Monday, March 9, 2009

Economics rears its head again

The United States is in a depression. As is, to my knowledge, the rest of the world. People have still not recovered from the low point after the sub prime crisis. While there is a very good description of both how the crisis came to be, and what effects it may have for us, vicious fighting is now going on as to what to do about it.

As far as I can tell, the crisis currently revolves a lack of confidence on anyone's part in the economy. Consumers are afraid to make purchases, as jobs are hard to come by, and replacing the money they spend is not happening. Companies are afraid to hire, because purchasing is down. The two endlessly feed each other in some kind of bizarre catch-22 situation.

Banking is a big part of this. The banks have $2 trillion in debts that they effectively cannot ever recover. In other countries, nationalization would be called for. This is unpopular here -- many people see nationalization of private companies to be the first step towards communism, a feared ideology. Ailing companies could be bailed out, which gets a lot of flak because this situtation is their own fault in the first place. Failure could be permitted, as bank depositors are protected under FDIC, but this would be more expensive still. FDIC does not provide its insurance for free.

Strangely enough, one economic group has recovered. The electronics industry in Taiwan reports vigorous success today. There are some industries known to do well in depressions, mostly those having to do with escapism. Movies, alcohol, and theme parks are predicted to do well also.

If one has money, now is a good time to do many particular moves, such as buying land, stock, or bonds. This situation cannot last forever, but it is quite grim and worrying for everyone. Especially because it is world-wide. No country has completely escaped.

My proposal is to treat this like the Great Depression, and stimulate the economy by massive infrastructure spending. The infrastructure workers should spend the economy back to health.

1 comment:

Cairnarvon said...

Let's have another World War.

It's debatable whether infrastructure spending worked during the Great Depression, but it's worth keeping in mind that a much larger proportion of people were labourers during the Great Depression than now.
If Roosevelt's infrastructure projects helped any, Obama's health plan may do it. Either way, the knee-jerk protectionism of countries like the UK and, of course, the US isn't likely to.

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