Small Markets Key to Recovery

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[For complete article reference links, please see source at Dissident Voice here.]
 
The reason Congress is about to pass such a terribly flawed health care bill is that the Congressional Budget Office estimates that it will reduce federal health care costs by forcing millions of uninsured people into the private insurance system, cutting back on Medicare, and imposing a five percent tax surcharge on the wealthy.

So what is the economic engine that will keep the economy on track? Pearlstein dismisses all four of the most likely possibilities.

He says that consumer spending, with unemployment staying high, will not come back, writing, “It’s hard to see how American consumers can again become the engines of the U.S. or global economies.”

On more government spending, he says, “that’s also hard to imagine. State and local governments, in fact, are still cutting back spending in response to falling tax revenue, and there’s no political consensus for running up bigger federal deficits than we are running now.”

Another possible source of growth is new investment, but the economy is already built to overcapacity in many sectors, “including excess hotel rooms, airplanes, office buildings, shopping malls, cargo ships, aluminum smelters and the like.” Regarding another housing boom, forget it. Pearlstein writes, “…with 5 million vacant apartments and another wave of home foreclosures on the horizon, don’t count on the housing sector to lead the way out of this recession.”

Finally, there is trade. But even though the U.S. trade deficit has come down, its persistence “reflects a fundamental reality not likely to change anytime soon: We no longer produce much of what we like to consume, and cannot make up the difference with exports because of trade barriers and an overvalued currency.”

So what is left?

Here Pearlstein returns to a focus on investment by noting that American consumers have started to save again and that during the downturn businesses saved money by living with aging production equipment, physical plant, and computer systems. He comes out in favor of tax breaks for business to encourage investment, along with new government expenditures for infrastructure such as “basic research, clean-energy development and expanded public higher education.” These things, he says, will create new jobs which in turn should lead to more consumer purchasing power.

The trouble is, Pearlstein already dismissed the investment and public expenditure alternatives earlier in his analysis as being insufficient. More government debt could also lead to high levels of inflation and further devaluation of the dollar. Inflation caused by government and central bank “printing of money” kills enterprise at every level.

Pearlstein fails even to mention the severe constriction of bank lending to businesses that has made conditions much worse for the small business sector where half of all start-ups already fail within a year. Business giants can take refuge in their cash reserves, but even they cannot grow if consumers can’t buy more of their products.

Pearlstein’s prescriptions are mainly platitudes. Let’s be frank: without small business and the revitalization of local and regional economies, a real recovery cannot take place, and an unemployment rate that has terrorized the middle class with loss of jobs, incomes, savings, and health care cannot be overcome.

What is the answer then? It’s one that Pearlstein and the Washington Post, being in the mainstream of economic commentary, dare not mention: it’s local currency systems that alone can fill the gap left by the collapse of public finance due to debt and the failure of the banking system to function at all levels of the economy and not just for the benefit of the super-rich global capitalists.

If the federal government announced that it would begin to accept local currencies in payment of taxes, and state and local governments did the same, we would see an economic miracle that would astound the world.  
 
 
Richard C. Cook is the author of We Hold These Truths: The Hope of Monetary Reform, scheduled to appear by September 2007. A retired federal analyst, his career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department. He is also author of Challenger Revealed: An Insider’s Account of How the Reagan AdministrationCaused the Greatest Tragedy of the Space Age. Read other articles by Richard, or visit Richard's website.
 
 

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