Robert Reich: Over Here In The Real World

Robert Reich, as he so often does, capsulizes the economic situation:

Can we get real for a moment? Businesses don’t need more financial incentives. They’re already sitting on a vast cash hoard estimated to be upwards of $1.9 trillion. Besides, large and middle-sized companies are having no difficulty getting loans at bargain-basement rates, courtesy of the Fed.

In consequence, businesses are already spending as much as they can justify economically. Almost two-thirds of the measly growth in the economy so far this year has come from businesses rebuilding their inventories. But without more consumer spending, businesses won’t spend more. A robust economy can’t be built on inventory replacements.

The problem isn’t on the supply side. It’s on the demand side. Businesses are reluctant to spend more and create more jobs because there aren’t enough consumers out there able and willing to buy what businesses have to sell.

You can’t create demand by fiddling with the supply side. When people are broke, jobless and/or homeless, they aren’t buying much of anything except food (if indeed they can afford even enough of that to survive). Give all the tax incentives, cheap loans, etc. you want to businesses; if they don’t think they can sell what they produce, they aren’t going to produce it. If you force the money on them, they’ll bank most of it (except, of course, for a few raises and bonuses for executives), sit on it and wait for better economic times when they perceive at least the possibility of more demand. This isn’t rocket science, except, apparently, to Republicans… and Barack Obama.

 

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Comments

  • Bryan  On Friday June 10, 2011 at 11:23 pm

    Apparently the only people who actually understand real-world economics are small business people who live it daily and some economists that aren’t members of the media circle or the Village.

    I have never understood how people can continue to call for tax cuts, when we have overwhelming data showing that all they do is increase the deficit, or the siren call of tax cuts, especially on the state and local level, when they have never worked to attract businesses.

    Jobs are the best near term solution for the deficit and the economy.

    • Steve  On Saturday June 11, 2011 at 8:27 am

      Bryan, jobs are the ONLY solution. And jobs will be available if… and only if… there is adequate demand. Now that the economy is truly in a ditch, the government must become the consumer of last resort. It’s not as if there aren’t society-wide problems to be addressed by government-sponsored programs. But Republicans will continue to serve their wealthy “clients” even as the water rises over everyone’s head; somehow, they think they’re immune to what is coming. We need to stop worrying about Weiner’s wiener and focus instead on reconstructing Obama’s spine.

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