Recession
Reading about Americans struggling after losing their jobs is heart-breaking, especially because I don’t see much hope on the horizon. We’ve lost our manufacturing industry over several decades. Much of our financial industry has imploded, seemingly overnight. And the severe wealth contraction from the bursting of the housing bubble is killing the retail and construction industries. And, of course, service jobs that can be done over the Internet continue to be outsourced in ever-increasing numbers.
Even worse, it feels like a death spiral because every job lost in these fields causes several more collateral job losses among barbers, waiters, lawn service, etc. And monetary policy is now totally ineffective. We’re caught in a liquidity trap that’s kept Japan’s economy moribund for the past 15 years.
P.S. Stop calling this a “credit crunch,” as if bank bailouts will solve America’s woes! We’ve experienced a massive wealth contraction. Borrowers are now much less credit-worthy because net asset values have plunged and earning power has plunged along with economic conditions. Of course, many banks have negative net worth and should be liquidated (but are being kept alive by shoveling taxpayer money at them). The credit crunch is but a symptom of a widespread and deep contraction in wealth and earnings. Government should be helping ordinary citizens and Main Street businesses recover from the consequences of the wealth and earnings contraction. Let banks that made stupid bets fail. Use the money to create middle-class jobs, improve education, and rebuild America’s infrastructure. If you’re going to give banks money, give it to the well-run banks, not the failed ones. If we don’t help ordinary families and businesses, the future for many American cities (and small towns) is bleak indeed.
Posted by James on Wednesday, February 04, 2009