Thursday, December 10, 2009

Fixing the Economy by Tip Parker

 It’s easy to complain that the government is spending too much to bail out the economy, piling up too much debt for our children, and getting too involved in our lives. But we need to understand two reasons why this recession is different from anything that most of us have experienced.

The first reason is the record amount of debt that households, businesses, financial institutions, and state and local governments, have piled up. At the end of last year, they owed 46 trillion dollars in round numbers. The federal debt of 6 and a half trillion dollars was big, but it was just an eighth of the country’s combined total. Households owed twice as much as the federal government, mostly with mortgages, credit cards, and automobile loans.

The federal debt can be passed on indefinitely, but much of the rest must be repaid. So instead of buying more things, many people are hunkering down and trying to pay for the things they have already bought. When people pay off their debts instead of buying, other people who would have made and sold the things that people aren’t buying, lose their jobs. This becomes a loop when those who lose their jobs can’t repay their own debts, and the loop has grown too big for people and businesses to break on their own.

In most recessions, the government breaks the loop by spending and by making it easier to borrow. But that is not working very well this time because households, businesses, and financial institutions already owe too much.

Job loss is the second reason why this recession is different. For years, we followed the idea that globalization is good for everybody, and that we could somehow replace the middle class jobs, particularly in manufacturing, that have gone overseas. But it didn’t work that way. The country exported large chunks of the production side of the economy and many exported jobs were never replaced.

The recession is also eliminating many jobs that won’t come back, like making and selling big houses, SUVs, and luxury goods that people can no longer borrow to buy. Businesses won’t invest to create jobs unless they see a path to profits. Today, that path is hard to see. And sadly, my analyses show there is a high risk that many baby boomers will need jobs because their retirement plans won’t provide enough income.

So America must create millions of new jobs for unemployed workers, boomers who can’t retire, and young people starting out. The jobs will have to be in this country and hard to export. That will require major new industries like alternative energy, water and energy conservation, upgraded transportation, sustainable buildings and communities, and yes, a more effective health care system.

People in many other countries have similar problems, but they are ahead of us in solving them because they are working with instead of against their governments. For example, El Salvador and Iceland get a quarter of their electricity from geothermal plants, Germany has the most photovoltaic power plants, and China is the leading producer photovoltaic equipment. If we don’t pull together as a team, and use our government to create a sustainable future for our children and grandchildren as our forbearers did, the American middle class will continue to decline.

Tip Parker lives near Harrisonburg.

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I write for lots of different venues, so this blog provides links to those places. Plus, occasionally, stuff that appears no where else . . .