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Economic Recovery: A Financial, Political, and Feasible Solution to the US Economic Situation

This paper was prepared in order to outline key factors, and the writer’s perspective, of the current economic situation in the U.S., and provide a potential solution that might improve that condition. This potential solution offers a method to reinvigorate spending activities among individual citizens; increases the workforce; allows for a small reduction in the cost of government; and provides the argument necessary to shift the current tax burden, with no opposition.

One may claim the solution offered can be viewed as a “Keynesian economics” approach to addressing the ills of the economy. However, that approach has been proven, historically, to be a practical one. Government intervention is desirable, expected and – in view of a clear lack of alternative actions – necessary as the catalyst for recession. However, this does not mean wholesale government spending. Our current economic situation requires austerity measures as well – and government must take that lead also. This solution therefore proposes that government, as the provider of leadership in the reinvigoration of the economy, is the only viable approach.

Situation

The U.S. economy is faced with a basic problem; simply put, there is not enough money flowing – which is causing a near shutdown of the economy. Shrinking markets, no real growth in the economy, uncertainty, restricted lending, high unemployment, economic problems in Europe, national debt, and a severe downturn in the traditional business sectors that have, in the past, driven our economic prosperity, have all caused a severe drought in the availability and free flow of funds throughout the economy. When combined with the need of government to receive revenue, and in turn use that revenue to stimulate activity, we face a difficult and challenging environment.

In the past, the ability and willingness of government to provide this economic “spark” was all that was needed to jump start an economy in this condition. Without that ability, government is left searching for that jump start without further exacerbating an already tenuous situation. History tells us that the business sector, alone or as the “lead” in this effort, is not a realistic possibility. With a current unemployment rate in the 8.0% – 8.6 % range, the private sector cannot support the hiring of additional workers to reduce that rate to an acceptable level. Not even a relaxation of regulations by government or the reduction of business taxes can provide this sector with the ability to turn the tide. What is the one simple reason? It takes consumers – the buying public – to create the demand that leads to business expansion. The current level of unemployment in the U.S., the disastrous conditions in Europe and the inevitable slowing of the economies of stronger countries like China and India – in total – do not support the type of consumer spending environment needed to generate and sustain U.S. business expansion.

In addition, we know that this unemployment rate does not accurately capture those unemployed individuals who would like to be employed but, did not file an unemployment claim in the last 30 days. That number is more likely in the 15% -17% range. The principles of free enterprise strongly encourage the drive for profits but, they also encourage survival – not an altruistic desire to help the overall economy. Business expansion, automation upgrades, even new product development is curtailed… if not completely placed on indefinite hold. In this environment, businesses instinctively wait, reduce to minimum effort to survive, and essentially conserve cash in order to hold out until the economy improves. Consequently, the wait is still for government to take the lead.

As it turns out, the business sector is finding that it actually has the ability to operate with a smaller labor force because automation upgrades do reduce the need for humans. Thus, businesses are not realizing a dire need to increase staff sizes – and the associated costs.

Exacerbating the problem are the spending habits of individuals and families in this environment, which is very similar to businesses. Given the economic climate, currently employed individuals and families retreat as well. The same uncertainty and fear that businesses and investors possess are held by these individuals – further reducing the amount of money flowing through the economy. They just do not spend, because they are fearful that they might need it tomorrow. They see the foreclosures in their neighborhoods, they see the market indicators dropping, they read the news about the conditions in Europe, and they stop spending freely.

Ignoring the approximately 22-24 million “real” unemployed worker population, or the true affect on our economy as result of the European economic condition is unproductive and unrealistic. The unemployment rate of 8.0% – 8.6% is both unrealistic in its true reflection of those out of work and it is misleading because, even with some adjustment, it does not reflect the seasonal employment surge from the holiday season – and this will bear out to be true as we see the future jobs figures in March, April, and beyond. At the very best, job growth is not at a volume or pace that will turn the economy around in the short term – which should be the only realistic goal. Likewise, decoupling is not feasible. Every M.B.A. student since the 1970’s understands that we have been a world economy for decades and that cannot change quickly. Even China will begin to show signs of weakness in the face of a globally weak economy. Even if it were possible, the U.S. economy, perhaps combined with China and India, cannot support the sustainment or growth of U.S. businesses. We comprise somewhere in the neighborhood of one fifth of the world’s consumer spending, therefore, our ability and willingness to spend must be present for the U.S. economy, and the world’s economy, to rebound. We are truly the world leader.

The question becomes, where does government find the resources to provide this leadership? This white paper provides a potential solution. The premise of this solution is partially built on the resources that the government currently has in abundance – the federal government workforce and the policy tools it has at its disposal. It is also built on the belief that a compromise can be reached politically, if each party can present a plan to their constituencies that reflect an equal sacrifice for all – and not a perceived contribution of one over the other. This political compromise will allow both parties to sell this solution without damaging their position – which is the basis of the current partisan disagreement. Shared pain is acceptable – selective pain will not sell. And finally, it is built on the unemployed, potential workforce – and what we know about that population.

 

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