newjerseynewsroom.com

BY ROY NERSESIAN

STRAIGHT TALK

I would like to ask our readers a question: why is it that Germany, Japan, China, Brazil and other nations are economic dynamos and we’re sinking out of sight? Germany has significantly higher labor costs and Japan’s is roughly comparable to ours. Both nations must import all their energy whereas we just have to import two-thirds of our oil. China and Brazil were in the economic backwaters not that long ago and are now or are becoming economic powerhouses. Yet we barely cling to what we have. Why is that?

The answer can be readily seen in our attempts to get the economy going. The arrows in the government quiver are purely fiscal and monetary stimuli, and that’s the problem. We fret over interest rates as an impediment to growth, so we lowered them to essentially zero and nothing happens other than retired folk having no return on their savings. To get something, they’ve converted their savings to stock holdings and have recently taken a bath for doing so. The nation’s banks may be flooded with government cash, but the critical element is not cash, it’s loans made to support business to create jobs. Nada here because there’s no reason for business to seek loans, and if they do, credit requirements are a real impediment to signing loan documents. Ben Bernanke at his recent Jackson Hole speech said that he’ll keep interest rates low, but don’t look forward to QE3.

We need QE3 as much as an unconscious drug addict lying face down in a sewer needs another fix. Bernanke also shifted any responsibility for creating jobs from the Federal Reserve to Congress, and rightly so; the Federal Reserve was not set up to run the economy. Considering how the Fed handled the financial crisis by throwing trillions at deadbeat U.S. banks that should have been split into actual functioning entities while preserving the positions and bonuses of those most responsible for bringing this nation and the world to its financial knees, and in throwing trillions at foreign banks and Goldman Sachs whose employees, as Fed Reserve officials, did the throwing, Bernanke is right in limiting the potential damage he can do to the economy.

Let’s see what other arrows are in the quiver of government action. Oh yes, government spending. There are only two options: increase or decrease government spending. Let’s take the one that’ll never happen – decreasing government spending. I was standing in a grocery line watching an individual cashing in on $300 worth of foodstamps – actually it’s all computerized – the individual just swiped a card and, voilà, the food bill was cut by $300. Anyway, would this individual vote for anyone who threatened to reduce the foodstamps program? Let’s waste some time and ponder this for a while. Okay, that’s enough wasted time. Anyone on foodstamps, social security, Medicare, Medicaid, unemployment benefits, agricultural and industrial subsidies, and G_d knows what else will not vote for anyone running for office on the basis of cutting government expenditures – forget about balancing the budget. Even Tea Partiers over 62 years do not want to cut social security, Medicare and Medicaid. I wonder why.

Consider cutting the military budget – what does this do for GDP when tens of thousands of defense related workers are deprived of their high paying jobs. Let’s see if we can guess. Spending drops as tens of thousands of salaries are eliminated. GDP weakens. Government revenue falls as these workers stop paying income taxes and expenditures rise as they go on unemployment. This increases the deficit calling for more cuts to close either a (1) gaping or (2) a yawning fiscal hole. Both UK and Greece have recently cut entitlements to deal with their growing and uncontrollable deficits. What has been the result? A falling GDP and rising social unrest – hardly a prescription for curing our problems.

We are now left with only one arrow in the quiver: increasing government spending as a means of getting us out of our job hole. We have had excess government spending (read deficits) since Reagan. Only Clinton gave us 1 or 2 years of a balanced budget – the rest were prolific spendthrifts (not sorry if I’m offending anyone). Having reduced this nation to a point of economic collapse, the spendthrifts are out there recommending that we create a defense system to protect us from alien invasion – I joke not – a popular economist advocates spend, spend, spend and it doesn’t matter how it’s spent. The mantra is, “ALL DEBT IS GOOD DEBT.” This is the same as curing a person on drugs by increasing the dosage and this may well be true if death is considered a cure.

Going back to the question, why is it that Germany, Japan, China, Brazil and other nations are economic dynamos and we’re sinking out of sight? These nations have governments dedicated to the pursuit of economic development and growth in economic activity. They recognize the role of business in producing goods and services that create jobs. They establish pro-business government policies. They neither overtax nor over-regulate. Yes, these nations have problems, but they have trillions of dollar reserves to draw on to get them through tough times.

We have no such reserves other than printing trillions of dollars. Our government is populated with individuals who are ideologically incapable of helping business. Business is to be taxed as a means of social justice – spread the money around so everyone benefits. Business is to be regulated because businessmen are intrinsically untrustworthy, if not downright evil. If a ten-year-old lemonade stand entrepreneur and her friends violate a municipal regulation, shut it down and throw the perpetrators in jail!