As of late there has been a great deal of talk of spending our way out of the recession. Principally it's politicians and fringe economists who advise this. Realizing that the average household doesn't have money to spend (the current debtload of the average American household, not including mortgage, is somewhere around $20, 000) the US government provided a bailout package to the banks, $350 Billion dollars (already issued) with another $350 Billion to follow - a sort of economic stimulis. In theory the banks lend this money, consumers borrow it to spend, the recession is over...
Canada has implimented a similar strategy, shoring up the banks and lowering interest rates. Odd that the lowering of the interest rate is not yet reflected anywhere in the commercial banks lending rates, but that's a different posting.
In theory, while enormously short-sighted, this will in some small measure work. More people spending money means more jobs. So far, so good. But there are some deeply flawed inherit propositions in this.
The first flaw is placing the onus on consumers to free themselves from the recession by spending borrowed money.
Bear in mind that the current recession was, at least symbolically, caused by the collapse of Lehmans, AIG and others in the US. Now had these banks been allowed to simply collapse - go under - most Americans would have lost absolutely nothing. A few Americans might have each lost a few hundred to a few thousand dollars or so - bearing in mind that most Americans have debt, not savings. And a very few - very very few - would have lost fortunes that totalled the vast bulk of the losses.
Now I would argue that an "Average Joe" - your thrify saver, retired pensioner, etc - who loses say $5, 000 in savings is far worse off than you're multi millionaire/billionaire who loses a few million. The difference is one of basic needs. The "Average Joe" is now possibly without the means to feed him or herself, the millionaire/billionaire is now short a few digit on his investment statement. In terms of lifestyle, the "Average Joe" is hit hard, the millionaire not at all.
Note that millionaires/billionaires aren't big spenders. Their basic needs - food, shelter, healthcare - are the same as everone elses. And the fact that they have built up these monumental reserves of investment capital within banks is proof that their money isn't contributing to the economy in the same manner as everyone elses.
There is an old rule - the 90% - 10% rule - that states that, in the US, North America, 10% of the people control (own) 90% of the resources. The other 90% percent of the people control (own) the remaining 10%. Give or take a few percent (the ratio is actually growing more dramatic, not less) this is true. Now then, with this in mind, why would you charge the 90% of the population that only has 10% of the resources with the enormous task of "saving" the economy?
Herin lies the irony. If 90% of the population increased spending by 100% - doubled - over the course of a year, the economy would be robust and booming. Why then is it not charged to the wealthy? The 10% of the population who were rich would only have to spend 10% of their reserves to achieve the same effect. And no one has suggested that consumer spending needs to double, in fact the rate would be far, far lower.
The second flaw is allowing these Monumental reserves of cash to be built up and held in private hands
The Wall Street bailout was entirely done to protect the assets of the very, very rich. As stated earlier, few Americans would have noticed anything. The bailout - $700 Billion dollars of taxpayer's money - ensured that every American felt something (700 Billion divided by 350 Million people = $2000 per man, woman and child in the US - not counting governmental service and administrative fees. And if the money was borrowed interest.).
Money held in banks is dead. Money not in circulation, simply "Garnering Interest" or other returns, in no way contributes to an economy. Banks of course would disagree, money held in reserve allows them to create further money, but this is imaginary wealth without any real-world correlation. Imaginary Wealth works very well in an Imaginary Economy, but sooner or later this will have to end. You can only play this game for so long, as the economic downturn has shown.
Money that is real and spent, however, drives the economy. By real money I refer to that cash earned by the tangible exchange of good and services. Addressing the issue of keeping it in circulation, however, is a big one, and requires a complete rewrite of the current economic system.
Finally
Despite the dire economic forecasts in North America we're in the enviable position of producing all the food - locally - that we need to survive. If you live in the US you're even luckier, you have California and Florida, where a hospitable climate will grow almost anything you could want to eat. The "recession" should by no means imply that we will be going hungry or missing the necessities of life. Yes, that imported car or HD TV might have to wait until foreign nations feel we can be trusted. But that's a good thing. It teaches independance.
Meanwhile we should be looking at sustainable economic alternatives. We should realize we are wealthy - wealthy beyond our wildest dreams - and look at implementing processes to recover some of that wealth. How can we do this?
- Work ourselves out of a job. Build quality products that are meant to last - ensuring we consume only when necessary
- Consume less. Less gas for our cars, less processed foods, by investing in energy efficient housing and public transport.
- Recycle. Reclaim lands lost to industrialization. Invest in technology that will help us to recover toxic soils and waterways. In this alone there is an economic boom that should busy us for the next 50 years.
- Educate ourselves. We don't need more junk. We need to make junk that lasts. We need to realize that a new working economy will be one primarily based on services, not consumption and manufacture.
- Implement processes to ensure wealth doesn't pool or remain stagnant (as in Banks or Private Hands). Do not confuse this with communism. Rather, think of it as an appreciation that we are only holding our resources "In Trust" for future generations.
Practical Ideas:
- Locally printed currency: http://calgarydollars.ca/ - Money that can't be banked or used to create interest is real money. Real money drives the economy. Local money stays local.
To Conclude:
In every crisis there's opportunity. In this economic downturn perhaps we can reappraise our values and take steps to ensure it doesn't happen again. The first step is not to shore up the banks and insulate them against their imagined losses. They may have been a good idea once, but their time has come and gone. We need to get real.