Economic Bystanders

Our economy is a ship that’s hit an iceberg and we’re all passengers on its deck wondering if we’re going to sink.  Most of us are economic bystanders.  We’re not part of the crew manning the engines below decks nor are we officers on the bridge.  Few people are economists, so we have no idea of how to navigate.  Few people are bankers, so we have no idea if our ship is still seaworthy.  Most of us just clutch each other and pray we don’t drown.

I don’t like being a powerless bystander.  To me it feels like a horde of greed driven souls have hijacked our financial system and done far more damage than any terrorist.  The economic gurus and conservative politicians have preached that we should all be independent, and manage our own money and give up on ideas like social security.  We can only be independent if our economic system is sound and trustworthy.  I always expected banks to be conservative, to be the bedrock of our monetary world, but it seems that the conservatives have changed banking with liberal ideas about making money.

What I want from our banking system is what the New York Times reports about how the Canadian banking system works.  Why are so many Americans caught up with the glamour of being billionaires?  Why do time and again a small group of people seeking tremendous wealth lead millions of investor lemmings over the cliffs?  We can blame the CEOs flying in their corporate jets but they are only the leaders of vast armies who worship wealth.

Financial disasters teach us how important the science of economics is to our daily lives.  Religion and politics, which most people normally look to for guidance are of little importance.  Politicians will grab the helm in bad economic times, but their captaincy is illusory.  The real power is with us economic bystanders.  The economy is the hive of all human economic activity.

Economic well being is primary about jobs.  If everyone has a job we have a much better chance for political and social stability.  In the last hundred years, the secondary purpose of the economy is investments because people want to spend part of their lives not working, or they want to attain quick riches.

In a world of 7 billion people it’s very hard to create enough jobs for everyone who needs one.  By all of us consuming vast amounts of natural resources we put billions to work.  But there’s a new goal.  People want to be rich enough not to work.  Wealth is theoretically unlimited, but there seems to be limits to how many people can be wealthy.  Somebody has to wash toilets, drive trucks, fly airliners and sew shirts.  Everyone can’t succeed through gambling with stocks and commodities.

Our current economic catastrophe is due to greed on the part of a very small portion of the population that convinced so many of us we could have double-digit interest on our nest eggs.  We can’t just blame Wall Street and the big banks, because anyone who owned stocks or put their money in 401k plans loved seeing huge growth rates.  For the last twenty years Wall Street has convinced the financial world to buy into fantasy investment schemes that were not based on real world economics.

The economy works because people sell goods and services, or they invest in people who sell goods or services.  What we’re learning from these bad economic times is we can’t sell slight of hand goods and services.  As the economy slides downward and unemployment rises, we’re learning just how many jobs we have that are based on real production and actual services.  Because all of us economic bystanders are holding our breath in fear and slamming our bank accounts closed, we’re causing many jobs to be lost.  Until people feel safe and spend normally, we won’t see normal growth.

The history of the United States is also a history of periodic recessions.  In each one we learn something new about the science of money.  We oscillate between caution and greed.  Good times bring risky investments and that too many unwise people pursue.  As much as we loath men like Bernie Madoff, we have to question why people would believe in him?  Investing is like poker.  If you don’t lose some hands the game is rigged.  The desire for yachts and jets drove Madoff and his marks.

We live in a world where the extremes of wealth and poverty make the novels and the news, and the stories of average folk seldom appear in the movies.  The glamour of money will always warp economic sensibilities, which is why we always need regulations.  Most economic tsunamis are caused by the greedy bending the laws of investment gravity.  2008 was our 1929, so this year is 1930, but what will our 1932 be like?  Or will this recession be more like 1975 or 1980?  If it is, we’ll be damn lucky.  Why are all the pundits telling us those scary stories, and why is the government spending trillions to bail out the economy?  Are our leaders creating more fear or do they really know something?  I don’t know.

President Obama’s stimulus package might create real jobs or it might just prop up a false economy.  Everyone hates to pay taxes, but tax money really does make up a large chunk of our economy.  Everyone wants a smaller government, but our large government creates millions of jobs.  It appears, and this might be honest economics, that the government should grow when the private economy shrinks, and shrink when the the private economy grows.  Other than inventing a whole new economic system we don’t have any other way to steer the economy.

Or do we?  We classify jobs as a 40 hour a week standard.  In bad economic times we lay off a portion of the population when we can’t create enough jobs.  Instead of laying off people, why not just lower the number of hours in a work week.  So in bad economic times everyone earns less, and in good economic times everyone earns more.  Personally, I’d much rather have my salary cut to 30 hours of pay, than lose my whole job and get paid nothing.

In every worldwide economic crisis the rules of how the economy runs gets changed.  Is it really practical to retire and spend 20-40 years not working?  Was one of the impossible economic fantasies of the last quarter century the idea that private individuals can save enough to not work for a third of their lives?  That idea was based on investments with 10 percent annual growth.  Can economic reality really support that?  Is there a limit to the number of people who can live off the interest of their investments?  We know we can’t have 100% idle rich with no one working unless we create some kind of science fictional world run by robots.

Can you imagine what life would be like now without social security, medicare and unemployment insurance?  What if our retirement system had been shifted to private investments?  Thank God for social security – we better fixed it after all.  Our goal should be conservative banks and practical social systems.   Sure, we have to leave enough leeway for get-rich-quick believers to play with Wall Street, but we need to isolate their game so they don’t put the entire economy on roller coaster rides.

This crisis is occurring at the same time as when we need to restructure the economy to save the planet for ecological reasons.  In rebuilding our economy and creating a new one out of the ashes of the old, we need to rethink so much.  Should the work week be 40 hours.  Should people loaf for decades?  Should tax payers fund the medical bills of the elderly, or even all people?  How many jobs would be created by a universal healthcare system?  If a large portion of our population retires and spends less money, do they reduce total jobs, and if so, how does the remainder of the population support them?  Or, do retired people create enough jobs to support the concept of retirement?

Would it help the economy if people moving towards retirement age spend a length of time working part-time, with retiring becomes a long phase out process?  Or instead of having 10 percent unemployment, have everyone work 10 percent less and cut their paychecks by 10%?  Or would that cause a downward spiral of economic activity?

We’re all economic bystanders on this economic ship, but what we do and think influences the whole of the economy.  If we all went out and made a major purchase this year, like buying a car, refrigerator, high definition television set, or remodeled a bathroom or built a garage, we could put a lot of people back to work.  Everyone suddenly becoming a penny pinching miser is bad.  You can kill two birds with one stone.  Last year I spent $9500 to replace my HVAC.  In some months I’m only using 1/3 the energy as the same month of the previous year.  And I can think of many goods and services to buy that would make my home more environmentally friendly and stimulate job growth

Even though we’re all economic bystanders, some of us are armed with dollars that could be spent.  Those people who live paycheck to paycheck need to spend these bad economic times getting their act together, but for those folks who have a few extra bucks, they should think about spending a bit to create economic bystander stimulus packages.

JWH 2/28/9

One thought on “Economic Bystanders”

  1. “Are our leaders creating more fear or do they really know something?”

    I wouldn’t place any bets on them knowing anything if it were me.

    I agree in some ways with what you say and possibly disagree with others…depending on what you really mean by penny pinching. I don’t agree that the way out of our crisis is to spend our way out. That seems like foolishness piled on top of foolishness. If people are pinching pennies because this crisis has opened their eyes to the fact that carrying thousands upon thousands of dollars of debt is a disaster and they are now spending more wisely and working to pay off debt, then I think that is the very best thing each individual can do.

    Sure, corporate greed has played its part in where we are now, but so has a whole lot of individual greed and impatience (and I’m pointing the finger at myself) that results in using credit to buy all the things our hearts desire as opposed to saving and being responsible and buying things with real money.

    I don’t believe borrowing and using credit haphazardly are the key to our future, no matter how many jobs that may create. Our road to ruin started long ago when instead of trading currency for goods and services we decided it would be a good idea to mortgage our futures by borrowing money at ever increasing rates of interest so that we could have it all now instead of earning it and being content with what we have when we have it.

    The government throwing billions of dollars out to ‘stimulate’ the economy is not going to work. All we are doing is creating a tax burden for those of us who will live long enough to have to start paying it back and for our kids and their kids. I’ve heard how my company plans on spending stimulus dollars. They don’t plan on creating new jobs, they plan on finding ways to have that money fund already existing programs. And I don’t blame them because the need in the social services industry is overwhelming and there has never been enough money to treat all who need help. I imagine if we, a company geared towards helping others, are looking at ways to work within legal loopholes to take stimulus money and use it to fund existing things, without creating jobs, so will the major corporations.

    If I had any confidence that the government would put that money directly into funding jobs…like, for example, giving tax breaks for every company that hired someone at or above a certain wage level, then I might be more confident that the money will go to make a real difference. Instead millions of these billions of dollars…or more…will go to line the pockets of some of those responsible for this mess, and a lot will go to pet projects and other things that will ultimately cost us more money rather than stimulating positive change.

    It bothers me that the best solutions our leaders can come up with to fix these problems is to come up with ways to hand out money to bail out a bunch of businesses that might need to fail. True and lasting change will only come out of real hardship, not out of creating long term financial hardship for the generations to come.

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