Days of Change

Day 1049 – Pump and Dump

September 19, 2011

The United States has a GDP of approximately $15 trillion. Divided among 300 million people, it works out to $50,000 per person. The median income is about $49,445. Of course, only about 100 million Americans have incomes and the GDP doesn’t really track created wealth, just the money that goes back and forth in a year.

All the economic and anecdotal evidence indicates that the problem is a lack of jobs. It’s obvious, but it’s important. Keynesian Economics offers a solution. Make the government the lender of last resort. Spend money to create demand, demand requires resources and jobs are created to fill this demand. Those job holders now spend their own money and the process continues.

We’ve had two years of stimulus with no real improvement in the unemployment rate. Jobs have been “created,” but not as many as were lost. Any multiplier effect didn’t cause the kind of accelerated job growth that would logically result from such a kick-start.

So where do we go from here? We can either go into further debt, which could put us in trouble in the future, or we can extract money from the economy by cutting spending, raising taxes or both. We could also follow the banks’ lead and do nothing. The best option may have been not bailing out banks in the first place. As one institution after another falls, banks would have shifted around money frantically instead of sitting on it.

For all the talk of multipliers, there is a multiplier effect to austerity. For every dollar we take out of the budget, we save 40 cents in debt. That 40 cents in debt requires another 2 cents each subsequent year. In five years, half of that dollar will be debt. In ten years, 3 cents accumulates every year. In 20 years, that original dollar in spending cost nearly a dollar in debt. We’ve had 50 years of increasing debt, in good times and in bad. The ability to break past non-stimulative debt to the stimulative kind may have disappeared. It might be time to let economics take care of itself and just use the government to protect the people.

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