From Pine View Farm

Throwing Worse Money after Bad . . . 1

. . . is pretty much how Robert Reich characterizes bailing out banks and businesses by giving them moola, pointing out that

But even if credit were flowing, those loans wouldn’t save jobs. Businesses want to borrow now only to remain solvent and keep their creditors at bay. If they fail to do so, and creditors push them into reorganization under bankruptcy, they’ll cut their payrolls, to be sure. But they’re already cutting their payrolls.

He goes on to say that

Introductory economic courses explain that aggregate demand is made up of four things, expressed as C+I+G+exports. C is consumers. Consumers are cutting back on everything other than necessities. Because their spending accounts for 70 percent of the nation’s economic activity and is the flywheel for the rest of the economy, the precipitous drop in consumer spending is causing the rest of the economy to shut down.

I is investment. Absent consumer spending, businesses are not going to invest.

Exports won’t help much because the of the rest of the world is sliding into deep recession, too. (And as foreigners — as well as Americans — put their savings in dollars for safe keeping, the value of the dollar will likely continue to rise relative to other currencies. That, in turn, makes everything we might sell to the rest of the world more expensive.)

That leaves G, which, of course, is government. Government is the spender of last resort. Government spending lifted America out of the Great Depression. It may be the only instrument we have for lifting America out of the Mini Depression. Even Fed Chair Ben Bernanke is now calling for a sizable government stimulus. He knows that monetary policy won’t work if there’s inadequate demand.

The Current Federal Administration, of course, has perpetuated a policy of making the rich richer, while making the poor poorer.

This is not a slogan.

This is an accurate description of what they have done.

Read Mr. Reich’s entire post. He suggests that the way out of this mess is to adopt strategies that steer money to those who must spend it, not to those who are able to hoard it.


1 comment

  1. Karen

    November 9, 2008 at 3:47 pm

    If they do a stimulas package like the last one, the same thing is going to happen.

    What they need to do is put it to work on infrastructure. Get people working again.

    Just handing over more money to individuals again will result in more bills being paid, groceries being bought, or put into savings.

    Hopefully, Bush will sit on his hands as usual, then Obama can come in & handle it differently.

    And they shouldn’t give anymore to the banks who are continuing to pay the bonuses or who are hoarding the money in their coffers. Or the automakers, if they continue to put out the gas guzzlers. Give it to them to retool, or for exploration. Not for SUV’s & pickups.