The typical economist viewpoint is that 70% of the US economy is driven by consumer spending. I find fault with the words "is driven." When the economy is doing well, we may very well see 70% of the GDP coming from consumer spending. The point is that demand drives both production and consumption. However, Politicians and some economists do not appreciate this. Consequently we see government offers to put money into consumer's pocket and deemed efforts to help the economy. If you think such offers help the economy, then logically we should do more of it. Doing so would quickly reach absurdity. I gave examples of such spending in the immediately preceding post. I would classify extending unemployment benefits to two years to be in the same category. We know that most persons appear to find work near the end of their unemployment benefits. I have personally observed many examples where the person is content to stay out of work and receive the benefits. In essence, they are being paid not to work. I suggest unemployment benefits be for six months, enough time for people to make the transition from the income of their prior job. The Wall St Journal recently ran a series of profiles on person who had lost their jobs and how they reacted to it. Impressive among those profiles was how most adapted to the change--hard as it was--and did their best to seek work and keep their families together.
I thought it appalling to see on television some Chrysler employees being paid by their company not to work while their employer was facing imminent bankruptcy. General Motors had been coerced by the autoworkers union into a similar arrangement. What a wasteful loss of both labor and company funds! For the union to be rewarded in the subsequent bankruptcies is a disgrace.
The question facing the country is how to create meaningful jobs. Simply adding to government (federal, state or local agencies) employment rolls does not help the economy. Republicans are incorrect in saying that the government cannot create jobs. One can simply look at the great depression era to see how such jobs were created to construct the Hoover, Bonneville and Grand Coulee dams, tame the floods in the Tennessee Valley, construct roads, bridges, locks and levees. Currently, the USA funds only two percent of its GDP on infrastructure while western Europe spends some five percent. Our bridges, roads, airports are crumbling and need upgrade and maintenance. If president Obama cannot get these funded by a tax on the wealthy, he should consider getting them funded by an increase on transportation fuels, a tax that has not been changed for over fourteen years and whose doubling would still leave fuel cost at less than its peak in the past three years. Further funding might come from reducing the length of unemployment benefits. These kind of jobs would greatly help the construction industry which has born the brunt of the recession.
The biggest problem in increasing demand has been that consumers are highly indebted and are using discretionary funds to reduce their debts. The same situation existed in 1930. The government's priority should be to encourage efficiency and improve productivity. There are various ways to do this as follows:
1) Fund research at universities, especially those which partner with industry. This has the added virtue of keeping more students out of the current depressed labor market.
2) Provide faster write offs of research in private industry instead of requiring such costs to be capitalized and amortized.
3) Provide an example to congress and industry by improving government efficiency in its delivery of information and services. Reward management when it can do more with less. Outsource where practical and economical. Cancel the system where agencies are encouraged to spend all their budget to avoid having it reduced the next fiscal year.
It is worth noting that a recent survey by the US Bureau of Labor Statistics found that 0.3% of employees were laid off by government regulation/intervention while 25% were lost due to lack of demand. This clearly challenges the Republican belief that less regulation will stimulate the economy and the government needs to do nothing to stimulate demand. Remember, higher productivity leads to cheaper or better quality goods and services.
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