The Recession: A Different Way Out

Economies and ecosystems have a lot in common. Within certain bounds, both are self-correcting of their excesses and deficiencies, but there is a limit. After all, if all the mosquitoes disappeared from the jungle tomorrow, what would the frogs and spiders eat? The answer is that they wouldn’t, same as if all the home equity that was people’s cashflow disappeared.  

Why should a badly damaged economy spiral into control, and but never out of control? Is it not possible that past a certain threshold, we’re all toast? From what I read, these were common musings in the 1930s. One thing we learned then is that in the ecology of the economy, there are three big players. Buyers, sellers, and the government. If one is ill, then another can pick up the slack until they get better. The problem is that of the three moving parts of an economy, the sellers have been left out of this obligation. Why is it always up to consumers or the government to fix things?

By now everyone agrees that we’re not in your father’s recession. It’s more like your grandfather’s, or maybe your great-grandfather’s. Even with today’s competing political realities, nobody denies that there aren’t enough jobs, and therefore, not enough people with paychecks clamoring to buy what the world sells. As far as that goes, we are all Keynesians now. Where we differ is in the policy solutions to how to create demand.

Theory A: The government gives the sellers of things more money and fewer rules on how they spend it, and this will make buyers buy things.  The implication here is that sellers of things are waiting for their tax rates to come down before hiring a couple million Americans to make something that nobody is buying.

Theory B: The sellers of things have cash, and should be taxed by the government to create jobs for buyerswho will then be in a better position to buy things. If the politics are such that we can’t raise the money, then we should borrow it, because our credit is good, if nothing else, and in the long run we’re all dead anyway.  

There has to be another way of looking at things.

I know, I know, Theories A and B are highly reductive policy proposals generated out of competing moralities, global context, class struggles, and constituent groups, but that’s not the point here. The point is that both theories want to get more cash flowing through the system, by monkeying with the ecology between government, buyers and sellers. But the bigger point is that today there is no demand, and thus no reason to sell stuff.

But there is still cash, lots of it in fact. Companies have been sitting on cash reserves for years, waiting for a perfect time to make profitable investments. The problem is if everybody waits, then that perfect time never arrives. With a clear lack of demand, and no reason for any one company to take the risk of a big investment in this economy, who’s hiring? There’s a clear lack of will for more deficit spending; that someone isn’t the government, but that’s all right. Why does it have to be? To sum up:

• Because of past needs, personal, and political decisions, both everyday people and the government are in debt up to their eyeballs.
• Because people have lots of debt and not enough cash from their jobs, it’s a bad time to be selling things.
• Because it’s a bad time to be selling things, the sellers aren’t hiring.
• Because the sellers aren't hiring, it's a bad time to be selling things.
• The government doesn’t have or won’t spend the money to change this.
• The sellers of things have the money but don’t want to spend it, and nobody is making them.

Am I missing something?

Someone’s going to get coerced, and as the little guy, I’m tired of being the one. I’m tired of being told to buy stuff, even as I don’t get paid more. I’m tired of credit card offers trading personal debt for a decent wage. I’m tired of my spending being the basis of the economy when nobody wants to actually pay me.

Make other people spend their money for a change. The government’s spent all of theirs to the point of huge debt. Consumers have spent all of theirs to the point of huge debt. Only one group is left with any money—the sellers of things. Why bother with exhausted governments and consumers when this crucial piece of the puzzle is sitting pretty?

How about leveraging a little government cash for a whole lot of private infrastructure spending (aka the Infrastructure Bank bill)? Why not insist that cash reserves be spent on certain activities that are highly conducive to wage growth? How about making taxing reserves beyond a certain point, supplying small business insurance, or even having a global summit of the Fortune 500 companies and come up with some sort of pact?

In the end, I don’t really know what to do. I leave it to the policy wonks to find a way to induce companies to spend, but ultimately it will take a new way of thinking about the roles of each of the creatures in our economic ecosystem. I don't care who gets the credit, but something has to change.