Monday, July 26, 2010

What will it take to move the economy forward?

I've just read two approaches in three magazines on this issue....the Nation, the Economist, and Business Week.

All three agree that the economy is stalled and that recovery and growth are not obviously in the offing, with the chance of a double dip recession (another drop in spending, jobs, etc.)

All three magazines see the need for something to stimulate the economy, and none of them expect that government stimulus can be significant to put us on the track to full recovery.

The Economist and Business week say that growth can come from either or both of two sources:   technological innovation, or increased exports.   They propose government intervention that would favor these developments.  (BTW there is an implication that the lack of these two helped to cause the recession.)

The Nation (and Robert Reich, specifically)points at economic inequality in the US as both leading to the recession and (if corrected) the way out.   This is a traditional argument, possibly first made by Karl Marx.   When wealth concentrates in  a relatively small part of the population, they do not spend it in a way that creates economic activity, jobs, etc.   Not only does Reich criticize Regand and the Bush's for their policies that accelerated economic inequality, but is also contrite about his own and the Clinton administration's poor record in this area.   So his solution is tax and other policies that will put money in the hands of those who will spend in ways that will drive the economy.

What do I think.   Well certainly I agree with Reich that we need to "spread the wealth", not only for fairness, but because that will fuel a recovery.  Government support for technological innovation should also be a part of the picture, especially "green" technologies.   Exports...if the other two occur, that will take care of itself.   It's already happening because the low value of the dollar.   I'm not an economist, but this seems just common sense.

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