What We Know, and what We need to know

We might be in a Watershed economic model at the present time. Economic Thought since the Reagan Era has always imagined that the Key to high economic performance was low Prices for Consumer Goods. Keep the Production line bare of people, but pay them well, and derive your Profits from the Sale of high levels of Product. There was little attention paid to the creation of Consumer Demand, assuming that expanding Markets would achieve the high Sales volume necessary. Economic and Business leadership relied on the basic assumption that the Cash would always be out there, because of the creation of loose Consumer Credit. Few considered the real Problem of Consumer repayment of that Credit, or the expansion of the Debt once it reached stretched limits. A relationship between the Credit Crisis and high Prices exists, though there has been little effort to understand the exact nature of the connection.

The onset of higher Resource prices has brought a crisis to the matrix, and the leadership thinks to counteract the Problem with great injection of funds into development of Production technology. I fear that the measures will fail, because All try to extort even higher Prices from Consumers, who cannot pay. What is the value of medical advances, if only a shrinking segment of people can afford such medical treatment? What is the advantage of a fuel-efficient vehicle which can make 100mpg, if that vehicle costs as much as a small house? Where is the advantage of a Central Air unit for your house that will lower your Expenses by 50%, if it costs equivalent to a Second Car? How beneficial is an electrical Power plant which can produce sufficient power for an entire region over the next Century, if your Electric rates quadruple? There is a Cost constraint which must be realized and set, before much of the new innovation takes place, a position which responsible Economists must carve out.

This Post by James Hamilton fits into my overall argument, though one would be hard pressed to define what it is. Study the graphs which express malaise in the economy cannot be limited to simple definition of Recessions. Long-term economic trends bring more information that Crisis numbers. My Solution for the Economy: Outlaw Curbside Parking in major Cities, doubling the number of traffic lanes, providing a boom to the Towing industry while raising City revenues through Fines, cutting traffic into the City by an estimated 20%; the Whole probably giving the Vehicle mpg rating a 3-4% boost as Gas travels to $5/gallon. Am I serious? Only if you are a Environmental freak. lgl