Monday, May 20, 2024

Economics 101: Those who Caused the Current Recession Cannot Be Relied upon to Fix It…

November 17, 2009 by  
Filed under News, Weekly Columns

( The Labor Department’s most recent unemployment report symbolized the fallacy and the foolishness of relying upon the same class of greed-driven people who caused the nation’s current recession to implement solutions to end the recession.

The November 6, 2009 Labor Department report revealed that in October the nation’s unemployment rate climbed to 10.2 percent – the first time joblessness in America had soared above the 10 percent mark since 1983. Meanwhile, for African Americans, the percentage of people looking for work and unable to find it climbed to a near Great Depression figure of 15.7 percent.

This is not supposed to be the case. Shortly before he left office President Bush pumped most of his $750 billion stimulus into the economy. Then within roughly a month of taking office President Obama began pumping another $787 billion into major banks, corporations and insurance companies. Yet, unemployment is still rising and people are continuing to suffer.

The underlying problem is that most of the stimulus money was given to the wrong people – the very people whose short-sighted greed caused the recession in the first place. The “wrong” people were major commercial banks, Wall Street investment houses and insurance companies. In theory, the stimulus process was supposed to work as follows: Billions of government dollars (your tax money and funds borrowed from China) would be pumped into major banks; banks would then stimulate business activity by lending the money; businesses with new cash would put it to productive use and employ increasing numbers of people; unemployment would fall; the recession would end and everybody would be happy.

But this did not happen. The latest government reports suggest the big banks and investment are essentially sitting on the stimulus money or playing Wall Street speculation games with it. One Commerce Department report has the cash reserves of the nation’s biggest banks climbing by 11 percent over the past year to well over $1 trillion. Meanwhile, Wall Street stocks are having some of their best days in over two years as those with the money speculate with it instead of engaging in productive, business-related investments.

This whole process is driven by short-sighted greed.

In the future, when the government needs to stimulate the economy out of recession or depression, the stimulate dollars should go primarily to the middle class and the poor – people who will spend the money – not sit on it waiting on more profitable future opportunities or run to Wall Street and essentially gamble with it.

Here is the real stimulus process: Provide stimulus dollars to the middle class, the working class and the poor. They will spend it stimulating retail business activity. Seeing increased demand retailers will order more products and services from wholesalers. Wholesalers will then order more from manufacturers and if they need to expand they will borrow from the banks.

In other words, stimulate from the working class up not the super-rich down. The lower classes will (must) spend and spur economic activity but the upper classes can afford to either sit and wait or go gambling on Wall Street.

Written By Robert Taylor

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