Quantitative easing has not worked. Pumping liquidity into banks has met the contradiction of tightened lending qualifications, tightened in order to prevent over leveraging. We have sunk too far and can't afford to open the spigots wider without recreating the same over leveraging problems that created the Great Recession.
Hedge funds are off playing their games with proprietary trading markets, casinos dressed up to look like investment houses, while the country teeters on the edge of socioeconomic collapse. They play with economic blasting caps in a barn full of tender and nitroglycerin, not being quite happy yet with having blown up just the main house. The Great Recession might be over when it becomes the Great Depression II.
There is plenty of political blame to go around. Much needs to be done to re-reform the freshly deregulated financial system that took a scant ten years to bring us all to our financial knees. High finance seems to care not that the golden goose of America, its middle class, is all but gone. They care not that the higher profits of the next quarter will, one day soon, cease. It seems as if the less prosperous we become as a nation, the more important it is to focus on short term profits.
Now everyone in politics fixates on the tax burden and the deficit. Our taxes are the lowest they have been since 1957. No one talks about the profit burden. What is the difference between money tithed by government and money tithed by quarter after quarter of the need to increase profits? Consider that government is a philosophical thing. In terms of spending, it is discretionary at every level. Business has no discretion as to its goal, profit. It can't cut back, it can't wait until things get better, its sole imperative being to grow profits until there is no source left from which to profit. Government may levy you, but unbridled capitalism is determined, by its design, to take everything you have. Business, not government, is the entity that is designed to be insatiable.
As strange as it may seem, business is unable to care if the actions they take will destroy their business in the long haul. The current crop of Harvard MBAs has been honed to care about one thing, quarterly profits. It is a blight on the nation and will eventually destroy the very entities that reap the current profits, as the health care industry is in the last stages of doing right now. Consider that their customer base is shrinking in order to maintain quarterly profits. The conclusion is foregone.
Keynesian economics settles that in an economic downturn the government is the customer of last resort. When it is particularly tough, it must even be the lender and employer of last resort. Unfortunately, all this is predicated on the assumption that business will align to the goal of rebuilding the economy, forego profiteering and allow the direction of the economy to turn. No such environment can be conceived of today. Finance executives stuffed the TARP money directly into their pockets.
Meanwhile the world is awash in capital. The money supply measures M2 and M3 (if M3 were still reported) are at record levels compared to M1. M2 and M3 are measures of wealth, over and above M1, the money that must change hands in order for the economy to run. Instead of being invested in production or research, adding to the economy, M2 and M3 funds are increasingly off chasing Hedge Fund funny money in hopes of hedging bets on commodities and currencies. This record wealth is not only fallow in terms of the economy, it is actually destructive, driving wild swings in everything from housing to oil. Its affect on the public is moderated only somewhat by the fact that food related futures trading is regulated.
Some of that fallow money needs to become reacquainted with the actual economy in order for a recovery to happen. The rate at which money is being sequestered out of the economy into personal and institutional wealth needs to be reversed, and managed in the future. There is a lesson here that we cannot ignore. Too much concentrated wealth is not only useless, but is destructive.
The private sector will no longer create jobs in the scale that Americans need jobs to be created. America's predominant business model, short term profits above all else, kills that solution in the crib. To reiterate the obvious, no one will invest if there is no market to justify the investment. So we have a stand off between the businesses and the jobless. Business won't move first and the jobless paycheck to paycheck poor can only wait.
Entrepreneurism is a dead horse and a political stun gun. The logarithmic technical advances of revolutionary scale of the last century are behind us. Before us is a vast landscape of much harder problems to solve, more incremental, and so, much less likely to drive economic prosperity. Unless vastly more communicable fundamental education techniques precede it, technology is basically stuck at a theoretical limit of what one man can learn in a lifetime under the current regimens. So, there is a an upper limit on what technology can be counted on to do for an economy. We are, if anything, at a plateau, unless you think, for instance, that the iPhone is somehow more revolutionary than was the personal computer.
Think I'm kidding. In the first half of the last century we saw skyscrapers, radio, the automobile, the airplane, TV, rocketry, nuclear energy, antibiotics, computers and semiconductors, things that profoundly changed the economies of the world. In the second half we saw improvements on these concepts. And the tradeoff between job creation and job destruction from technological progress became ever narrower. To depend on entrepreneurs to power the economy is whistling past the grave yard.
An intervention is needed to break the standoff between employers and the economy. Money in the hands of the working public, the economic prime mover, will entice investment that adds value to the economic system, putting some of that fallow wealth to work for us instead of against us. The obvious solution is to raise taxes on the wealthy, both income taxes and an excise tax of some sort on great wealth. But thirty years of deceptive economic ideology in the Chicago School has precluded that as a political option. Public support of the supply side ideology lags the complete reversals of opinion on supply side by economists as notable as the former Fed chief, Alan Greenspan.
We can't rely on inventing our way out of this, can't raise taxes now to buy our way out of this, and we can't borrow our way out without raising taxes later at even greater expense. You may have noticed.
Many things can be helpful in working our way out of this Great Recession and improving the prospects of Americans going forward. Fair trade, green technology, financial re-regulation, health care reform, fair labor practices, closing of tax loopholes and increased investments in education will all make a difference, can they be done.
I'll now suggest one more solution. Businesses, from high finance to franchisers to neighborhood painting contractors, need to act as if they live here and are invested in our future, act as if it is not someone else's problem. Examine how the proposition that if your employees saved more and spent less then you would be better off. Think about how government that is too small and ineffective to matter can make a difference when Wall Street gives your business to China. Try and imagine how a decent man can compete with unprosecuted exploiters of child labor in a global economy. Consider how currency manipulation and profit taking erodes your Roth IRA. Or are these things about which you simply do not care?
Most on the political left have concluded that you, business, have no conscience, no sense of decency, no allegiance to the actual Constitution. I submit to you that if they are right, you will not survive in any way with which you are now comfortable, and neither will the Constitution. It is, at some level, a voluntary thing, this democracy. We can make it work or not. The oppression of a people can come equally from an authoritarian political left or an authoritarian political right. The question is, can these extremes resolve to spare the Union.