When I was growing up in the Bronx, I didn’t know much about starting campfires.
I learned how to do that at summer camp, where there were a lot more trees, broken limbs and available wood than in the concrete and asphalt neighborhood I lived in.
For those city kids who didn’t go to camp or join the Boy Scouts: You take small, thin pieces of kindling wood and light them. Then you hope the bigger chunks of wood stacked above the kindling eventually catch fire.
Essentially, that’s how an economic stimulus during a recession is supposed to work. The federal government is supposed to create demand since businesses and consumers are not spending. The government is providing the kindling.
Only in this economic mess – given the triple whammy of financial, foreclosure and jobs crises – the wood above the kindling has been too damp to catch fire. Businesses and consumers are paying down debt and unwilling to spend excess cash. That might be the right strategy for them individually, but it means demand will remain weak. And unemployment will remain strong.
What should we do?
There are two choices. The first is to wait for the sun to bake the bigger pieces of wood so they can catch fire. All business cycles eventually end and then start anew. That’s how capitalism works. The private sector – businesses and consumers – will come to the rescue over time.
Many believe that day will come sooner if the government stays out of the way. What’s more, they add, the government’s deficit already is out of control. That means the supply of kindling is dwindling. The more we use now, the less left for our children.
About half the country supports the above approach, according to polls. I’m going to go out on a limb (not really) and say the majority of Georgians do. Certainly, the overwhelming majority of those who comment on the Biz Beat blog are fed up with government.
The second option is for the government to add significantly more kindling, sometime after the November election when it might be more doable.
The first round of stimulus – about $800 billion spread over two years, including tax cuts and credits – was not enough to do the job in a $14 trillion economy. Much of the money went to state and local governments to forestall layoffs. But all that did was continue the status quo – instead of adding new jobs in a struggling economy.
The argument for another stimulus is to reduce the pain being inflicted on real people. Half of the unemployed in Georgia have been without work for at least 27 weeks. I get e-mails and calls from people who cannot find jobs, no matter how hard they try – including from a man who had worked all his life after three tours of duty during the Vietnam War.
Unemployment in Georgia and metro Atlanta is in double digits – even though the recession began 31 months ago. And 31 months from now, the jobless rate will still be over 7 percent, according to Fed Chairman Ben Bernanke.
We’re the richest country in the world. We’re pretty smart and inventive when we want to be, too. We will be able to solve the deficit problem over the long haul.
We need more kindling.
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