Sunday, August 8, 2010

This economy doesn't stimulate

Great Depression 2.0, which we are in now, is a vicious circle, consumers are not consuming so producers aren't producing and laying off workers. The laid off workers consume even less.
Economics, especially the branch invented by Lord Keynes during the first Great Depression, says that the way out of the vicious circle is for the government to "create demand" which causes the producers to produce and hire people. The gigantic demand created by WWII is what ended the first great depression. The government purchased humongous quantities of every sort of war supply, everything from bunk beds to B-17's, as well as enlisted 10 million men in the armed forces. The producers, as soon as a government order was in hand, turned the money right around by ordering parts to fill that order. That's stimulation.
Obama's "stimulus" bill does nothing of the kind. The $800 billion was given to state governments who used the money to meet payroll and avoid layoffs of public employees. A lot of teachers, bureaucrats, and public safety workers are very happy about that but that doesn't help the economy much. The money should have been spend buying goods or constructing things, but it wasn't, mostly because politicians deem it more important to keep the public employees happy and reap their votes in the next election.

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