Late February, Monday morning in old Mesilla, the mourning doves are singing their wistful songs, the sun is shining, and no wind - more like typical southern New Mexico winter weather. Maybe I'll see 70s before I head back to Wisconsin's tundra.
It's still too chilly to write in the guesthouse. So I run a few errands and take my books and computer over to Mesilla's coffee house. I submit my Iwo Jima column to editor Mary Jane, and begin work on the sequel.
That evening I have dinner with two former colleagues and longstanding friends, Jim, and his wife, Kathy. Jim is Regents Professor of Economics at NMSU and Kathy is Associate Dean of the Business College so, naturally, we discuss the economy. Economists are notorious for disagreement, but we are essentially on the same page here.
As we see it, the problem is not the supply side, but the demand side. With high unemployment, excess productive capacity and major corporations sitting on mountains of cash, the problem obviously is not the ability to produce. It is unwillingness to produce; this because of a lack of effective consumer demand with which to purchase the product. If people can't or won't purchase product, firms won't hire.
More corporate tax breaks, adding to corporate cash, do nothing to enable consumers to purchase, or entice firms to invest in plant and equipment or to hire labor. Rather, it enables big corporations to acquire other cash-rich firms and to buy back their own stocks, further enriching CEOs through enriching their stock options.
Nor will more tax cuts for the super rich entice them to buy enough Gucci shoes and expensive country club memberships to put unemployed labor back to work.
Lack of effective demand by consumers was caused by at least three factors.
First, American corporations shipped too many good manufacturing jobs abroad. These jobs are gone forever.
Second, the distribution of income during the last several decades channeled gains from a robust economy exclusively to a small sliver of people at the very top of the income scale. As compensation to multi-million dollar CEOs increased exponentially, and still is, real wages of the working class have stagnated.
Third, the devastating Great Recession and high unemployment. This is the result of bursting of the real estate bubble, in turn caused by a swashbuckling, deregulated financial system gone wild. Deregulation encouraged creation of credit default swaps, derivatives, and other "creative" financial instruments that resulted in disaster for major financial institutions.
Although the economy was regulated in theory, under-funded and out-manned regulators were asleep at the switch, or were up against a culture of deregulation led by Federal Reserve Chairman Alan Greenspan and politicians bought and paid for by corporate America. The entire deregulated financial system came within a hair of total collapse.
There is no easy way out of this downward spiral. Jobs shipped abroad are gone forever. The low wage, unemployment situation is a self-reinforcing downward spiral that dampens consumer demand and discourages firms from hiring.
While expansionary monetary policy is the right policy during recession, it permits, but does not necessarily encourage, banks to lend for production or consumption. It is like pushing string or, as economist Robert Reich puts it, like pushing a wet noodle.
Another corollary of this dilemma is that there is no way that the federal stimulus package could have been economically too big. The limited size of the stimulus package was not economic, but political.
The stimulus package was just large enough for its opponents to say, "See, it didn't work." The fact is that it did work insofar as it kept the Great Recession from being far worse. But as Newt Gingrich has observed (the one time I have agreed with the Newt on anything), "you don't win an election with 'it could have been worse.'"
Jim always reminds me that we blew it with the North American Free Trade Agreement (NAFTA). We should have told Mexico, we'll open our borders, if and only if your Mexican minimum wage is equal to ours, or at least some substantial fraction thereof, and your workers have the right to organize. Our American workers should not have to compete with slave labor that encourages American corporations to send jobs across the Rio Grande. We should take the same hard line with all international trade agreements.
And the much-maligned federal deficit? It's largely the result, not the cause, of the recession. Improving the status of labor here and abroad, thus increasing effective demand for product, is the key to world-wide economic recovery, and to shrinking the deficit for that matter.
Unfortunately, we see no political movement toward increasing labor's share of American productivity. And there is pitifully little American insistence that economic competitors abroad improve status of their labor as a condition for trade. If anything, it's all going the other way, meaning that this economy will improve very, very slowly at best, and maybe not at all.
Bottom line politically: the Democrats' failure to articulate and pass a stimulus package worthy of the name may cost President Obama the election, even though the opposition offers nothing but the same tired canards that got us into this fix. More supply side economic snake oil - tax cuts for the super rich and more deregulation of financial markets - is no cure for the Great Recession caused by that same economic snake oil.
I return to my guesthouse and hit the sack with a book on the Pacific campaign. My mind still on the economy, I'm reminded of another crisis: how to finance WWII after a decade of economic depression. It was financed with a pragmatic, effective combination of borrowing and, perish the thought, taxes paid by those who profited from wartime production. It ushered in several decades of unprecedented prosperity.
In this, there may be some lessons.
- Monroe resident John Waelti can be reached at jjwaelti1@tds.net.
It's still too chilly to write in the guesthouse. So I run a few errands and take my books and computer over to Mesilla's coffee house. I submit my Iwo Jima column to editor Mary Jane, and begin work on the sequel.
That evening I have dinner with two former colleagues and longstanding friends, Jim, and his wife, Kathy. Jim is Regents Professor of Economics at NMSU and Kathy is Associate Dean of the Business College so, naturally, we discuss the economy. Economists are notorious for disagreement, but we are essentially on the same page here.
As we see it, the problem is not the supply side, but the demand side. With high unemployment, excess productive capacity and major corporations sitting on mountains of cash, the problem obviously is not the ability to produce. It is unwillingness to produce; this because of a lack of effective consumer demand with which to purchase the product. If people can't or won't purchase product, firms won't hire.
More corporate tax breaks, adding to corporate cash, do nothing to enable consumers to purchase, or entice firms to invest in plant and equipment or to hire labor. Rather, it enables big corporations to acquire other cash-rich firms and to buy back their own stocks, further enriching CEOs through enriching their stock options.
Nor will more tax cuts for the super rich entice them to buy enough Gucci shoes and expensive country club memberships to put unemployed labor back to work.
Lack of effective demand by consumers was caused by at least three factors.
First, American corporations shipped too many good manufacturing jobs abroad. These jobs are gone forever.
Second, the distribution of income during the last several decades channeled gains from a robust economy exclusively to a small sliver of people at the very top of the income scale. As compensation to multi-million dollar CEOs increased exponentially, and still is, real wages of the working class have stagnated.
Third, the devastating Great Recession and high unemployment. This is the result of bursting of the real estate bubble, in turn caused by a swashbuckling, deregulated financial system gone wild. Deregulation encouraged creation of credit default swaps, derivatives, and other "creative" financial instruments that resulted in disaster for major financial institutions.
Although the economy was regulated in theory, under-funded and out-manned regulators were asleep at the switch, or were up against a culture of deregulation led by Federal Reserve Chairman Alan Greenspan and politicians bought and paid for by corporate America. The entire deregulated financial system came within a hair of total collapse.
There is no easy way out of this downward spiral. Jobs shipped abroad are gone forever. The low wage, unemployment situation is a self-reinforcing downward spiral that dampens consumer demand and discourages firms from hiring.
While expansionary monetary policy is the right policy during recession, it permits, but does not necessarily encourage, banks to lend for production or consumption. It is like pushing string or, as economist Robert Reich puts it, like pushing a wet noodle.
Another corollary of this dilemma is that there is no way that the federal stimulus package could have been economically too big. The limited size of the stimulus package was not economic, but political.
The stimulus package was just large enough for its opponents to say, "See, it didn't work." The fact is that it did work insofar as it kept the Great Recession from being far worse. But as Newt Gingrich has observed (the one time I have agreed with the Newt on anything), "you don't win an election with 'it could have been worse.'"
Jim always reminds me that we blew it with the North American Free Trade Agreement (NAFTA). We should have told Mexico, we'll open our borders, if and only if your Mexican minimum wage is equal to ours, or at least some substantial fraction thereof, and your workers have the right to organize. Our American workers should not have to compete with slave labor that encourages American corporations to send jobs across the Rio Grande. We should take the same hard line with all international trade agreements.
And the much-maligned federal deficit? It's largely the result, not the cause, of the recession. Improving the status of labor here and abroad, thus increasing effective demand for product, is the key to world-wide economic recovery, and to shrinking the deficit for that matter.
Unfortunately, we see no political movement toward increasing labor's share of American productivity. And there is pitifully little American insistence that economic competitors abroad improve status of their labor as a condition for trade. If anything, it's all going the other way, meaning that this economy will improve very, very slowly at best, and maybe not at all.
Bottom line politically: the Democrats' failure to articulate and pass a stimulus package worthy of the name may cost President Obama the election, even though the opposition offers nothing but the same tired canards that got us into this fix. More supply side economic snake oil - tax cuts for the super rich and more deregulation of financial markets - is no cure for the Great Recession caused by that same economic snake oil.
I return to my guesthouse and hit the sack with a book on the Pacific campaign. My mind still on the economy, I'm reminded of another crisis: how to finance WWII after a decade of economic depression. It was financed with a pragmatic, effective combination of borrowing and, perish the thought, taxes paid by those who profited from wartime production. It ushered in several decades of unprecedented prosperity.
In this, there may be some lessons.
- Monroe resident John Waelti can be reached at jjwaelti1@tds.net.
