Thursday, April 30, 2009

The Dark Side clouds the Sight

It is nice to know that some things really never change, and Brad DeLong still thinks I belong to an unbalanced and fringe element, even if not strictly an Economist in real terms. He himself belongs to a minority of individuals who have previously worked for Government, who still has faith in Government activity. This Recession, first of all, came about because Participants in the system lost faith in the values of economic production; i.e., they realized that the Pricing system of the economy was badly skewed with marked difference between the real value and nominal values in monetary terms. Consumers, as consequence, curtailed their purchase behavior, while attempting exit from previous contractual agreements (getting out of the terms of mortgages etc.). The Government, of which Brad is the advocate, thinks the Solution is to pump funds into the economy, which can only further widen the distance between real and nominal values in the economy, as well generate further confusion in Participants as to the reliability of Investment procedures.

The Government, and the Economists who are backing it’s policies, fail to realize that they are instituting policies already proven a failure by 1937. Government expenditures relate poorly to labor intensity, probably of lower intensity than normal Private Sector activities. Government pumping funds into the economy distort Production Costs far faster than these funds generate higher expenditure patterns (I would suggest 2.8:1 in Production Costs velocity over normal Retail Consumption). If this later data is fact, then Government supply of funds is an absolute disaster for Small Business. The Monetarists have yet to understand that any distribution of new funds must be handled so that the right hands get the Cash. Giving awards of billions of dollars to organizations worth billions of dollars actually does little, even to the degree of keeping them from Bankruptcy. Giving Aid to Small Business would not only save Thousands of businesses, but markedly raise the expenditure pattern of Small Businesses’ families, and also achieve much higher Hiring than could be realized by the amounts given to mega-corporations.

But what do I know? I am just a man trying to keep his head above Water, when the funds coming in remain the same, but Retail prices zoom into the Ozone. The real trouble is not mine, though, but the millions of people exactly like me. They need a high-paying Second or Third Job, and the time to work at another Job. They will get neither, or any help from the Government. The economy will remain in the doldrums until the Consumers get an equivalent to that additional Job, and Business getting rid of the high-paid Jobs will not assist the effort. I do not say that Times will get worse–they have bottomed fairly well at the current level; I am saying that things will not likely improve any time soon, and it will take even longer if the Monetarists do not stop injecting funds into an economy which will not grow. lgl

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