THE BLOG
07/12/2010 05:19 pm ET Updated May 25, 2011

The Fed And Congress Are Helpless; Can The Private Sector Save The Economy?

The Federal government has thrown everything that the GOP and Blue Dogs in U.S. Senate will allow it to throw at economic stimulus. The Federal Reserve has been printing money like there's no tomorrow since 2001. First to fuel the jobless expansion of Bush and now to try and spark a recovery back to just the same level of joblessness. Coming out of a decade of wage deflation and price stagnation, with the Senate gridlocked and the Fed maxed out, you have to ask, what else can be done?

Out of the $40 trillion held by rich people, there's $10 trillion lingering around the edges of the global financial world, unable to commit to financial stewardship from the global financial elite. The financial elite bemoan the lack enthusiasm by investors for their products. Main street bemoans the lack of enthusiasm by investors for doing anything useful.

Why, if the rich are richer than at any time since 1929 and the Wall Street gurus are smarter than at any time since 1929, can't any of that money find its way back into the economy?

The answer is, of course, the actual economy is a "bad" investment. When no one is working, no one can buy anything. The classic investment is made to grow capacity, or bring new product to market growing capacity in another sense. When the economy is in decline, there is no reason to grow capacity. There is no return on the investment, not until the economy recovers. You'd think business would be keen on helping the economy recover instead of sitting on their hands, their cash, and waiting for somebody else to handle it.

All of $40 trillion is off anywhere from hedge fund casinos or languishing in banks that won't lend. When banks do lend, the terms are astonishing, given the cost of money to them, because their solvency and share price are now of more concern to them than doing business. The cost of money has never been lower to banks, evidence in itself of how much of it is languishing, but the public or small business has become a risk rather than a customer.

With the government and Fed unable to right the boat, how will it be righted? You can argue that it's not the government's job. Business will find ways to make money and it will all work out in the end. Deregulate and let the market do its magic. The only problem with that is that the current state of the economy is due to doing just that. Something must change in order for things to improve and the business class is quite silent on what that might be, other than to keep deregulating.

All deregulation and tax cuts have accomplished is to concentrate wealth more and more. That is the exact formula for creating the economy we are now not enjoying. It takes money out of the economy and sends it chasing whatever returns it can get from hedged speculation, or it just sits on the sideline. All that idle, lazy if you will, wealth exacerbates both booms and busts and distorts commodity prices to the detriment of the public, small business, big business, and the nation.

Business, and the wealthy, must take a sober look at the track on which they are running. Black Swans do occur. Impossible combinations of events, like BP is experiencing in the Gulf, happen. Just because you've never been in a hurricane does not mean there are no hurricanes. Investments can be wiped out. The best diversification is to invest so that the economy will produce an income stream to power your investments. Ever greater dependence on financial exotica for returns will eventually break you if the underlying economy will not support the businesses in which returns are rooted.

It should be obvious that in order for Americans to maintain the standard of living on which business depends for revenues, that the government has inflated the money supply to keep the cash flowing into business coffers. The labor, business deregulation and tax policy heading of the last thirty years has created a fundamental deflationary pressures on the economy. The Fed inflated like crazy during the Bush years to keep it running, and that failed because easy credit was not enough to fend off deflation. All the while that housing was inflating, deflationary pressures eroded the foundation of those gains, enough so that it collapsed. All the wage/benefit increases of the public were consumed by increases in key commodities and services, oil, health care and higher education. We have not built any industrial or service capacity in a decade because the economy has not been growing. It has not been growing because people, simply, have less disposable income than they did a decade ago.

It is well past time to change course. It is critical to change course. More money must be gotten into the hands of consumers, at least enough to maintain their current standard of living, or the economy will continue to decline. All the young Republicans take note that it will be harder and harder for you to get rich following Reaganesque Republican economic policy.

In order to change the direction of the economy away from the prophesied double dip, and worse, the rules need to change. As resentment of government interference has created the political climate that resists government doing anything about the economy, it is incumbent on the forces that created that resistance to do something themselves. You have got it your way business, so what will you do to save yourselves, save your economy?

Cutting Social Security and Medicare/Medicaid is economically neutral. So are cutting OSHA and all the other things you find annoying, because the acts of government do not change the amount of money in the economy, they just channel it. Taxes are economically neutral, cutting them will not gain you a dime in revenues. Cutting taxes will let you keep more of your profits, but in this economic climate that removes cash from the economy, making it ever harder to make money. What you need, what you want, is more money in the economy in the hands of your customers. With all the hand-wringing about leaving our grandchildren a huge federal debt, where is the concern about leaving them a nosediving economy?

If every businessman cut the wages of his employees tomorrow it would hurt your business, less money in the economy. If every businessman gave his employees a raise tomorrow it would help your business, more money in the economy. The same applies to firing and hiring. We, as individuals, may understand that if everyone hires and gives raises or fires and cuts wages, then the economy will swim or sink respectively. We just don't seem to be able to understand it as a society. Group-think at its destructive worst is everyone doing exactly the wrong thing for the group while it seems to be right for the individual.

What you need to do to save yourself is hire or give raises instead of continuing to cut and retrench, unless you would rather see this economic track run to its end in inevitable ruin. Don't want the government in your business, then show some governance yourself. Do unto the country as you would have it do unto you.

If there were a congress of businessmen, what would their solutions be? Group-think? So far, the U.S. Chamber of Commerce is promoting group-think, economically destructive policies. The GOP, traditionally the advocate of business, is hobbled by commitments to the ultra rich and to the Fortune 500. Anyone smaller than that is frozen out of government more than are illegal immigrants. Is it time to start thinking and advocating for yourselves instead of just trusting the agenda of the ultra powerful to be aligned with yours?

A congress of businessmen might be able to offer a solution for the economy that no one in government can. They might be able to form a compact to save the economy as only they can in the long run, by hiring. If everyone fires at the same time, the economy shrinks. If everyone hires at the same time, the economy grows, all in a matter of a couple of pay cycles. You may not be able to afford a lobbyist, but you can afford to talk to the owner of the doughnut shop. You are all in the same swamped boat.

Congress of businessmen, you could do that, it's in your power, locally, regionally, nationally, to jump start the economy by employing. If enough of you will coordinate in good faith, the downside is eliminated. The economy is not magical, what goes into it determines what comes out of it. So will you just sit there and wait for someone else to fix it? If not you, who?