Economics Post, Part 2

EXPANDING THE ECONOMY

So how do we expand the economy? Referring to the vicious circle, the primary issue is that people do not have money to spend. If they had money they would buy things, and businesses would produce more, hiring workers to do so, giving people more money to spend...

In order to kick it off, the only available actor is the government. It can pay workers, putting money in their pockets. There are several mechanisms available. Monetary policy is ineffective in the current circumstance; the normal corrective of lowering the interest rate has been taken to its end: the rate is effectively zero. It can't go any lower.

The goal is to get money into the economy; it should be given to the people most likely to spend it: the poor. The worst option is tax breaks. If people are not paying taxes already, this won't help them. If they already have a steady income, the tax breaks would go to paying down their debt (i.e., money already spent), or put into savings, taking it out of the economy. Efforts to increase available credit, or boost investments, are useless: businesses are not expanding when they can't use the capacity they already have. Unemployment payments are better: it puts money where it is needed: the recipients are likely to spend it to meet basic needs, and not incidentally reduces real suffering.

Even better is to give people something to do in return for their money: a job. We are still driving on roads and playing in parks dating from the WPA in the Great Depression. It is openly acknowledged that the country's infrastructure is degrading rapidly. Ask any trucker how important the transportation industry is to the economy. Ask the folks in Middletown, CT, how they enjoy the water main breaks I hear about several times a year. Or, how about the railroad tracks in Massachusetts that are in such poor condition that the trains are limited to ten mph-- Yankee Candle gets its wax shipments from another branch and trucks it to its site rather than use the rail that passes right by its plant.

There are many things that can and should be built, replaced, improved. That produces several results: first, people are gainfully employed, with their new-found income passing in turn to grocers, service industries, retailers, manufacturers; second, this in turn stimulates further job growth, as business grows to serve increased demand; and third, the country as a whole gains tangible works that will help sustain the economy into the future. The roads will have to be repaired, bridges built, water mains upgraded someday: we may as well pay for it now and profit from the side benefits.