Tuesday, July 12, 2011


The U.S. economy is largely built on consumerism - about 73% (http://www.csmonitor.com/Business/The-Daily-Reckoning/2011/0322/Consumers-won-t-save-the-US-economy), and advertising is used to make the consumers want ever more.

Now consider that most Americans' incomes are stagnant or falling or non-existent (long-term unemployed) and have been for years now. Only the wealthy are seeing their incomes increase. On the other hand, state and local governments are having to balance their budgets and are shedding employees - 39,000 in June alone, with a total of about 400,000 state and local government jobs lost so far,* and I've read about estimates that they will shed another 250,000 jobs before it is all done. Also in June, the Federal government shed 17,000 jobs. All the talk is about cutting the Federal budget. To the extent that the Federal budget is cut, we will see more Civil Servants and government contract employees let loose that will add more to the unemployed. Businesses are making good money with their current employee levels. Under these conditions, why should a company expand? In fact, in view of the future, they might even be considering to retrench.

So we are in our Catch 22. Business won't expand and increase employment unless consumerism picks up or at least it looks as if consumerism will pick up. But the consumers don't have any increased income to allow them to consume more, in fact the trend is that they will have less. So what to do?

No one seems to have any good answer. Government has tried doing "prime the pump" by borrowing money and giving it to the public. A lot of this, however, has been futile. For example, about a third of the Stimulus Package went out in tax cuts that gave an inefficient pulse to the economy, inefficient because a lot of it was used to pay down debt by the rank and file, and the wealthy largely put it into bonds of various sorts or used it toward buying things like chalets in Switzerland that maybe helps the global economy, but doesn't help the U.S. economy.** And once these one shot pulses have been used in some way, there is no further benefit. Unfortunately, it looks as if this approach will be continued though decreased pay roll taxes used for programs that also face financial problems (e.g. Social Security and Medicare). More one shot deals seem to be on the table that may be used further to pay down debt by the rank and file and the purchase of bonds and foreign goods by the wealthy. Whatever is used to buy American goods is just a pulse that is soon over. Why would a company expand its production under these circumstances when they can meet these pulses of consumerism without hiring more employees?

A number of things have been done. Obama has shut down the return of man to the Moon program (though some contracts have to be fulfilled by law.), he has frozen Federal salaries, and he has followed through on George W. Bush's shut down of the Space Shuttle Program (estimated to cost 4,000 jobs). The number of Federal employee now is about average for the Federal government,* but everyone talks about this just being the beginning.

So it would seem that the present state of affairs will continue farther than the eye can see. It will take something extraordinary to jolt us out of the present situation but there is nothing on the horizon that would do so.

* http://www.businessinsider.com/size-of-the-federal-workforce-under-obama-2011-7


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