Google Analytics

Monday, July 11, 2011

Depressing News!

The President just outlined his position on the debt, the deficit and the economy.  It is just an inescapable fact that he does not understand how the economy of the U.S. works.  But even worse than that is the fact that he doesn't seem able to learn from mistakes, his own and George Bush's.  Three times, in the last three years, the government has done some kind of tax rebate or direct payment to households.  Each time the rationale was that consumers (you and me) would spend the money so the economy would start growing again.

But what we did was to save the money because times are so uncertain, or to pay down our debts.  In the past 10 quarters, U.S. consumers have paid down their debt by $1 Trillion!  And there is still a long way to go.  From 1970 to 2000, household debt came to 75% of household income.  Today, it is still 115% of household income.

The fact that this behavior should be surprising to anyone is amazing.  In economic theory, it is called the Savings Paradox and you can find a simple explanation in The Great Recession Conspiracy.

But how anyone with any responsibility could claim that tax reductions or direct payments create new jobs is absolutely beyond me.

No comments: