blind to end demand is because to acknowledge it would be to acknowledge also that people have to have real jobs and real income to be able to spend. And, by “real income”, I’m talking about earned income and not debt or government transfer payments.
The problem is, our economic system has been built –- at least for the past 30 years –- on eliminating jobs and reducing middle class incomes while enriching the top 1% who do not spend enough to reignite a sunken economy. (Donald Trump can only live in a few houses at a time).
If you think about it, this is a form of lunacy. You can even ignore the fundamental immorality of the unstated policy and just focus on it as a massive misallocation of purchasing power.
Of course, one of the ways government and the media –- and the conventional wisdom –- deal with the loss of manufacturing jobs and competitive viability is to talk about the new jobs that will magically be created via technological innovation. You know, the “green revolution,” etc.
The problem is that the number of successful business start-ups it would take to put our current 14.8 million unemployed back to work would be enormous.
A second problem is that the skill requirements of any new wave of American jobs are unlikely to be a complete match with the profiles of those same 14.8 million out-of-work folks. In fact, the likelihood of a meaningful match is probably negligible.
Third, the continuing interference by government in the private sector –- whether via unsound health care legislation, environmental mandates, tax policies, or just the creation of uncertainty about its intentions –- is unlikely to encourage businesses to either borrow or hire.
For an economy the size of ours in which consumers supply 70% of the GDP, you need to have a large and prosperous middle class in order to keep the engine of growth running. This was one of the secrets to the tremendous surge in the American economy in the thirty years following World War II. It was also the concept behind Henry Ford’s decision, back in 1914, to pay his assembly line workers $5.00 per day, effectively doubling to going wage rate. Ford reasoned that if his workers didn’t make enough to buy the Model T’s they were assembling, then he wouldn’t sell as many as he might.
But the U.S. now runs on another model, one that the government, Wall Street, and the mainstream media would prefer not to face… having painted themselves into a rather uncomfortable corner.
Instead, they persist in pushing on the same old string –- monetary “easing” (another euphemism that cannot be retired soon enough) –- as if the problem is liquidity instead of demand.
It isn’t working.
And they seem incapable of recognizing the fact.
You know what they say about the definition of insanity.
