Saturday, December 13, 2008
Spending more to fix the economy?
One one hand, we get called names for using too much credit, and that killed our economy. On the other hand, we are supposed to spend more to support the economy because we do not spend enough and that kills the economy.
It does not make sense. Ah, wait a minute! The US Gross Domestic Product is about 14 trillion dollars a year, about the same as the European Union and twice as much as China. But most of it is made of services (79% compared to 19.8 for industry and 1.2 for agriculture). What is services? Everything not included in the two other categories: transport, health care, finance, retailers, etc). It means that over three quarters of the economy is built on our capacity to spend: buy or rent houses, dresses and books and go to the movies and end up in a restaurant. It has been decades now that businesses look for more stuff to put in our hands, from hoola hoops to cell phones. They calculate a shorter and shorter lifetime for everything we buy to force us to buy the same thing again, be it a house, a computer, a car or a refrigerator. then of course we need credit to buy the stuff. And businesses outsource and import to make more profit. So our industrial capacity disappears.
Unhappily, the more unemployed and poor retirees like me, the less we spend and the economy shrinks. This US economy: the one that is more built on spending than on building.
So the real solution is not for the government to throw a trillion dollars around, it should be to get more industry in the US. Let us get back to a 30% industry and agriculture: that is the real wealth of a country. Working and creating before spending.